On July 13, 2010, the Russian Federal Antimonopoly Service (“FAS”), the state agency that enforces Russian antitrust laws, released its draft “Third Antimonopoly Law Package” of amendments (the “Draft Antimonopoly Amendments”). If enacted, the Draft Antimonopoly Amendments would be the third set of major changes since 2006 to the antitrust laws in Russia. The law “On the Protection of Competition,” commonly called the “Antimonopoly Law,” was enacted in October 2006 to replace the prior antitrust laws in Russia and was amended in July 2009 (commonly called the “Second Antimonopoly Law Package” of amendments). Since this set of Draft Antimonopoly Amendments has not passed through any of the required readings in the Russian legislature, they may significantly change before they are enacted into law.

The key provisions in the Draft Antimonopoly Amendments: (1) set out when FAS approval is required for the acquisition of foreign companies which do business with Russia; (2) establish restrictions on FAS’s power to declare that prices on exchanges are monopolistically high; (3) remove agreements or actions within a corporate group from the scope of antimonopoly law; (4) abolish existing FAS notification requirements on financial institutions entering into agreements with other financial institutions or with state authorities; (5) include mergers between financial institutions and commercial (non-financial institution) organizations in the list of transactions subject to the prior approval by or post notification to FAS; (6) expand the audit and inspection powers of FAS; (7) separate and amend the concepts of “agreements restricting competition” and “concerted actions;” and (8) make certain other important amendments to antimonopoly law.

Definition of When FAS Approval Is Required on the Acquisition of Foreign Companies Which Do Business with Russia

The Draft Antimonopoly Amendments define the range of foreign company acquisitions that require a pre-transaction filing and prior approval by FAS within the framework of the Russian Antimonopoly Law. Under the Draft Antimonopoly Amendments, the acquisition of more than 50% percent of voting shares/participation interests in a foreign legal entity or the acquisition of other rights giving control over the business activities of a foreign legal entity will be subject to FAS’s prior approval if a foreign legal entity, which is the acquired party, imports goods into Russia in an amount exceeding RUB 1 billion annually. This threshold will be calculated for the year preceding the date of the relevant transaction.  

Establishment of Restrictions on FAS’s Power to Declare that Prices on Exchanges Are Monopolistically High

Certain provisions of the Draft Antimonopoly Amendments are designed to restrict FAS from declaring that the prices of commodities, shares, or any other assets traded on exchanges are monopolistically high. FAS will be limited in its ability to declare such prices as monopolistically high, and would be required to look at comparable markets to determine whether the price traded on an exchange is fair. It is hoped that this would further encourage listings on exchanges of such commodities, shares or any other assets.

Removal of Agreements or Actions Inside a Corporate Group from the Scope of Antimonopoly Law

The Draft Antimonopoly Amendments preclude FAS from prohibiting intra-group transactions or concerted actions restricting competition among companies belonging to the same “group,” as defined by the Draft Antimonopoly Amendments. It is provided that such intra-group agreements or actions will not be viewed as violating the requirements of the Antimonopoly Law if one of the parties to such agreements or actions has direct or indirect control over the other, or when such parties are under the direct or indirect control of one person. The Draft Antimonopoly Amendments introduce a long-awaited definition of “direct” and “indirect” control:

  • Direct Control – where a legal or natural person can determine the decisions adopted by a legal person, through one or more of the following: (1) the ability to control more than 50% of the total number of votes attributable to shares/participation interests in the charter capital of a legal entity; (2) the ability to determine the conditions of the business activities of a legal entity; or (3) the exercise of the functions of the executive body of a legal entity.  
  • Indirect Control – where a legal or natural person can determine the decisions taken by another legal person through its direct control of a third legal person which has established direct control of that other legal person.  

Abolition of Existing FAS Notification Requirements on Financial Institutions Entering into Agreements with Other Financial Institutions or with State Authorities

The Draft Antimonopoly Amendments provide for the termination of the current obligations of financial institutions to notify FAS of all written agreements which are concluded between: (1) two financial institutions; or (2) a financial institution and either a state executive authority or an executive authority of a constituent of the Russian Federation. Parties to any such agreements would still be able to send a draft to FAS for review if they would like an advisory opinion stating that their agreement does not violate the Antimonopoly Law, as currently permitted under the law.

Inclusion of Mergers Between Financial Institutions and Commercial (Non-Financial Institution) Organizations into the List of Transactions Subject to the Prior Approval by or Post Notification to FAS The list of transactions which must receive prior approval from FAS would be expanded under the Draft Antimonopoly Amendments to include:

  • a merger (Rus. присоединение) of a commercial organization (which is not a financial institution) into a financial institution, if the balance sheet value of such financial institution exceeds the value established by the Russian Government (note that the Russian Government has not yet set such values);  
  • a merger (Rus. присоединение) of a financial institution into a commercial organization (which is not a financial institution), if the balance sheet value of such financial institution exceeds the value established by the Russian Government (in this case, the value will be established by the Russian Government in agreement with the Central Bank of Russia).

The list of transactions that require post-transaction notification to FAS would also be expanded to include other (in all likelihood, lower value) mergers (Rus. присоединение) of a financial institution into a commercial organization (which is not a financial institution), if the latest balance sheet value of such financial institution exceeds the value which will be established by the Russian Government. In such cases, the obligation to notify FAS of the transaction would be imposed on the commercial (non-financial institution) organization.  

Expansion of the Audit and Inspection Powers of FAS

The Draft Antimonopoly Amendments will expand FAS’s authority to conduct antimonopoly audits to include documentary audits as well as on-site audits. These FAS antimonopoly audits will take the form of both scheduled and unscheduled inspections. The Draft Antimonopoly Amendments provide for the expansion of the required grounds for conducting unscheduled inspections, including:  

  • on the special instruction of the Russian president or the Russian government; and  
  • on a detection of signs of a violation of antimonopoly requirements by FAS.  

A number of significant provisions would be added to the procedure for the examination of cases of violations of antimonopoly legislation conducted by FAS. In particular: (1) the list of rights and responsibilities of individuals involved in such cases would be expanded to include the right to record the procedure of the examination of such cases (in writing or using audio recordings, except for cases where information that constitutes secrets protected by law is disclosed); (2) certain mandatory requirements would be established in respect of the form and contents of an application regarding a violation of antimonopoly requirements to be filed with FAS; and (3) the powers of FAS and the procedure for review of such applications would also be expanded.  

Separation of and Amendments to the Concept of “Agreements Restricting Competition” and “Concerted Actions”

The Draft Antimonopoly Amendments distinguish between the concepts of “agreements restricting competition” and “concerted actions” into two different articles with different qualifying criteria (such criteria would not change significantly and this would be a more structural amendment). It also proposes to abolish criminal liability for “concerted actions.”

Other Important Amendments

Other important innovations of the Draft Antimonopoly Amendments include:  

  • amendments to the definition of “coordination of economic activities” so that such coordination would be possible only by a third person not acting in the commodity market in which the coordination is implemented;  
  • a direct clarification that an agency contract is not a “vertical” agreement;  
  • amendments to the list of financial services that require competitive bidding to select financial organizations;  
  • the introduction of a procedure for the review of complaints by FAS of a violation of trade procedures and the procedure for concluding contracts;  
  • changes in the list of documents which must be submitted to FAS in connection with an application for prior approval or a post-transaction notification; and  
  • the introduction of a procedure for the notification of a person being investigated by FAS.

A review of the Draft Antimonopoly Amendments by the Russian Government (at the ministerial level) is planned in the near future.