Anti-corruption compliance programs of multinational companies – and, specifically, policies relating to the selection and monitoring of third parties – have found an unlikely arbiter in Russia. Following a similar decision in 2011, in two recent cases the Russian Federal Antimonopoly Service (“FAS”) and the commercial courts to which the FAS’s decisions were appealed have undertaken a detailed analysis under Russian anti-corruption and antitrust laws of distributor selection policies of two multinational pharmaceutical companies. Also in this issue: 14 Brazil Issues LongAwaited Decree Implementing the Clean Company Act 23 U.K. Financial Conduct Authority Fines and Bans Two for LIBOR-Related Misconducts Click here for an index of all FCPA Update articles If there are additional individuals within your organization who would like to receive FCPA Update, please email firstname.lastname@example.org or email@example.com. FCPA Update 1 March 2015 Volume 6 Number 8 Continued on page 2 www.debevoise.com FCPA Update 2 March 2015 Volume 6 Number 8 The decisions generally increase the risk that these policies could be deemed to violate Russian law. When carefully considered, however, they also provide guidance as to how companies can mitigate that risk by making targeted, Russia-specific changes to global anti-corruption compliance procedures. This article sets forth the cases at issue and then lists steps that companies operating in Russia may consider taking in their wake. I. The Novo Nordisk Case As we have previously noted,1 in January 2011 the FAS held that OOO Novo Nordisk (“NN”), the Russian subsidiary of the Danish global pharmaceutical company, was a dominant entity and violated the Law on the Protection of Competition (“Russian Competition Law”)2 by improperly refusing to contract with a number of potential distributors.3 Among other things, the FAS faulted NN for promulgating anticorruption compliance policies that were too onerous because compliance with them was not required by Russian law. The FAS also ruled that NN did not clearly articulate the criteria that distributors had to meet, which resulted in NN rendering case-by-case and possibly arbitrary decisions. NN was fined 85 million Rubles (approximately $3 million at the time).4 NN initially appealed the FAS decision to the Moscow Arbitrazh Court, but in July 2011 settled with the FAS, revising its commercial partner policy to list nine apparently exclusive reasons upon which NN may rely to refuse to contract with a distributor.5 The policy did not contain any provisions relating to anti-corruption compliance audits of distributors.6 By December 2014, the FAS and NN were at odds again. In a second round of regulatory action, NN was fined for violating the Russian Competition Law by, among other things, forcing unprofitable and arbitrary conditions on a potential distributor after NN attempted to enforce its anti-corruption compliance policy. Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 1 1. See Bruce E. Yannett, Sean Hecker, Alyona N. Kucher, James B. Amler, Jane Shvets, and Anna V. Maximenko, “Anti-Bribery Compliance in Russia: One Step Forward, Two Steps Back?,” BNA White Collar Crime Report (Oct. 21, 2011). 2. Law on the Protection of Competition, No. 135-FZ (July 26, 2006). 3. See FAS Press Release, “FAS Russia Fined ‘Novo Nordisk’ Over 85 Million Rubles for Unlawfully Evading Contracts for Supplies of Medicines” (Jan. 24, 2011), http://en.fas.gov.ru/news/news_31180.html. For the full text of the Oct. 6, 2010 liability decision, see http://www.fas.gov. ru/solutions/solutions_31980.html?isNaked=1 (Russian); for the full text of the Jan. 20, 2011 damages decision, see http://www.fas.gov.ru/ solutions/solutions_31981.html?isNaked=1 (Russian). 4. Id. 5. See Yannett, et al., note 1, supra. 