Getting the Deal Through, Cartel Regulation - 2013,
The application of competition regulation in 48 jurisdictions worldwide
Chapter - Russia:
Vladislav Zabrodin, Managing Partner of Capital Legal Services
Irina Akimova, Of Counsel of Capital Legal Services
Legislation and jurisdiction
1. Relevant legislation.
What is the relevant legislation and who enforces it?
The Relevant cartel legislation in the Russian Federation includes the following:
Federal Law No. 135-FZ of the Russian Federation on Protection of Competition (the Competition Law) dated 26 July 2006;
the Administrative Violations Code of the Russian Federation (the Administrative Violations Code); and
the Criminal Code of the Russian Federation (the Criminal Code).
The legislation is enforced by the Federal Antimonopoly Service (FAS).
2. Proposals for change.
Have there been any recent changes or proposals for change to the regime?
Changes to the legislation were introduced by Federal Law No. 401-FZ on Introducing Changes to the Federal Law on Protection of Competition dated 6 December 2011, which came into force in January 2012. Federal Law No. 401-FZ introduced for the first time in Russia’s competition regime a formal definition of a cartel, namely an agreement between competitors if such an agreement may lead to uncompetitive market behaviour (as defined in article 11 of the Competition Law).
Compared with the former legislation, the importance of anticompetitive effects to make a finding of a cartel has been significantly reduced. Currently, the FAS is not required to prove the occurrence of any effects that are harmful to the economy or competition. It is sufficient to prove that the agreement was entered into and is being implemented.
Another important change clarified the question of whether a cartel could be formed within a group of entities. The term ‘group of entities’ means entities affiliated with one another in any manner, under general management or general control. The practice of the FAS was to understand it as such, but this was not expressly set forth in the legislation, creating legal uncertainty. Now this point is expressly stipulated in the legislation. No anti-competition agreements
can exist between participants of a group.
Article 178 of the Criminal Code, which provides for criminal liability for participating in a cartel, was also changed, excluding from criminal liability those committing ‘concerted actions’. At present, only a written or oral agreement may be qualified as a cartel.
3. Substantive law What is the substantive law on cartels in the jurisdiction?
The substantive law is the Competition Law. The main provisions are stipulated in article 11. According to article 11, agreements between competitors, namely business entities selling goods on the same product market, are qualified as a cartel and are prohibited, provided they lead or may lead to:
establishing or maintaining prices (rates), discounts, markups (extra payments) or surcharges;
increasing, decreasing or maintaining tender prices;
dividing a product market by territory, volume of sales and purchase of goods, assortment of goods or intended customers (ie, the parties to the cartel agreement will divide the market on the basis of who they sell their products or render services to);
reducing or terminating goods manufacture; or
refusing to deal with particular sellers or buyers.
4. Industry-specific offences and defences or antitrust exemptions.
Are there any industry-specific offences and defences or antitrust exemptions?
All industries and sectors in Russia must fulfil the same antitrust requirements.
5. Application of the law.
Does the law apply to individuals or corporations or both?
The Competition Law applies to Russian legal entities and foreign legal entities, organisations, federal executive authorities, government authorities of Russian regions, local self-governing authorities, other authorities and organisations performing the duties of indicated authorities, as well as state non-budgetary funds, the Central Bank of the Russian Federation, individuals and private entrepreneurs.
Does the regime extend to conduct that takes place outside the jurisdiction? If so, on what legal basis does the authority claim jurisdiction?
The Competition Law establishes a principle of extraterritoriality. The provisions of this law are applied to agreements reached outside the Russian Federation between Russian and/or foreign entities or organisations, and to their actions, provided that such agreements or actions affect competition in Russia.
7. Steps in an investigation.
What are the typical steps in an investigation?
Investigation of a cartel agreement may be initiated based on an application received by the FAS, or on information received from other sources, media outlets, the internet, etc.
Based on the information received, the FAS initiates a case concerning violation of the antitrust legislation, and creates a special committee. Such committees are, as a rule, composed of employees and heads of the FAS (the FAS of Russia or its territorial bodies).
