Proposed Amendments to Antimonopoly Legislation

March 2009

On January 11, 2009, the Russian government introduced the so-called "second antimonopoly package" for consideration by the State Duma, which is the lower house of the Russian parliament. This new group of proposed reforms seeks to decrease administrative and compliance burdens on small and medium-sized businesses, and strengthen penalties for violation of antimonopoly legislation. If adopted, the package will involve amendments to a host of laws, including the Law on the Defense of Competition (the "Competition Law"), Criminal Code, Code on Administrative Violations, Forestry Code, Land Code, Town Planning Code, Law on Subsoil, Law on Concession Agreements and certain others.

Key proposed changes are summarized below. (As of the date of publication, these amendments have not yet become law).

Competition Law

Extra-territorial Application

The Competition Law currently applies to agreements between Russian and (or) foreign persons or organizations made outside Russia if (i) such agreements are reached in respect of production facilities and/or intangible assets located in Russia, or in respect of shares or equity interests in Russian business entities; and (ii) such agreements restrict or may restrict competition in Russia.  The draft amendments would broaden the scope of such extra-territorial application to include, inter alia, other agreements or actions made outside Russia "which may affect competition in Russia."

Vertical Agreements

The current Competition Law sets forth a list of anti-competitive agreements and "coordinated actions" which are prohibited per se, such as price-fixing, division of markets and the like. The draft Amendments would exclude so-called "vertical agreements," or agreements between entities that do not compete directly (such as a manufacturer and its distributor). This change would facilitate the use of dealership or distribution agreements, which are currently at risk of being considered in violation of the Competition Law, under certain circumstances. However, "vertical agreements" which may lead to retail price-fixing or limit the choice of suppliers will remain prohibited.

Thresholds for Merger Control Rules

Presently, the Competition Law requires advance clearance from the Russian competition body (the Federal Antimonopoly Service, or "FAS") for certain merger and acquisition transactions if the aggregate assets or annual revenues of the acquirer and the target company (or in certain cases, all parties to the transaction) and their affiliates exceed certain thresholds. (In other cases, only notification of the transaction is required).

The draft Amendments would increase these thresholds. Generally, the level of aggregate assets of the relevant companies would be increased from 3 billion Rubles (approximately $83 million) to 7 billion Rubles (approximately $194 million); and the revenue thresholds would rise from 6 billion Rubles (approximately $167 million) to 10 billion Rubles (approximately $278 million). (The thresholds for notification would double from their present levels.)

Audit Procedures

The draft Amendments set forth detailed procedures for inspections (including possible "dawn raids") of companies by FAS. These rules govern the rights of access to a company's premises, the duration of the inspection and the actions that FAS officials may take, among other matters. Among other benefits, this would provide a clearer basis for companies to challenge improper actions in court.

Code on Administrative Violations

In certain cases, violations of the Competition Law are governed by the Code on Administrative Violations. The proposed amendments to the Code would introduce new penalties, including:

• Fines of up to 15 percent revenues from "coordination" (such as price-fixing) between market participants;
• Fines of up to 1 million Rubles (approximately $27,800) for acts constituting "unfair competition";
• A minimum fine of 100,000 Rubles (approximately $2,780) for anti-competitive agreements or "coordinated actions"; and
• Fines of up to 15 percent of a company's revenue (with certain limitations) for price manipulation on the electric power market.

Criminal Code

The draft Amendments would update Article 178 of the Criminal Code by expanding the range of criminally punishable anti-competitive practices, agreements and coordinated actions that may result in criminal liability. If adopted, these changes could lead to an increase in the number of criminal prosecutions of antimonopoly violations.

Note: All figures assume an exchange rate of 36 Rubles/1 USD.