New anti-cartel tools

Two draft laws https://cljournal.ru/news/24546/ that the Russian Federal Antimonopoly Service developed to toughen criminal and administrative liability for the entry into, and being a party to, a cartel waited in the wings for three years. The State Duma adopted them in the first reading in December 2022. How will the anti-cartel article in the Russian Criminal Code (the “Criminal Code”) and the programme of release from liability change, and what fines will be imposed for impeding antitrust inspections? Read more in the article of Elena Sokolovskaya, Pepeliaev Group’s partner.

The amendments will primarily affect article 178 of the Russian Criminal Code which enshrines the body of the offence and the sanction for being a party to an anti-competitive agreement (see draft No. 848246-7 https://sozd.duma.gov.ru/bill/848246-7 ). It has been proposed that the descriptive part of the legal provision should be brought into line with the definition and signs of a cartel as stipulated by the Law on protecting competition, which, in our opinion, seems justified.

It is worth reminding readers that article 11(1) of the Law does not indicate a sign that competition is restricted, as opposed to the descriptive part of article 178 of the Criminal Code. Moreover, the above-mentioned article at present recognises as an unlawful act only the entry into, rather than participation in, a cartel, which is also not in line with the understanding of this type of an offence.

The draft law also provides for additional aggravating elements in the bodies of criminally punishable actions: (i) a cartel is concluded in mandatory bidding, (ii) a cartel is concluded by a person performing management functions within an organisation and a person who has at their disposal more than 50% of the total number of votes attaching to the voting shares (membership interests) in the issued (share) capital, and (iii) a cartel is concluded by an organised group.

Further, the draft law introduces increased liability for a crime set out in the new aggravating elements of the body of an offence, as compared with the general liability stipulated for entering into and participating in a cartel (article 178(1) of the Criminal Code).

Nonetheless, we do not believe it to be justified that additional aggravating elements of the body of an offence have been established according to which the level of danger the offence poses to the public is to be determined by the parties who committed it. In our view, the level of danger of an offence must be determined based on its economic and other consequences.

It is also expected that the threshold amounts will be increased of large and extremely large income (considerable and particularly considerable damage) that constitute the body of a crime under article 178 of the Criminal Code. According to our reckoning, this will help to avoid officers of business entities being held liable under criminal law for their participation in anti-competitive agreements which do not inflict significant harm on the economy.

Further, the provisions of article 178 of the Criminal Code will be adjusted in terms of the conditions for being released from criminal liability for entry into a cartel since it cannot be categorically concluded from the current wording of the article which damage the offender must compensate: the damage caused by him individually or the damage caused by the business entity which he represents or the damage caused by all companies who entered into the anti-competitive agreement. Nor is there a straightforward answer to the question of how harm should be eliminated for a person to be released from liability.

An adjustment is being made, in the interests of clarity, that a person is obliged to compensate the damage and to make up for the harm he himself has done. One of the ways to do so is to return income which was illegally earned during the period of illegal activity.

It is also planned that a number of amendments will be made to the Russian Code of Administrative Offences (the ‘Code of Administrative Offences’) (see draft No. 848369-7 https://sozd.duma.gov.ru/bill/848369-7 ). Specifically, it is expected that the punishment will be made more stringent for impeding an inspection which constitutes the main way for the antimonopoly authority to obtain evidence of a cartel. Business entities are trying to resist such probes in every possible way. Furthermore, the fines which are being imposed do not deter unlawful conduct since it makes financial sense for a company to pay the above fines rather than a turnover-based fine if any relevant evidence is found. According to article 19.4.1(2) of the Code of Administrative Offences, the fine for impeding an inspection, resulting in it being impossible to conduct or complete the inspection, will amount to:

• RUB 5,000 to RUB 10,000 for a company's officers;
• RUB 20,000 to RUB 50,000 for legal entities.

It has been proposed to supplement the Code of Administrative Offences with special article 19.4.3 and to establish a punishment for preventing inspections of the antimonopoly authority from being conducted as to whether the prohibition on the entry into an anti-competitive agreement is complied with, if this has resulted in it being impossible to conduct or complete the inspection. The amount of the fine will depend, among other things, on the amount of the offender’s revenues:

• RUB 15,000 to RUB 30,000 for individuals;
• RUB 30,000 to RUB 50,000 for officers;
• 1/1,000 to 1/100 of the aggregate amount the offender’s revenue from the sale of all goods (work or services), but not less than RUB 50,000 - for legal entities.

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 impeding antitrust inspections. This is due to the need to improve the existing mechanism of administrative liability which has low efficiency. In practical terms, questions are likely to arise as to which actions specifically may be classified as impeding in this way.

Moreover, the procedure will be modified of how administrative liability will be eased (lifted) for the entry into an anti-competitive agreement (committing unlawful concerted actions).

It is worth reminding readers that notes 1 and 5 to the current version of article 14.32 of the Code of Administrative Offences provide for conditions for an exemption from, or the mitigation of, liability. The conditions will remain intact, but the notes will be set out in a wording according to which:

• not only will a person who was the first to comply with the conditions set out in the note be released from liability, but so will a person who has entered into a cooperation agreement with the antimonopoly authority to be released from liability provided that such person complies with all conditions laid down in that agreement;
• the amount of the fine may be reduced not only with regard to second and third parties that have complied with the conditions of the note but also for subsequent persons.

We believe that this new development will help antimonopoly authorities to obtain information regarding anti-competitive agreements (their duration and specific manifestations), including evidence, directly from the parties involved in a cartel.

In summary, measures of criminal and administrative liability will become more stringent in future for the entry into, and being a party to, a cartel and also for unlawful actions of business entities aimed at resisting antitrust inspections. Once the amendments are tested in practice, it will become clear to which extent they will attain their goals.

Source: Competition and Law