Representatives of the Central Bank of the Russian Federation and the Federal Service for Financial Markets participate in committees for certain types of cases. The investigation is carried out under the procedure described in the Competition Law.
After examination of the evidence, presentation of the parties’ positions, expert evaluations, and the questioning of entities that possess information about the circumstances in question, the FAS committee examining the case adopts a decision as to whether there has been an antitrust violation. The investigation shall not exceed nine months.
8. Investigative powers of the authorities.
What investigative powers do the authorities have?
For the purposes of collecting evidence on the presence of a cartel the FAS may request documents, clarifications, oral and written information (including information constituting a commercial or work secret and other secret protected by law), including agreements, certificates, business correspondence, and other documents and materials executed in the form of digital records or recorded on electronic media.
The most important instrument in a cartel investigation are dawn raids wherein documents, business correspondence, and computer equipment belonging to employees of the legal entity may be inspected. The authorities may copy electronic media and obtain written clarifications.
9. Inter-agency cooperation.
Is there inter-agency cooperation? If so, what is the legal basis for, and extent of, cooperation?
The FAS of Russia is actively cooperating with international organisations and agencies in the field of competition policy, the fight against unfair competition and state regulation of natural monopolies.
International activities of the FAS are aimed at:
the implementation of Russia’s international obligations on issues within the competence of the FAS;
the protection of Russian interests through participation in relevant international organisations; and
the introduction of the best international practices into the Russian legislation.
The FAS is:
a member of the International Competition Network (ICN);
the initiator of regular international conferences on competition in BRICS format (2009 Kazan, 2011 Beijing, 2013 New Delhi);
a member of the intergovernmental group of experts on competition law and policy of UNCTAD; and
has been chairman of the ICAP for the last six years.
FAS has cooperation agreements with:
the Competition Commission of the United Mexican States (2010);
the Competition Authority of Hungary (2010);
the Austrian Competition Authority (2011);
the Directorate General for Competition of the European Commission (2011); and
the Competition Authority of Spain (2011).
These agreements set out the mechanism of interaction, including exchange of information, when dealing with specific cases of violation of the antimonopoly legislation of an international nature.
10. Interplay between jurisdictions.
How does the interplay between jurisdictions affect the investigation, prosecution and punishment of cartel activity in the jurisdiction?
Taking into account that cartels increasingly fall under the jurisdiction of several countries, cooperation in cartel investigations is becoming more and more important. Types of cooperation may include, for example, coordinating and conducting simultaneous searches, raids or inspections; exchanging information; discussion of general investigation trends; and the collection of information and witness testimony by one competition authority on behalf of another in a different jurisdiction.
How is a cartel matter adjudicated?
Based on the results of the investigation, the FAS committee decides whether a violation has occurred.
Furthermore, the committee issues an administrative writ to the defendant to cease the violation of antitrust legislation and perform actions to support competition.
12. Appeal process.
What is the appeal process?
Both the decision and writ of the FAS can be appealed in the commercial arbitrazh court within three months of the day of the decision or writ. Furthermore, a decision or writ issued for a violation of antitrust legislation may, subject to new circumstances or information, be reconsidered by the committee that adopted the decision or issued the writ.
13. Burden of proof.
With which party is the burden of proof?
The FAS bears the burden of proving antitrust infringement.
14. Criminal sanctions.
What criminal sanctions are there for cartel activity? Are there maximum and minimum sanctions? Do individuals face imprisonment for cartel conduct?
The Russian legislation provides for criminal liability for individuals in cases of non-admittance, restriction or elimination of competition by entering into agreements that limit competition, if such agreements either resulted in major damage (over 1 million roubles) to individuals, organisations or the government (article 178 of the Criminal Code) or major revenue for the parties to the agreement (over 5 million roubles).
Those found guilty of committing a crime set forth in article 178 of the Criminal Code, shall be liable to:
fines of between 300,000 and 500,000 roubles (or the convicted party’s salary or other revenue for a period of one to two years. In the presence of aggravating circumstances (abuse of office, particularly great damage, etc), the penalty may reach 1 million roubles or the convicted party’s revenue for up to five years;
compulsory labour for a term of three years subject to deprivation of the right to occupy certain positions or carry out certain activities for a term from one to three years or without such deprivation; or
imprisonment for a term of three to seven years, subject to deprivation of the right to occupy certain positions or carry out certain activities for one to three years or without such deprivation.
