This information is compiled for foreign companies doing business in Russia.
Russian antitrust legislation establishes strict requirements and restrictions for companies doing business in Russia and affecting competition in Russia. It should be noted that Russian antitrust legislation does not always follow the European or US path, sometimes imposing far more severe restrictions and requirements. In practice, measures aimed at preventing and revealing violations of antitrust legislation are more effective than settling the same issues at the stage of an antitrust dispute.
Foreign companies doing business in Russia often fail to fully comprehend the restrictions of Russian antitrust legislation and the consequences following their violation: adverse effects on a company’s activities, reputations put at risk, and even the company and its officials being held liable for the actions. In addition, the Federal Antitrust Service of Russia (the FAS) has a strong media presence and any breaches it reveals, as well as administrative cases on violation of the antitrust legislation it examines, are broadly covered by the media.
The main antitrust risks a company may face are outlined below:
1. Antitrust audits and dawn-raids
One of the most common mechanisms for antitrust monitoring is a scheduled or unscheduled inspection held by the FAS. When conducting such inspections the FAS is entitled to request any documents and information and to have access to any company data required for checking whether the company complies with antitrust law. In the event of any signs that there is a breach of the antitrust legislation the FAS is entitled to initiate cases and to hold the company and its officials liable. An internal antitrust audit conducted by the company prior to any such inspections would minimize the potential risks and facilitate the process of collecting documents and passing the inspection.
2. Vertical agreements
The Antitrust authority pays special attention to “vertical” agreements, i.e. agreements between a seller and a purchaser. Compliance with the rules of “vertical” agreements is of critical importance in establishing and developing a distribution network in Russia. The Russian antitrust legislation establishes a long list of prohibited agreements and provisions which cannot be incorporated into “vertical” agreements. Franchising agreements are exempt, though they can also be disputed by the FAS. It should be noted that the set criteria are not always transparent and can allow ambiguous interpretation.
Russian legislation prohibits coordination of the economic activities of companies. A company’s actions may be deemed “coordination” if the following conditions are met:
- the company is not in the same group of entities with coordinated companies;
- the company and coordinated entities conduct their activities on different commodity markets.
It should be noted that public announcements and statements made by a company’s officials may also be deemed coordination, not just business agreements or actions. The actions which are deemed permitted under a “vertical” agreement with one contractor may be deemed unlawful coordination within the context of company relations with several contractors.
4. Prohibition of cartels
Market sharing, price-fixing and collective boycotts are not allowed between competing companies. Both the agreement as a whole and any anti-competition provision incorporated in an agreement are deemed to be a breach (cartels). Russian legislation imposes liability for both written and verbal agreements between parties.
5. Companies with a dominant position in the market
Russian antitrust legislation contains very strict requirements for companies holding a dominant position in the market. A company is deemed to hold a dominant position if its market share is more than 50% or, subject to certain conditions, more than 35%. The position of a company with a market share of less than 35% may also be treated as dominant upon economic analysis or due to collective dominance. It should be noted that a company’s position may be deemed dominant not only on the overall Russian market, but also on one or more local markets (e.g. in one or more regions of the Russian Federation or in one or more cities). A company may sometimes be unaware of its dominant position; thus, it is necessary to carefully determine the relevant market, as well as the company’s market share.
6. Unfair competition
Unfair competition is banned in the Russian Federation. As a general rule, companies promote their goods and services through media sources so unfair competitive practices are highly visible for both competitors and for the antitrust authorities.
Marketing and advertising campaigns should be assessed in advance to ensure they are consistent with antitrust requirements; being accused of unfair competition leads not only to penalties, but also to substantial expenses on reviewing the marketing policies/campaigns and enormous reputation risks for a company.
Making an anticompetitive agreement, abuse of a dominant position and certain types of unfair competition entail an administrative penalty ranging from 1% to 15% of the company’s annual turnover. In addition, cartel and the abuse of a dominant position may result in imprisonment of the company’s managers.
7. Extraterritoriality of Russian antitrust legislation
Extraterritoriality is an intrinsic concept of Russian antitrust legislation. This means that provisions of Russian antitrust legislation apply to agreements concluded outside the Russian Federation between Russian and/or foreign individuals/companies and to their actions, provided such agreements/actions affect competition in the Russian Federation. In addition, the extraterritoriality concept permits the application of measures set out by the Russian antitrust legislation to such individuals/companies (in particular, administrative writs on ceasing breaches of the antitrust legislation, liability, etc.).
8. Reorganization of companies, transactions with shares and assets
Antitrust control over economic concentration includes preliminary approval (or subsequent notification) by the antitrust authority for transactions pertaining to acquisition, reorganization and establishing control, as well as rights to determine conditions for business activities of companies, provided there are grounds envisaged by the law (in particular, exceed the threshold volume of the book value of assets and earnings). It should be noted that indicators which are taken into account are not only those of the companies participating in the transactions, but also of their group of entities. Failure to meet such requirements (or a delay in notification) leads to an administrative penalty being imposed and such transactions may also be disputed by the FAS. However, in certain cases transaction structuring may facilitate the procedure of merger control.
Vladislav Zabrodin Capital Legal Services