6. See ‘‘OOO Novo Nordisk’s Policy Regarding Commercial Partners’’ (July 25, 2011) (on file with authors). Continued on page 3 www.debevoise.com FCPA Update 3 March 2015 Volume 6 Number 8 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 2 Continued on page 4 NN’s latest antitrust troubles began in August 2013, when it halted sales of certain medications to one of its distributors, ZAO Severo-Zapad (“SZ”), claiming that SZ violated the anti-corruption clauses of its distributor contract. On September 30, 2013, the FAS issued a warning notice to NN.7 In the notice, the FAS requested, inter alia, that NN exclude from its distributor contracts (i) an anti-corruption audit clause;8 and (ii) a clause allowing NN to refuse performance if it determined that it was “probable” that the distributor violated its obligations (“justifiable nonperformance clause”).9 The FAS did not request that NN remove from its distributor contracts a clause requiring distributors’ compliance with applicable anti-corruption mandates. NN appealed the warning notice to the Moscow Arbitrazh Court, making two principal arguments. First, NN argued that it was allowed to include the two clauses at issue in its distributor contracts pursuant to the July 2011 settlement with the FAS. Second, it argued that the anti-corruption audit clause was not an arbitrary condition because it was in accordance with Russian law, citing two provisions of the Russian Federal Law on Anti-Corruption Practices (“Russian Anti-Corruption Law”):10 • Article 14 of the Russian Anti-Corruption Law, which provides that a company can be held liable for corrupt acts taken by a third party “in the name of or the interests” of the company; and “[T]he court was not persuaded by NN’s argument that the Russian Anti-Corruption Law rendered anti-corruption audit clauses non-arbitrary and legitimate.” 7. Under the Russian Competition Law and FAS procedures, the warning notice is a prerequisite for commencing a case for violating certain provisions of the Competition Law by dominant entities. The FAS can initiate such an action only if the company does not cure the alleged violation within the period provided. 8. Clause 11.3 of the distributor contract between NN and SZ provided that, at NN’s request, SZ must furnish its books and records relating to the contract performance to an independent auditor selected by NN. If the results of the audit revealed violations of anti-corruption laws listed in the contract, SZ would have to pay the costs of the audit. See Moscow Arbitrazh Court Decision, Case No. A40-154847/2013, at 6 (Mar. 25, 2014). 9. Id. 10. Federal Law No. 273-FZ on Anti-Corruption Practices (Dec. 25, 2008). ww.debevoise.com FCPA Update 4 March 2015 Volume 6 Number 8 • Article 13.3, enacted in January 2013, which requires all companies operating in Russia to develop and adopt measures aimed at preventing corruption, including development and introduction of standards and procedures aimed at ensuring compliance.11 On March 25, 2014, the Moscow Arbitrazh Court rejected NN’s positions. With respect to the prior settlement with the FAS, the court found that NN had promised to remove anti-corruption audit clauses from its distributor contracts, but had failed – at least in SZ’s case – to do so.12 Most significantly, the court was not persuaded by NN’s argument that the Russian Anti-Corruption Law rendered anti-corruption audit clauses non-arbitrary and legitimate. The court emphasized that, pursuant to Article 14, a company is liable for unlawful acts of a third party only if those acts are taken “in the name of or in the interests” of the company.13 Under Russian contract law, the court observed, distributor agreements do not create the type of legal relationship that would make the distributor’s actions attributable to the seller. Because SZ’s actions would not be attributable to NN, the latter did not have a non-arbitrary reason, grounded in the Russian Anti-Corruption Law, to force SZ to submit to anti-corruption audits.14 On June 30, 2014, the Ninth Arbitrazh Appellate Court upheld the lower court’s decision, but focused on different aspects of NN’s distributor contracts. Rather than striking the anti-corruption audit clause as arbitrary in principle, the appellate court observed that NN (i) did not specify the anti-corruption laws that would serve as the compliance benchmark in any audit pursuant to the clause; (ii) failed to demonstrate why striking the clause would harm NN; and (iii) did not explain why NN could not demand SZ’s compliance with anti-corruption law without including the anti-corruption audit clause.15 11. See also Paul R. Berger, Dmitri V. Nikiforov, Bruce E. Yannett, Jane Shvets, and Anna V. Maximenko, “Anticorruption Compliance Programs Under Russian Law: Article 13.3 and the FCPA/UKBA Experience,” FCPA Update, Vol. 4, No. 9 (Apr. 2013), http://www.debevoise.com/ insights/publications/2013/04/fcpa-update. 12. See Moscow Arbitrazh Court Decision, note 8, supra, at 8. 13. See Moscow Arbitrazh Court Decision, note 8, supra, at 9. 14. See Moscow Arbitrazh Court Decision, note 8, supra, at 8-10. 