The Russian legislation does not provide for criminal liability for legal entities.
15. Civil and administrative sanctions.
What civil or administrative sanctions are there for cartel activity?
Administrative liability for cartels is set out in article 14.32 of the Administrative Violations Code of the Russian Federation. The law provides for administrative sanctions not only on the participants of an anti-competitive agreement, but also on its coordinator (an entity that does not conduct activities on the product market where the cartel exists) if one exists.
If an entity participates in a cartel agreement, it may face a turnover fine of up to 15 per cent of revenue received from selling a product, work, or service on the relevant product market, but not less than 100,000 roubles. The officials of such organisations may be liable for a fine of 20,000 to 50,000 roubles or may be disqualified for up to three years.
Furthermore, pursuant to article 51 of the Competition Law, when delivering its decision, the FAS may serve a writ on a business entity an administrative concerning transfer of revenue obtained as a result of violating the antitrust legislation to the state budget, subject to the nature of the infringement, while simultaneously applying the turnover penalty. The legislation also allows an entity to be released from liability in the event of voluntary termination of the infringement and cooperation with the FAS, subject to compliance with the conditions set forth in the legislation.
The legislation also provides for an opportunity to claim losses (actual damage and missed profit) caused by cartel agreements within civil court proceedings.
16. Civil and administrative sanctions.
Where possible sanctions for cartel activity include criminal and civil or administrative sanctions, can they be pursued in respect of the same conduct? If not, how is the choice of which sanction to pursue made?
Liability for antitrust violations is imposed on legal entities and individuals. For legal entities, based on the decision of the FAS committee, an administrative case is initiated (article 14.32 of the Administrative Violations Code) and administrative liability in the form of a penalty is applied (Russian legislation does not provide for criminal liability for legal entities).
The applicable sanction for individual infringers depends on the amount of damage incurred or revenue obtained: if the thresholds established by the criminal legislation (see question 14) have been exceeded, a criminal case is initiated, and the person is subject to criminal liability based on the court decision. If the thresholds have not been exceeded, the individual is held liable for an administrative violation based on a court decision.
17. Private damage claims and class actions.
Are private damage claims or class actions possible?
Russian legislation provides for private damage claims to be filed, including collective claims on reimbursement of damage incurred as a result of an antitrust violation. However, such claims in Russia are very rare. Furthermore, the existing court practice shows that there the interpretation of the courts varies on a wide a range of issues, namely proper evidence in cases on compensation of damage caused as a result of anti-competitive conduct, calculation of the amount of losses and issues concerning limitation periods.
18. Recent fines and penalties
What recent fines or other penalties are noteworthy?
At present, the practice of imposing administrative liability for entering into cartel agreements is relatively common. Administrative fines for participation in cartel agreements are based on turnover and are calculated based on the revenue of a particular business entity earned in the respective product market for the calendar year that precedes the year the infringement was revealed.
If it seems impossible to determine the revenue and, consequently, to calculate the administrative penalty, the legal entity is to be held liable for an administrative infringement in the form of a minimum fine of 100,000 roubles. One of the most notable penalties imposed by the FAS for cartel conduct in 2012 was on OJSC United Trading Company, and amounted to more than 912 million roubles. The company had participated in a cartel agreement on the liquid caustic soda market between 2005 and 2011.
Concerning criminal liability of individuals for participation in cartel agreements, no such instances have yet occurred. Nonetheless, based on information published by the antitrust authorities in official sources, at present several major cases are being examined by the court. In the event that the existence of a cartel is confirmed by the courts, the antitrust case materials will be submitted to law enforcement bodies in order to initiate criminal proceedings against the infringers.
19. Sentencing guidelines.
Do sentencing guidelines exist?
