Analytics Publications

The Law on the Protection of Competition (135-FZ), which came into force on October 26 2006, introduced a number of changes to anti-monopoly policy in areas such as:

• the factors to be considered when determining the existence of dominant position;
• the procedure for clearing transactions involving the acquisition of a participatory interest in a company; and
• the powers of the Federal Anti-monopoly Service (FAS) to enforce compliance with competition law.

This upd ate deals with another aspect of the law: the concept of a 'group of entities' in competition assessments.

Among the improvements to the conceptual structure of the law is a definition of the concept in Article 9; its subparagraphs se t out 14 factors for determining whether an entity belongs to a group of entities.

The criteria for determining an entity's status within a particular group are substantially simpler than under previous legislation; the aim is presumably to encourage self-assessment and minimize FAS intervention. A more comprehensible conceptual structure will also help entities to take all necessary measures to ensure compliance with anti-monopoly legislation in their activities.

The law makes the following changes to the definitions and procedures which apply under the Russian competition regime:

• The vague and much-criticized term 'person' has been replaced by 'natural person', 'legal person' or 'business entity' as appropriate. According to the logic of the law, in every case there must be a common factor between business entities (ie, companies or other commercial associations), physical persons and/or legal bodies which allows them to be considered as part of the same group. By introducing more specific terms, the law aims to define more closely the relationship between the constituent persons and entities of a group.
• The law also abandons the concept of a 'direct or indirect disposal' of a holding representing over 50% of the voting rights in the authorized capital of a legal entity where the disposal results in the entity and the disposing party belonging to the same group. The law formerly allowed for a broad interpretation of direct and indirect disposal methods, which included a listing of available transactions and any possibility of actual disposal.
• The law requires that a natural or legal person be included in a group of entities if such a person (i) controls over 50% of the voting rights in the authorized capital of a business entity, or (ii) qualifies for inclusion by virtue of its participation in an entity within the group or the influence it may exert through an intermediate entity. Although the relevant provision is vaguely phrased, this requirement is understood to apply equally to "a person or entity with the capacity to influence the business activities and decisions made by another person except by agreement".

The revised terminology in the law makes the concepts and their interrelation more logical. For instance, the condition on persons or entities with the capacity to determine the business activities and decisions of others is reflected in the new provision of the law which states that the main factor for including entities within the same group for anti-monopoly purposes is whether a controlling natural or legal person has the power to determine the actions or decisions of a business entity on the basis of an agreement with the entity or by the terms of the latter's foundation or incorporation. This eliminates the conceptual uncertainty which has arisen when resolving questions of control in situations where certain persons or entities exercise decision-making control over other entities.

The law avoids lengthy statements of the conditions for including a person or entity within a particular group by consolidating the interrelationship of various entities if they are all constituent entities of a larger group.

The rationale behind the simplification of the criteria for determining an entity's status within a group is reflected in the FAS's requirements for declarations on group structures (eg, as part of an application for approval of a concentration). Decree 293/2006 sets out the form in which groups must present a list of group entities and their structural relationship. In formalizing the procedure for presenting this information, the law transfers the responsibility for determining the relationship between interconnected entities from the FAS to the relevant authority within the group. This relieves the FAS of a time-consuming administrative burden and obliges applicants to act conscientiously when delivering a list of group entities to the FAS. The FAS will check the information and may reject the application if it concludes that the data is false or unreliable.

There are no exceptions to the requirement to supply information on group entities. Therefore, in certain circumstances non-resident companies which conduct business in Russia are subject to the same disclosure requirements as Russian companies; non-resident companies should be aware of the requirements of the new law when carrying on business in Russia.

The new provisions on determining group relationships are fundamental to anti-monopoly control, as many of the entities which contravene unfair competition and monopoly laws by their actions or failure to act are part of a group structure. The new law represents an attempt to bring greater precision to the terminology and formulations to be applied when determining the structure of a group of companies in a competition context. The effectiveness and appropriateness of the FAS's application of the new concepts will be judged in practice as the regulator gains experience of enforcing the new conditions.