15. Ninth Arbitrazh Appellate Court Decision, note 12, supra, at 3. Continued on page 5 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 3 www.debevoise.com FCPA Update 5 March 2015 Volume 6 Number 8 Similarly, the appellate court ruled that the justifiable non-performance clause was vague and arbitrary because it did not include the criteria by which NN would determine that the distributor had “probably violated” its obligations under the contract. The court observed that the vagueness of the clause had the effect of allowing NN to cease performance under the contract at any time and for any reason.16 While its appeal was pending, NN agreed to remove the contract clauses at issue from its distributor agreements, but continued to refuse to execute a new contract with SZ.17 Among other arguments, NN cited its Policy on Commercial Partners, which provided that NN can terminate a distributor if it had received information about possible violations of business ethics by that distributor. NN claimed that SZ had been subject to a government raid and search of its premises.18 The FAS did not credit NN’s arguments, noting that it had requested information from the relevant authorities about any cases against or investigations of SZ, and was told that there were no such cases or investigations.19 Accordingly, on August 25, 2014, the FAS issued a decision against NN, subsequently imposing a 30 million Ruble (approximately $48,000) fine on the company,20 as well as a 20,000 Ruble (approximately $326) fine on NN’s former CEO in her individual capacity.21 16. Id. 17. See FAS Decision, Case No. 1-10-349/00-18-13, at 6 (Aug. 25, 2014), http://solutions.fas.gov.ru/ca/upravlenie-kontrolya-sotsialnoy-sferyi-torgovli/18-36159-14 (Russian; English translation on file with authors). 18. Id. at 8. 19. Id. at 8-9. 20. FAS Fine Decree, Case No. 4-14.31-589/00-18-14 (Dec. 8, 2014), http://solutions.fas.gov.ru/ca/pravovoe-upravlenie/ak-50389-14 (Russian). 21. FAS Fine Decree, Case No. 4-14.31-600/00-18-14 (Dec. 15, 2014), http://solutions.fas.gov.ru/ca/pravovoe-upravlenie/ak-51729-14 (Russian). Continued on page 6 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 4 www.debevoise.com FCPA Update 6 March 2015 Volume 6 Number 8 22. See FAS Press Release, FAS Warned ‘Baxter’ Not to Violate the Antimonopoly Law” (Sept. 24, 2013), http://en.fas.gov.ru/news/news_33220. html. 23. FAS Decision, Case No. 1-10-248/00-18-13, at 2 (Apr. 8, 2014), http://solutions.fas.gov.ru/ca/upravlenie-kontrolya-sotsialnoy-sfery-itorgovli/18-13495-14 (Russian; English translation on file with authors). 24. Id. at 3. 25. FAS Press Release, note 22, supra. 26. See FAS Decision, note 23, supra, at 6-7. II. The Baxter Case NN is not the only pharmaceutical company recently in the FAS’s crosshairs. In 2013, the FAS initiated proceedings against ZAO Baxter Company (“Baxter”), the Russian affiliate of the U.S. pharmaceutical company headquartered in Deerfield, Illinois. Like NN, Baxter was ruled to have held a dominant market position with respect to sales in Russia of certain pharmaceuticals, including Extraneal, a drug used to treat renal failure.22 The FAS proceedings against Baxter stemmed from the company’s refusal to sign a distributor contract with Medical Services Company (“MSC”), following what Baxter claimed to have been MSC’s failure to pass Baxter’s due diligence procedure. In early March 2012, as part of its application to become Baxter’s distributor, MSC filled out Baxter’s due diligence questionnaire and its CEO was interviewed by Baxter’s representatives.23 Two weeks later, Baxter informed MSC that its application was rejected for two principal reasons. First, Baxter claimed, MSC provided “incomplete and inaccurate information in the Application Form and in the subsequent interview.” Second, Baxter stated, the information provided gave “reasonable grounds to believe” that MSC had been involved in “anticompetitive actions” in connection with a public auction.24 In September 2013, days before its warning to NN, the FAS issued a warning notice to Baxter, stating that it could not refuse to contract with MSC because its third-party selection procedure “does not contain clear criteria for the selection and approval of counterparties.”25 After Baxter still refused to contract with MSC, the FAS initiated proceedings against the company for violating the Russian Competition Law. Like NN, Baxter argued that Articles 13.3 and 14 of the Russian Anti-Corruption Law mandated its due diligence procedure and refusal to contract with MSC. Using the same reasoning as the Moscow Arbitrazh Court in the NN case, the FAS found that argument unpersuasive.26 Continued on page 7 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 5 ww.debevoise.com FCPA Update 7 March 2015 Volume 6 Number 8 27. Id. at 8. 