New Russian competition law

In October 2006, the new Competition Law No. 135-FZ dated 26 July 2006 entered into force. The new Competition Law replaced the first Russian competition act, which has been in effect since March 1991, as well as the law separately defending competition in Russian financial markets. Instead, the new law has combined the regulation of financial and commodity markets in order to make the control of the Russian competition enforcement authorities over undertakings more efficient. The authorities are currently in the process of putting the new law into practice, including drafting subordinate legislation. Presumably, this transition period will take time.

Competition authority

The Russian competition enforcement authorities have a branched structure with the Federal Anti-Monopoly Service of Russia (FAS), headed by Igor Artemiev. The FAS is the predecessor of the RSFSR State Committee for Anti-Monopoly Policy and Support to New Economic Structures founded in accordance in 1990. The head of FAS has four deputies, three of whom bear responsibilities for specific commodity markets, and the fourth for the FAS regional offices and other internal organisation issues. In regions, the FAS has more than 70 territorial subdivisions.

Primarily, the Russian competition authorities exercise control over compliance with the Competition Law including over economic concentrations, debug violations of the law, prevent monopolistic activities, unfair competition and other breaches. Notably, the FAS was also appointed by the Russian government to supervise public procurement in Russia.

Control over mergers and acquisitions

The time-consuming routine function of the FAS is control over transactions in different markets. The new law has removed a number of administrative barriers for mergers and acquisitions. It has shortened the list of transactions and activities that require merger clearance, inter alia, by increasing the criteria that decide on whether a transaction needs approval. Merger clearance is no longer needed for each increase of voting shareholding (ownership interest); merger clearance will only be needed if the acquired shareholding plus the existing shareholding exceeds the 25 per cent, 50 per cent or 75 per cent thresholds for joint stock companies and one-third, one-half and three-quarters thresholds for limited liability companies. The threshold for the acquisition of main production and intangible assets of an entity has been also increased up to 20 per cent of such assets.

The additional thresholds, established for the acquisition of said voting shareholding in, production and intangible assets of and controlling rights with respect to a Russian business entity, are based on the book value of assets or (if the assets-based threshold is not met) on aggregate income from the sale of commodities during the last calendar year. An acquisition requires merger clearance if an entity directly or indirectly (through participation in the group of entities) involved in this deal was enrolled in the register of business entities having a market share of over 35 per cent. In relation to financial organisations, the assets-based thresholds have replaced the charter capital-based thresholds, though the Russian government has preserved the right to approve such assets-based thresholds for financial organisations.

Setting up businesses and financial organisations, except when the charter capital of these is paid with shares in another business, are not subject to merger clearance review by the Russian competition authorities under the new law, and neither is an increase in the charter capital of financial organisations.

The competition authorities have the right to prolong the 30-day consideration period for two months and to demand submission of any additional information relating to the deal requiring merger clearance. Merger clearance granted by the competition authorities remains in force for one calendar year.

Increase of efficiency of the competition authorities

There is an expectation that the new Competition Law will make the Russian competition enforcement authorities more efficient in their defence of competition in Russian markets. The new law defines such non-competitive conduct as "coordination of the activities of business entities by third persons" and "concerted actions restricting competition". These new provisions should enable the competition authorities to uncover and prove such unlawful actions in a court. The definite advantage of the new law is that it is aimed at all types of markets including oligopolies. Although a business entity does not have a dominant position if its share of the market is less than 35 per cent, the law establishes a lower threshold of 8 per cent for markets with oligopoly structure.

Penalties

The introduction of the new Competition Law does not lead to toughening of penalties for non-compliance. In Russia, administrative penalties are now established not by the Competition Law, but by the Code of Administrative Offences. FAS has introduced significant changes to the administrative. These changes aim to increase the penalties and supplement the list of offences entailing administrative liability. Violations of the Competition Law include "abuse of one's dominant position", "conclusion of agreements and performance of actions restricting competition" and "unfair competition". It is proposed that the amount of the penalty should also be based on the amount of the profits gained from the sale of products.

This article was first published in www.GlobalCompetitionReview.com.