BRICS Russia TrendMonitor - Russia’s FAS to take tough 2013 line on cartels, strategic asset protection

11.02.2013

By Natalia Lapotko in Moscow and Oliver Adelman in London

This article is provided to FT.com readers by PaRR (Policy and Regulatory Report)— a newly launched product of The Mergermarket Group providing proprietary intelligence and research on competition law and sector-specific regulatory changes around the world. www.parr-global.com

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Cartels are currently regarded as the worst violators of Russian competition law, local competition attorneys have told PaRR.

In 2012, amendments to article 178 of the Criminal Code of the Russian Federation updated cartel-related legislation in the country. These amendments criminalised cartels and repeated abuse of dominance but have decriminalised “vertical” agreements.

Before 2012, the wording of article 178 was so broad that it could be applied to any agreement or action limiting competition, including vertical agreements. Since the law was put into effect, the circle of competition-restricted agreements and actions has significantly narrowed, explained Nadia Goreslavkaya, an associate at Baker & McKenzie – CIS in Moscow.

In 2013, the Federal Antimonopoly Service (FAS) is likely to start cooperating with the Ministry of Internal Affairs and the Russian Police Service to fulfil its newfound enforcement powers.

During a telephone conference organised by the Antitrust Section of the American Bar Association (ABA), Andrey Tsyganov, the deputy head of FAS, noted that the agency saw itself as a “full scope” competition authority, able to detect and suppress cartels through its involvement at every stage of the law enforcement process, from evidence gathering to case handling to trial.

Strategic sectors continue to be protected

FAS will initiate additional fisheries cartel investigations soon, Alexander Kinyev, the head of FAS’ cartel division, told PaRR in November 2012. FAS initiated proceedings into the Norwegian fish supply sector in October 2012 that involved the Russian Fish Company, a leading distributor.

Like cartel investigations, abuse of dominance cases will continue to be important for the FAS in 2013, Nikolay Voznesenskiy, head of compatition/antitrast practice at Goltsblat BLP, predicted. The quantity and importance of such cases would not diminish, according to Voznesenskiy.

Abuse of dominance cases will continue to generate the highest fines and these have traditionally been initiated in the mineral extraction, transport and energy sectors, he added.

FAS is likely to conduct comparatively fewer investigations in the fast-moving consumer goods (FMCG) retail area because of some recent self-regulation in this sector, Voznesenskiy noted.

This year, the European Commission’s (EC) investigation into alleged abuse of dominance in the Central and Eastern European (CEE) gas market by Gazprom is likely to be the highest profile Russia-related regulatory case, sector lawyers said.

In response to that investigation, on 11 September 2012, Vladimir Putin, the president of the Russian Federation, signed a decree on “measures to protect the interests of the Russian Federation during engagement by Russian legal entities in foreign business”, which came into effect on the day of its official publication.

Back in September 2011, the EC conducted dawn raids at the premises of affiliates of Gazprom and the EC subsequently opened formal proceedings against Gazprom in September 2012. However, PaRR recently reported that the EC is unlikely to release a Statement of Objections (SO) in this investigation until late 2013.

The view that the SO in the Gazprom investigation would not come until well into 2013 was shared by a second London-based energy antitrust lawyer.

“Putin is rock solid behind Gazprom and it is very unlikely that there will be a negotiated settlement. If it can be proved that there is an economic effect from the link with oil prices, it would really have to be litigated,” said the lawyer.

These cases illustrate the willingness of the Russian Government to protect its strategic assets not only through FAS, but also through new legislation and Russia’s Foreign Investment Commission.

WTO ascension, IP rights, and a move to pre-consummation review

Russia’s newly minted membership in the World Trade Organisation (WTO) is expected to accelerate M&A deals in Russia.

“We’ve been expecting an uptick in M&A in Russia – and accession to the WTO should accelerate that,” Chris Weafer, chief strategist with Troika Dialog/Sberbank, told PaRR.

Andrey Goltsblat, managing partner of Goltsblat BLP, the Russian practice of London-based law firm Berwin Leighton Paisner LLP, meanwhile, suggested that “many foreign companies would be interested in M&A deals with Russian players to get some share of the Russian market. [PepsiCo’s] earlier deal with Wimm-Bill-Dann is an illustration that foreign investors are interested in the Russian food market.”

The Eurasian Economic Commission (EEC) is due to develop a model law on competition for the Single Economic Space of Russia, Kazakhstan and Belarus by July 2013, Andrey Slepnev, the minister for Trade of the EEC, told PaRR. Participation in the Customs Union would allow Russia to investigate cross-border issues in Russia, Kazakhstan and Belarus.

Slepnev told PaRR that in the first part of 2013, the EEC plans to present a report about various mutual trade barriers such as administrative hurdles, technical regulations, copyright regulations, customs declarations, tax administration and other issues, that still exist throughout the territory of the Customs Union.

In 2013, Russia is expected to continue addressing such important regulatory issues as the development of intellectual property (IP) rights, the regulation of the energy and infrastructure sectors, and improvement of the investment climate.

According to a High Commercial Court of Russia spokesperson, a court devoted to IP rights, fully endowed as a legal entity, will be established by February 2013.

FAS also recently initiated the reform of M&A-related legislation to get rid of post-merger notifications, said Voznesenskiy. This change is likely to come into force in May 2013, added Oleg Moskvitin of Muranov, Chernyakov & Partners.

Torsten Syrbe, a partner in the corporate practice at Clifford Chance in Moscow, said that the Russian parliament, the Duma, is currently considering the FAS draft bill.

In November 2012, FAS head Igor Artemyev met with President Putin to discuss proposed changes to Russia’s strategic investment legislation. The new legislation would exclude some companies from the list of strategic investments. Local lawyers told PaRR that they expect the process of amending the Strategic Investment Law to take up to another year.

On 28 December 2012, the government introduced a road map to further the interests of competition within Russia, according to Syrbe.

FAS will introduce new assessment criteria for its employees to become more accountable for the kind of superfluous investigations that are ultimately quashed in courts, Voznesenskiy said. This policy is designed to decrease the quantity and improve the quality of FAS investigations, he explained.

FAS enjoys a high amount of esteem due to the progress it has made in these regards, but Syrbe said that much still depends on the individual case-handler assigned to a matter.

“Foreign investors can find themselves in very frustrating situations, especially where a difficult case requires a substantive discussion between the company, its legal counsel and FAS. And this is very different from the EC, US and other sophisticated competition bodies.”

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