28. Id. at 8-12. 29. Id. at 12-17. 30. FAS Fine Decree, Case No. 4-14.31-198/00-18-14 (July 1, 2014), http://solutions.fas.gov.ru/ca/pravovoe-upravlenie/ats-26886-14 (Russian). Having determined that the Russian Anti-Corruption Law did not require Baxter to submit MSC to a due diligence procedure, the FAS noted that Baxter may nevertheless be innocent of an antitrust offense if it selected counterparties using transparent, concrete, and nondiscriminatory criteria and procedures.27 The FAS went on to perform a detailed analysis of Baxter’s third-party selection process, postponing its consideration of the case to give Baxter an opportunity to provide additional documents. The FAS found that the documents furnished by Baxter did not contain adequate criteria for selection or approval of distributors and thus did not sufficiently demonstrate how and why Baxter decided not to contract with MSC.28 The FAS also conducted an in-depth analysis of Baxter’s allegations regarding the likely anticompetitive and corrupt activities of MSC in prior public tenders. Although the extensive redactions in this section of the publicly available copy of the decision make it difficult to follow, the FAS ultimately found Baxter’s arguments unpersuasive, emphasizing that Baxter did not contemporaneously cite the prior alleged misconduct in its decision not to contract with MSC and did not bring that activity to FAS’s attention until late in the process.29 In July 2014, the FAS assessed a 9.23 million Ruble (approximately $151,000) fine on Baxter for disregarding its warning and continued refusal to contract with MSC, calculated as 1% of Baxter’s 2012 revenues from the sales of Extraneal.30 Baxter appealed, arguing that the FAS exceeded its authority in ruling on Baxter’s anti-corruption compliance measures. In October 2014, the Moscow Arbitrazh Court affirmed the FAS’s analysis, as well as its own reasoning in the March 2014 NN decision. It held that a distributor contract does not create a relationship Continued on page 8 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 6 “The NN and Baxter cases are the first in which Russian regulators or courts closely analyzed Russian Anti-Corruption Law and its requirements with respect to distributors and other third parties.” ww.debevoise.com FCPA Update 8 March 2015 Volume 6 Number 8 31. See Oct. 29, 2014 Moscow Arbitrazh Court Decision, note 13, supra, at 10. 32. Id. at 16. 33. See Ninth Arbitrazh Appellate Court Decision, note 13, supra. 34. See, e.g., Tver District Court, Case No. 2-2459/2014 (Dec. 19, 2014); Murmansk District Court, Case No. 2-4321/2014 (June 23, 2014); District Court of Bazamiy Sizgan, Case No. 2-1099/2014 (May 19, 2014). between the seller and the distributor that could give rise to liability of the former for the corrupt activities of the latter under Russian Anti-Corruption Law.31 The court upheld the FAS decision and reasoning in all other respects, but disagreed with the fine calculation method and reduced Baxter’s penalty to 1.32 million Rubles (approximately $22,000).32 On February 26, 2015, that decision was affirmed in all respects by the Ninth Arbitrazh Appellate Court, which fully endorsed the lower court’s reasoning.33 III. Implications for Multinational Companies Operating in Russia The NN and Baxter cases are the first in which Russian regulators or courts closely analyzed Russian Anti-Corruption Law and its requirements with respect to distributors and other third parties. The detailed nature of the analysis – which is in marked contrast with several recent regional court decisions finding companies guilty of Article 13.3 violations34 – and similarities in the reasoning used in both cases suggest that the decisions are a product of thoughtful deliberation likely to form a foundation for future decisions. As such, multinational companies operating in Russia would be well-advised to pay close attention. Russian Anti-Corruption Law, as interpreted by the FAS and the Arbitrazh courts, clearly demarcates which types of third-party relationships may (and may not) give rise to liability for third-party misconduct. Both the NN and Baxter cases took a formalistic