In the course of examination and adjudication of antitrust violation cases, the FAS committee is guided by the rules established by the Administrative Procedure of the Federal Antitrust Service for exercising government authority to initiate and examine cases on violation of antitrust legislation of the Russian Federation (approved by Order No. 339 of the FAS of Russia dated 25 May 2012) and the Administrative Violations Code.
In the event that a decision on an antitrust violation case is appealed to the commercial arbitrazh court, the case is examined by the commercial arbitrazh court in compliance with the Arbitrazh Procedural Code of the Russian Federation.
When initiating a criminal case on the grounds of criminal elements as set forth in article 178 of the Criminal Code (non-admittance, restriction or elimination of competition), the case is to be investigated and examined in a criminal court of the Russian Federation subject to the rules established by the Criminal Procedural Code.
20. Sentencing guidelines and the adjudicator.
Are sentencing guidelines binding on the adjudicator?
In the course of case examination members of the committee in FAS or its territorial bodies are guided by the rules established in administrative procedure of the Federal Antitrust Service for exercising government authority to initiate and examine cases on violation of antitrust legislation of Russia (approved by order No. 339 of the FAS, 25 May 2012), the Administrative Offences Code, the Arbitrazh Procedural Code of the Russian Federation and the Criminal Code of the Russian Federation. These guidelines are binding for the FAS when investigating a case.
21. Leniency and immunity programmes.
Is there a leniency or immunity programme?
A leniency programme with respect to participation in a cartel is implemented and used in the Russian Federation.
22. Elements of a leniency or immunity programme.
What are the basic elements of a leniency or immunity programme?
According to the note to part 1 article 14.32 of the Administrative Violations Code, an entity that voluntarily informs the FAS that it has entered into an agreement that is inadmissible under antitrust legislation is released from liability subject to fulfilling all the following conditions:
at the time the entity filed the application, the FAS had no relevant information or documents concerning the administrative violation;
the entity refused to participate or to further participate in the agreement; and
there is sufficient information and evidence to establish the occurrence of the administrative violation.
Relief from criminal liability is possible for each cartel participant, provided the following conditions have been fulfilled:
the cartel participant contributed to solving such a crime;
the cartel participant reimbursed the damage or in some manner made amends for the harm caused as a result of criminal actions; and
no other corpus delicti is contained in the cartel participant’s actions.
23. First in.
What is the importance of being ‘first in’ to cooperate?
Only the entity that was first to fulfil all the conditions set forth in the note to part 1 article 14.32 of the Administrative Violations Code can be released from liability for an administrative violation. An application filed simultaneously on behalf of several parties to an anti-competitive agreement will not be examined.
24. Going in second.
What is the importance of going in second? Is there an ‘immunity plus’ or ‘amnesty plus’ option?
The second and subsequent companies filing an application for release from liability may expect minimum penalties to be imposed, but they cannot be released from liability for a criminal offence.
25. Approaching the authorities
What is the best time to approach the authorities when seeking leniency or immunity? Are there deadlines for applying for leniency or immunity, or for perfecting a marker?
An application for release from liability for cartel participation may be filed at any stage of the investigation before the committee decides that there has been a violation of the antitrust legislation.
What confidentiality is afforded to the leniency or immunity applicant and any other cooperating party?
Surrender is recorded confidentially, as ensured by an authorised officer and confirmed by a special receipt. Such information is not subject to disclosure until the FAS committee has reached its decision.
27. Successful leniency or immunity applicant.
What is needed to be a successful leniency or immunity applicant?
Relief from liability for participation in a cartel requires fulfilment of all conditions set forth in the note to part 1 article 14.32 of the Administrative Violations Code (see question 22).
28. Plea bargains.
Does the enforcement agency have the authority to enter into a ‘plea bargain’ or a binding resolution to resolve liability and penalty for alleged cartel activity?
If for any reason a defendant is unable to satisfy all requirements necessary to be released from criminal liability, it is also possible in theory to conclude a prejudicial agreement in cooperation with the prosecutor after a criminal case has been initiated (part 5 article 21 of the Criminal Procedural Code of the Russian Federation). In the event all conditions of the prejudicial agreement on cooperation, surrender, active contribution to resolving and investigating a crime, exposure of other criminal participants and search for property are fulfilled, and provided there are no aggravating circumstances, the scope of punishment cannot exceed half the maximum term or half the amount of the strictest punishment for a respective cartel crime.
