The State Duma is preparing to adopt a draft law to strengthen liability for using digital algorithms in cartels
Pepeliaev Group advises that on 21 December 2022 the State Duma passed in the first reading a draft law which amends the Russian Code of Administrative Offences (the “Administrative Code”)[1].
Please be reminded that the draft law had been developed by the Russian Federal Antimonopoly Service (the “FAS of Russia”) as a part of the “Fifth antimonopoly package”.
According to the explanatory note to the draft law, it was necessary to develop it because of the significant increase in the number of violations where computer software was used for the purposes of concluding and performing anti-competitive agreements. At the same time, there are no effective mechanisms and means for preventing such violations at the legislative level which would take into account the digitalisation of economic processes.
In addition, the draft law is aimed at strengthening liability measures for a failure to comply with instructions of the antimonopoly authority in view of the existing measures for enforcing compliance with such instructions being insufficient and ineffective.
In order to achieve the objectives set, an additional aggravating circumstance will be introduced into the Administrative Code in relation to an offence: an anti-competitive agreement being concluded and performed using computer software. Also, punishment will become more severe for a repeated failure to comply with instructions of the antimonopoly authority.
It is expected that the amendments will come into force on 1 March 2023. Let us look at them in more detail.
Correspondingly, violations connected with the use of digital technologies should be prevented using means and methods which take into account the digitalisation of economic processes.
The draft law proposes to supplement Comment 4 to article 14.32 of the Administrative Code with clause 3 which will provide for an additional aggravating circumstance: the use of computer software which makes possible the taking of decisions (carrying out of actions) aimed at the automatic performance of such an agreement (without human involvement).
At the same time, the draft law establishes limits for the application of this sanction: the amount may not exceed one fiftieth of the total amount of the offender's proceeds from the sale of all goods (works, services) for the calendar year preceding the year in which the administrative offence was identified, and may not be less than RUB 100,000.
We recommend becoming familiarised with the text of the draft law and following up on how it moves forward, then, once the draft law has been adopted, taking its provisions into account when conducting professional activity.
Our lawyers continually monitor changes in antitrust legislation and are ready to promptly advise on any legal aspects that arise in connection with the new provisions being adopted.
[1] You can read about other measures aimed at increasing criminal and administrative liability for participation in anti-competitive agreements in our alert “The State Duma has approved in the first reading two draft laws as part of the ‘Anti-cartel Package’”.
Please be reminded that the draft law had been developed by the Russian Federal Antimonopoly Service (the “FAS of Russia”) as a part of the “Fifth antimonopoly package”.
According to the explanatory note to the draft law, it was necessary to develop it because of the significant increase in the number of violations where computer software was used for the purposes of concluding and performing anti-competitive agreements. At the same time, there are no effective mechanisms and means for preventing such violations at the legislative level which would take into account the digitalisation of economic processes.
In addition, the draft law is aimed at strengthening liability measures for a failure to comply with instructions of the antimonopoly authority in view of the existing measures for enforcing compliance with such instructions being insufficient and ineffective.
In order to achieve the objectives set, an additional aggravating circumstance will be introduced into the Administrative Code in relation to an offence: an anti-competitive agreement being concluded and performed using computer software. Also, punishment will become more severe for a repeated failure to comply with instructions of the antimonopoly authority.
It is expected that the amendments will come into force on 1 March 2023. Let us look at them in more detail.
1. An additional aggravating circumstance when anti-competitive agreements are concluded using digital technologies.
As the antimonopoly authority’s practice shows, as a rule, anti-competitive agreements apply to a large number of auctions performed in electronic form, primarily in the sphere of the procurement of goods, work and services for state and municipal needs.Correspondingly, violations connected with the use of digital technologies should be prevented using means and methods which take into account the digitalisation of economic processes.
The draft law proposes to supplement Comment 4 to article 14.32 of the Administrative Code with clause 3 which will provide for an additional aggravating circumstance: the use of computer software which makes possible the taking of decisions (carrying out of actions) aimed at the automatic performance of such an agreement (without human involvement).
We hope that in practice, proper approaches will be developed to establishing whether business entities are using such software lawfully or unlawfully for the purposes of classifying an instance of using such software as an aggravating circumstance.
2. A more severe punishment for a repeated failure to comply with instructions of the antimonopoly authority.
The draft law proposes that article 19.5 of the Administrative Code be supplemented with part 28, which provides for a mechanism of doubling the previous administrative fine for a failure to comply with an instruction if the person has previously been held liable for a failure to comply with this instruction.At the same time, the draft law establishes limits for the application of this sanction: the amount may not exceed one fiftieth of the total amount of the offender's proceeds from the sale of all goods (works, services) for the calendar year preceding the year in which the administrative offence was identified, and may not be less than RUB 100,000.
It is for the first time that such a severe measure of imposing administrative liability in the form of a turnover-based fine has been proposed for a failure to comply with instructions of the antimonopoly authority. We believe that the FAS of Russia has been pushed towards such a radical step by the need to improve the current mechanism of administrative liability, which has proved ineffective in practice.
What to think about and what to do
We believe that the adoption of this draft law will facilitate the creation of effective mechanisms for administrative liability aimed at preventing violations connected with concluding and performing anti-competitive agreements using digital algorithms and at achieving the purposes of enforcing business entities to comply with instructions of the antimonopoly authority.We recommend becoming familiarised with the text of the draft law and following up on how it moves forward, then, once the draft law has been adopted, taking its provisions into account when conducting professional activity.
Help from your adviser
Pepeliaev Group's lawyers have considerable experience of providing legal support to clients with regard to antitrust regulation.Our lawyers continually monitor changes in antitrust legislation and are ready to promptly advise on any legal aspects that arise in connection with the new provisions being adopted.
[1] You can read about other measures aimed at increasing criminal and administrative liability for participation in anti-competitive agreements in our alert “The State Duma has approved in the first reading two draft laws as part of the ‘Anti-cartel Package’”.