approach to interpreting whether acts of a third party are or can be taken “in the name of or in the interests” of the company. Rather than considering all the facts surrounding the third-party relationship at issue – here, that between a supplier and a distributor – the courts held that, by its contractual nature, a distributor agreement does not create a relationship that would make the distributor’s actions attributable to the seller. That approach is in tension with the consideration of facts often deemed relevant in FCPA liability determinations. Companies subject to the FCPA can be held liable for FCPA violations if other statutory elements are met and company employees know of or purposefully avoid learning of improper payments made by their Continued on page 9 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 7 ww.debevoise.com FCPA Update 9 March 2015 Volume 6 Number 8 35. See Resource Guide to the U.S. Foreign Corrupt Practices Act, at 21-23 (Nov. 14, 2012), www.justice.gov/criminal/fraud/fcpa/guidance/ guide.pdf 36. Under Article 5 of the Russian Competition Law, an entity or a group of entities hold a dominant position in the market for certain goods if they are able to (i) exercise a dominant influence on the general conditions of the circulation of such goods in the market; or (ii) force other entities out of the market; or (iii) impede other entities’ access to the market. Generally speaking, most commercial entities are deemed to have a dominant market position if their share of the market exceeds 50%. The FAS can, however, rule that an entity with less than a 50% market share is nevertheless dominant if, for example, its market share is very stable over time or its market share is large compared to its competitors, or based on other criteria. 37. Under Article 10 of the Russian Competition Law, a dominant market player is generally prohibited from, inter alia, refusing to enter into agreements with third parties on any grounds that are not technologically or economically justified. 38. NN appears to have selected the first option, agreeing to remove the offending contractual clauses from its distributor agreements, though continuing to refuse to contract with SZ. See FAS Decision, note 17, supra, at 6-7. Baxter, on the other hand, has so far has refused to comply. See Ninth Arbitrazh Appellate Court Decision, note 13, supra. 39. As a general rule, company fines range from 1% to 15% of the company’s annual revenues from the sale of goods/services on the relevant market. See Art. 14.31, Russian Code of Administrative Offenses. Individual fines range from 20,000 Rubles to 50,000 Rubles. Id. distributors, agents, or other third parties, regardless of the particular contractual arrangement in place.35 In fact, third-party due diligence and monitoring – including the very steps that NN and Baxter took – have long been staples of corporate compliance policies under both the FCPA and the UK Bribery Act (“UKBA”). The Russian courts’ interpretation of the Russian Anti-Corruption Law should not, in and of itself, prevent companies from implementing global third-party due diligence and monitoring programs in Russia, so long as those companies do not hold a dominant market position for competition purposes.36 For companies that do hold a dominant market position or could be viewed as holding one by the FAS – in particular pharmaceutical companies that may be deemed to have a “dominant position” with respect to particular drugs given the lawful monopolies provided by patents – the NN and Baxter decisions present a serious challenge.37 Companies operating in Russia would therefore be well advised to determine whether they hold a dominant market position on any particular market – or are at a risk of being deemed dominant by the FAS – and to adjust their antitrust and anti-corruption compliance policies accordingly. Under the NN and Baxter decisions, a company with a dominant market position cannot defend the conditions it places on its distributors by appealing to the Russian Anti-Corruption Law requirements. Thus, if the FAS finds those conditions to be arbitrary and economically unjustifiable, that company could find itself with a choice of either (1) complying with Russian Competition Law by removing those conditions, potentially compromising its third-party due diligence and monitoring program; or (2) maintaining its program but facing FAS enforcement actions.38 The latter can result in fines against the company and its employees who are deemed responsible for the antitrust violation, and potentially disqualification of those employees from service in certain positions for up to three years.39 Continued on page 10 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 8 www.debevoise.com FCPA Update 10 March 2015 Volume 6 Number 8 40. See Yannett et al., note 1, supra. 