Competition Practice Newsletter (Issue 2, 2014)

FAS Russia clarifies procedures after the abolition of notification requirements for contracting economic concentration 

Article 30 of the Federal law on protection of competition, which stipulated the notification procedures for the approval of transactions leading to economic concentration, is no longer in effect. 

The Federal Antimonopoly Service of the Russian Federation (FAS Russia) has issued provisions regarding the application of the modified legislation.  

The FAS interpretation specifies the following:  

• The previous reporting requirements remain in effect for transactions of shares or property of commercial organizations, as well as actions for their establishment and reorganization, executed prior to the effective date of the modified law.

• A failure to report a transaction or action executed prior to 30 January 2014 will not incur any administrative liability. 

• Transactions or actions executed within a group of persons must be reported to the antimonopoly body.

Extraterritorial provision of Russian competition law applied to foreign legal entities for the first time

The FAS Commission has found the Uzbek companies Uzbektelecom JSC and Rubicon Wireless Communication LLC in violation of paragraph 4, part 1, of Article 11 of the Federal law on protection of competition, arising from a competition-restrictive agreement that led to the reduction or termination of mobile services.  

The two companies had entered into an anti-competition agreement, which was implemented by eliminating the Uzbek company Uzdunrobita LLC, whose charter capital was 100% owned by the Russian mobile operator MTS JSC, from the mobile service market. This, the FAS Commission found,  affected the competition in Russia.  

According to the Deputy Head of the FAS Alexander Kinev, the application of Russian antimonopoly legislation gives Russian investors additional remedies against unlawful acts by their competitors, even if the specific acts themselves were committed within a foreign jurisdiction.  

FAS finds the Federal Agency for Fisheries and several participants in crab auctions in Primorye guilty a competition-restrictive agreement

The Federal Agency for Fisheries of the Russian Federation, its territorial agency, and several participants in crab fishing quota auctions have been found liable for price-fixing and creating unlawful barriers to entry, against Article 14.32 of the Administrative Offences Code of the Russian Federation.  

Investigation by the FAS Commission, established evidence of a breach of Article 16 of the Federal law on protection of competition, arising from the conclusion of an anti-competition agreement among the Federal Agency for Fisheries, its territorial agency, and several participants in auctions for sale of crab fishing quotas in Primorye in 2012.  

Participants in crab auctions – Aquaresources-DB LLC, Typhoon LLC, and Cometa – agreed to maintain the auction price and to create access obstacles to other economic entities, in Article 11 of the Federal law on protection of competition.  

FAS representatives are about to confirm a plan to transfer the materials of the antimonopoly case to the Office of the Investigative Committee of the Russian Federation in the Primorsky Krai, to consider commencement of a criminal case under Article 178 of the Criminal Code of the Russian Federation for the illegal ban, restriction, and elimination of competition among competing entities (i.e., a cartel).  

The Supreme Arbitrazh Court of the Russian Federation sides with insurance companies and against FAS about whether the National Union of Liability Insurers (NULI) organized barriers to the market entry

The Supreme Arbitrazh Court rendered the decision on denial of supervisory review of the judgments of the lower courts, in case N VAS-19026/2013, regarding the revocation of the ruling of the antimonopoly body that some of the largest Russian insurance companies had erected unlawful barriers to entry into the market for compulsory insurance of hazardous production facilities.   Since 1 January 2012, the Federal Law “On Compulsory Insurance of Hazardous Objects for Civil Liability of Owners” has required that owners of hazardous facilities must carry mandatory insurance for civil liability arising from an the injury inflicted as a result of an accident involving dangerous objects. The law provides that an insurer should have a license and membership in a professional association of hazardous production facilities insurers.  

In April 2012, the FAS, at the request of the Russian public association Opora Russia. commenced the case and found 26 of the largest insurance companies in Russia, all of which are NULI members, guilty of concluding an anti-competition agreement in violation of part 4, Article 11 of the Federal law on protection of competition. According to the antimonopoly body, the guilty companies include Alfa-Insurance JSC, VTB Insurance LLC, JISC Ingosstrakh JISC, RESO-Guarantee JISC, Rosgosstrakh JSC, and others.  

The FAS found the violation of the antimonopoly law in the NULI provision that an insurer should have at least two years of work experience in the hazardous production facilities market. Pursuant to the rules of the Union, the company should also have experience in insurance disbursement for hazardous production facilities. But the survey conducted by the FAS showed that only 18% out of 298 hazardous facilities insurers had insured casualties.  

The FAS considered that the agreement by the NULI members establishing the terms and conditions of membership in a professional association had the effect of restricting competition in the market for compulsory insurance of hazardous production facilities.  

The companies contested the decision and instruction of the FAS, and sought judicial review. The Moscow City Arbitrazh Court held the FAS decision of 20 April 2012 invalid, and the appellate court affirmed the court of first instance. The decision was not reviewed in the cassation court.  

The antimonopoly body referred the case to the supervisory instance, but the judges refused to transfer the case to the Presidium. Overruling the decision of the FAS, the courts held that the charter of the NULI allows the membership in the forms of full member and an observer. Therefore, it is enough for an insurer to have association membership as an observer in order to obtain a license. 

This should not be considered an unlawful obstacle to entry.