The long-awaited "Third Antimonopoly Package" has been adopted and comes into force in early January. Vertical internal reorganizations may allow for simplified clearance procedure. First disqualification of officer for violation of antimonopoly legislation with more to come.
The long-awaited "Third Antimonopoly Package" – a comprehensive set of amendments to the Competition Law and associated legislative acts – was finally approved and published on December 6th, 2011 and will come into force in 30 days.
The Third Antimonopoly Package includes amendments to the Competition Law and the Criminal Code, as well as alterations to other industry-specific codes and laws of the Russian Federation.
The most prominent of these amendments are outlined below.
1) Agreements between competitors which lead to or may lead to (i) fixing or maintaining prices, discounts, bonuses, (ii) division of market by territory, volume of sales, assortment of goods/services or range of sellers/purchasers/customers, (iii) reduction or termination of the production of goods, or (iv) refusal to enter into contracts with certain sellers or buyers, are prohibited and will now be defined as "cartels".
2) Cartel agreements (i.e. between competitors) may entail criminal liability, while concerted actions and anti-competitive agreements will only entail administrative liability.
3) Agreements between members of one "group of persons" will not be regarded as anti-competitive irrespective of their content if the parties to the agreement are related by means of control (one party controls the other or both/all parties are controlled by the same legal entity or individual).
4) Vertical agreements, i.e. between a seller and a purchaser of a product, may now provide for a maximum resale price. Minimum and recommended resale prices are still prohibited.
5) If a foreign company supplied goods to the Russian market in an amount exceeding 1 billion roubles (currently approx. €24,750,000 / US$35,900,000) during the calendar year, the acquisition of direct or indirect control over such foreign company or an acquisition of its assets located in Russia may require approval of the Russian antimonopoly authorities. As a reminder, before this amendment formally the acquisition of shares in a foreign company which supplied goods to the Russian market in any amount, required approval of the Russian antimonopoly authorities if the respective asset/revenue value thresholds were exceeded.
6) The FAS will be entitled to send official warnings to entities which have publicly declared their intent to act in a certain manner if such behavior may lead to a violation of antimonopoly legislation.
7) The FAS will maintain a register of entities and individuals which have been held liable for administrative violations.
The revised Competition Law and associated legislative acts also contain a broad range of further amendments which specify existing definitions used throughout the respective legislative acts and detail the technical procedures used by the antimonopoly authorities and legal entities/individuals – all aimed at streamlining the application of Russian antimonopoly legislation, ensuring competition on the market and protecting market players' rights.
The Third Antimonopoly Package attempts to cover the gaps in Russian antimonopoly legislation which are increasingly revealed as practical application of competition law evolves, but it does not cover all open questions. At the same time it is understood that the Federal Antimonopoly Service of Russia is already working on further amendments to the antimonopoly legislation while the business and legal societies attempt to work out how the Third Antimonopoly Package will work in practice.
Also noteworthy:
Simplification of Certain Rules in Respect of Companies of Strategic Significance
In addition to the Third Antimonopoly Package, amendments to the Federal Law No.57-FZ "On Foreign Investments into Legal Entities of Strategic Significance for the Defense of the Country and Security of the State" have also been adopted and came into effect in December 2011. These amendments narrow down certain requirements of the law, thus, exempting certain businesses and transactions from the necessity to undergo the time-consuming strategic clearance procedure. The most prominent of these amendments provide for the following:
The acquisition of a Russian bank by a foreign investor no longer requires obtaining a strategic clearance from the Russian Government Commission, unless the Russian Federation is one of the shareholders in such Russian bank. As a reminder, all Russian legal entities which use cryptographic equipment in their business are considered entities of strategic significance for the defense and security of the state, and the acquisition of such entities requires the strategic approval of the Government Commission which in practice may take up to one year to obtain. As most banks have cryptographic equipment and licenses for their use, they were all considered strategic entities, until now.
Also, it has been expressly specified that strategic clearances are not required for the acquisition of strategic entities if the parties to this transaction are ultimately controlled by the Russian state or Russian citizens.
Certain Intra-Group Transactions May No Longer Require Pre-Transaction Clearance
If the parties to an intra-group transaction that requires pre-transaction clearance are related by a majority shareholding (over 50% of votes attached to shares), the transaction is subject to an exemption: a post-transaction may be submitted instead of a pre-transaction application for clearance.
Though the exemption was part of the Second Antimonopoly Package, until recently the approach to this exemption was that a transaction does not need pre-transaction clearance only if the parties to the transaction - the seller and purchaser - are directly related, i.e. are parent company and its subsidiary in which the parent holds over 50% of votes.
The FAS has finally published an official clarification, specifying that the exemption applies not only when the parties to the transaction - the seller and purchaser - are directly related (and one party holds over 50% in the other party), but indirectly as well: there may be a chain of companies between the purchaser and the seller but at the same time all of the companies in this chain between the parties must be connected to each other by this majority shareholding (over 50% of votes attached to shares).
For example, the exemption also allows a company to transfer its assets to its sister company, if the parent company holds over 50% of votes in both these companies, without waiting for a pre-transaction approval but rather submitting a notification to the FAS after the completion of the transaction.
Disqualification of Company Officer for Violation of Antimonopoly Regulation
Not only an administrative fine may be imposed for unfair competition, anticompetitive agreements and concerted actions, abuse of dominance and coordination of economic activity, but also disqualification of the officers of the company for a term of up to three years. However, until recently, no cases of disqualification had been recorded for any violations of the above antimonopoly regulations.
The Tambov department ("Tambov UFAS") of the Federal Antimonopoly Service was the first FAS Department to disqualify an officer for an antimonopoly violation. Tambov UFAS first proved the abuse of dominance by a company on the market of heating services (specifically, establishment of monopolistically high prices) and then, at the initiative of Tambov UFAS, the court imposed disqualification on the head of the company for a term of one year.
The head of the Federal Antimonopoly Service, Igor Artemyev, confirmed that the FAS intends to impose disqualification much more often from now on, since practice has shown that administrative fines is not regarded as a severe consequence by the management of certain market players.
As a reminder: Disqualification is imposed by a court decision and entails impossibility for the disqualified officer to be the CEO or a member of the board of directors or management board of any legal entities, to otherwise manage any legal entities, as well as to hold office in any state or municipal authorities for a term of from six months to three years.
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If you have any questions on the matters outlined to in this Alert and would like further information how the above may affect your business, please do not hesitate to contact CMS experts Maxim Boulba or Evgeniya Rakhmanina or your regular contact at CMS.
On-line version of this Alert can be viewed here.
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