41. See Resource Guide, note 35, supra, at 23-24. 42. Although the most prudent course may be to consider these risks before the FAS comes knocking, the FAS warning procedure, see note 7, supra, gives companies some time to evaluate its options before the FAS initiates a case. As we had previously noted in connection with the 2011 FAS decision against NN,40 the conflict between Russian Competition Law and FCPA/UKBA compliance may lead to a revival of local law defenses under the FCPA/UKBA regimes. The conflict here, however, is more nuanced than a “classic” scenario in which an otherwise corrupt payment is lawful under the written laws or regulations of the foreign country, and the U.S. authorities have signaled that they would construe the local law defense narrowly in these circumstances.41 Accordingly, it seems unlikely that merely citing the NN and Baxter decisions will persuade U.S. enforcement agencies to let companies off the hook when it comes to monitoring their sales channel in Russia. That said, the difficult position in which companies dominant in the relevant product market in Russia may find themselves could be viewed, depending on the facts, as a mitigating factor in cases of alleged anti-bribery liability arising from the actions of third parties. It may even prove exculpatory with respect to allegations that an issuer under the 1934 Securities Exchange Act violated the FCPA’s internal controls provisions, which require only those controls that are “reasonably designed” in light of the circumstances to prevent bribery. The good news is that the NN and Baxter decisions do appear to leave some room for companies to comply with both Russian Competition Law and nonRussian anti-corruption legislation, or at least to minimize risks under both. The key requirement under the Russian Competition Law is that a dominant market player cannot place arbitrary or discriminatory conditions on its distributors. Although simply citing a desire to comply with anti-corruption laws is no longer an acceptable way to justify conditions placed on the distributors, there may be other ways to show that those conditions are reasonable and fair attempts to minimize attendant risks.42 Continued on page 11 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 9 “[C]ompanies are well advised carefully to consider privilege issues in structuring their anti-corruption compliance processes and related documentation.” ww.debevoise.com FCPA Update 11 March 2015 Volume 6 Number 8 43. Ninth Arbitrazh Appellate Court Decision, note 12, supra, at 3. 44. See Ninth Arbitrazh Appellate Court Decision, note 13, supra. 45. Id. at 5-6. 46. FAS Decision, note 23, supra, at 10-11. 47. Id. at 11. 48. FAS Request for Additional Documentation, Case No. 4-14.31-243/00-18-14 (July 21, 2014), http://solutions.fas.gov.ru/ca/upravleniekontrolya-sotsialnoy-sfery-i-torgovli/18-29172-14 (Russian). First, companies should set forth clear, consistent, and well-defined criteria for selecting counterparties and for post-selection monitoring processes. The NN and Baxter decisions indicate that Russian courts will not be satisfied with a general reference to a company’s anti-corruption policies and procedures, and will delve into the details to determine whether they are sufficiently clear and substantiated. For example, the decisions noted that (i) the anti-corruption audit clause in NN’s distributor contracts did not list the specific laws compliance with which would be audited;43 (ii) country-specific regulations contemplated by Baxter’s global anticorruption and due diligence policies were not in place;44 and (iii) the term “red flags” was not defined in Baxter’s policies.45 Second, the Baxter and NN decisions demonstrate the importance of documentation to justify third-party selection and monitoring processes. They signal that Russian courts will not rely on a company’s post-hoc statements and will require very detailed documentation of every step taken by the company with respect to its distributors. In the Baxter case, for example, the FAS requested “documents confirming every stage of the