29. Corporate defendant and employees.
What is the effect of leniency or immunity granted to a corporate defendant on its current and former employees?
Pursuant to part 3 article 2.1 of the Administrative Violations Code, an administrative sanction imposed on a legal entity does not release individuals from administrative liability for such a violation. In the same manner, an individual being held liable for an administrative or criminal offence does not release the legal entity from administrative liability for the infringement.
In the event a legal entity is released from administrative liability for violation of the antitrust legislation, its officer is not to be held liable for an administrative violation or criminal offence.
What guarantee of leniency or immunity exists if a party cooperates?
If the defendant cooperates with the antitrust body in the course a cartel investigation, the defendant is entitled to be released from administrative and criminal liability or the administrative penalties may be reduced to a minimum.
31. Dealing with the enforcement agency.
What are the practical steps in dealing with the enforcement agency?
Relief from liability for participation in a cartel is granted when a respective application is filed with the antitrust body along with documents confirming participation in a cartel. The application must be filed before the committee establishing the violation announces its decision.
32. Ongoing policy assessments and reviews.
Are there any ongoing or proposed leniency and immunity policy assessments or policy reviews?
At present, the leniency programme for participation in a cartel agreement is unsatisfactory. Pursuant to the Administrative Violations Code, the first company that provides the FAS with proof of an existing cartel agreement on the market and that voluntarily terminates its unlawful anti-competitive activities is released from the liability for an administrative violation. But in Russia individuals who head companies participating in cartel agreements are also held liable for a criminal offence. At present, if a company is released from liability for an administrative violation, it is not the case that the company’s management will automatically escape criminal prosecution. This adversely affects disclosure of cartel agreements in Russia because companies and their management are not eager to disclose to the FAS information on existing unlawful anti-competitive agreements. The FAS in conjunction with other bodies is therefore drafting a proposal for introducing respective amendments to the legislation.
Defending a case
May counsel represent employees under investigation as well as the corporation? Do individuals require independent legal advice or can counsel represent corporation employees? When should a present or past employee be advised to seek independent legal advice?
If antitrust violations are revealed, three stages of proceedings are initiated. The three stages are: antitrust proceedings, administrative proceedings and criminal proceedings If it is confirmed that a cartel agreement was concluded, these types of proceedings follow one another in the sequence above. Each type of proceeding has its own statutory peculiarities with regard to representation of infringers, whether legal entities or individuals.
In the course of antitrust and administrative proceedings, legal entities and officers may exercise their rights and obligations independently or through a representative. Employees of the company, independent legal counsel or attorneys may act as representatives.
Powers of a representative are executed as a power of attorney, and powers of an attorney as an order.
The law does not restrict the right of companies or employees to select a representative. But we recommend engaging as a representative an independent legal counsel specialising in antitrust law.
As opposed to antitrust and administrative proceedings, only an individual and not a legal entity may be held liable for a criminal offence in Russia.
Only a Russian attorney may represent an officer in the course of criminal proceedings. Powers of an attorney are documented as an order.
34. Multiple corporate defendants.
May counsel represent multiple corporate defendants?
During antitrust proceedings one representative may represent interests of an unlimited number of defendants.
During administrative proceedings only one defendant is permitted, therefore a representative may represent only one employee or one company. But the representative is not restricted in representing another defendant in the course of a different administrative process.
During criminal proceedings, an attorney cannot represent two or more defendants if the defendants have contradicting interests. If there is no such contradiction, one attorney may represent several defendants.
35. Payment of legal costs.
May a corporation pay the legal costs of and penalties imposed on its employees?
Administrative or criminal penalties may be paid only by the entity held liable for the administrative violation or criminal offence. A corporation may not pay penalties imposed on its employees.
36. Getting the fine down.
What is the optimal way in which to get the fine down?
For the purpose of reducing a fine, an entity is entitled to cooperate with the antitrust bodies; to contribute to resolving an infringement, as well as to reimburse damages caused by unlawful actions.