procedures” relating to the decision not to contract with MSC and was not satisfied with Baxter’s explanation that the decision was made in discussions among Baxter’s management.46 As is the case more generally under Russian law, proof that certain actions were taken, and the reasons for them, often has to be in a particular documented form. That focus on documentation may seem technical and formulaic to non-Russian companies but, as these cases show, could affect significantly a company’s ability to defend compliance decisions in the face of a legal challenge in Russia. Third, companies are well advised carefully to consider privilege issues in structuring their anti-corruption compliance processes and related documentation. It appears that at least some of the documentation the FAS requested from Baxter, including the due diligence report on MSC, was not provided as a result of a determination that doing so would waive the U.S. attorney-client privilege.47 Further, FAS’s document request included a demand for copies of correspondence among Baxter’s in-house legal counsel as well as external legal advisers.48 These Continued on page 12 Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 10 ww.debevoise.com FCPA Update 12 March 2015 Volume 6 Number 8 requests indicate that companies should add Russian antitrust compliance to the list of the considerations to be weighed in deciding which material they can and should seek to protect under U.S. law, given that it likely would not be protected under Russian law. Fourth, companies should consider timely reporting evidence of corrupt activities of their distributors or other third parties to Russian authorities. Although doing so may not be advisable in every instance due to a host of considerations, the NN and Baxter decisions make it clear that the courts and the FAS will discount a company’s claim that its refusal to contract had to do with improper activity of the third party if that activity is not reported to or investigated by competent authorities in a timely manner. In the Baxter case, the appellate court emphasized that Baxter did not proactively approach Russian authorities with the evidence of MSC’s alleged improper activities.49 In the NN case, the FAS went so far as to request from the relevant authorities information regarding any investigations against SZ, and was told that no such investigations were under way.50 Finally, companies should also consider ways to minimize potential personal liability of their managers under the Russian Competition Law. As noted above, the FAS initiated cases against the CEOs of both NN and Baxter. The NN CEO was assessed a fine because she was the sole executive decision-maker, pursuant to NN’s Charter, at the time of the antitrust violations.51 In the case against Baxter’s CEO, the FAS requested a list of all individuals involved in the decision not to contract with MSC, suggesting that cases against other Baxter employees were also a possibility.52 Although the fines may be small, the individual managers also face disqualification and reputational risks. Decisions against individual employees, as well as those against companies, are made public, and the FAS has been known to emphasize its fines against individuals at public events. Companies should keep this in mind when structuring the decision-making processes around third-party 49. See Ninth Arbitrazh Appellate Court Decision, note 13, supra, at 6. 50. See FAS Decision, note 17, supra, at 8-9. 51. FAS Fine Decree, note 21, supra. 52. See FAS Request for Additional Documentation, note 48, supra. Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia Continued from page 11 Continued on page 13 ww.debevoise.com FCPA Update 13 March 2015 Volume 6 Number 8 selection and monitoring. *** The NN and Baxter decisions directly apply only to companies that are deemed to hold a dominant market position under the Russian Competition Law, and they ultimately resulted in relatively small fines (in comparison with the fines typically levied by U.S. and certain other regulators). Nevertheless, they provide a rare glimpse into the way Russian courts are likely to evaluate multinational companies’ anti-corruption compliance policies and procedures. When carefully considered, they also provide welcome guidance on the way the companies can craft Russiaspecific policies and actions to reduce their risks of adverse proceedings in Russia without compromising their global anti-corruption efforts.