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24
April

Differentiation of liability for anti-competitive agreements

Alexander Sitnikov, Managing partner

Alexandra Vasyukhnova, Partner, Head of Technology and Investment group

Yulia Polyakova, Associate of Commercial group

Federal Law No. 135-FZ dated July 26th, 2006 and entitled “On protecting competition” established several types of anti-competitive agreements that are prohibited (cartels, vertical agreements, and other agreements). These varieties differ significantly from each other in terms of the degree of their negative impact on competition and the threat they present for the public. However, until just now the measures for administrative enforcement that could be taken with people who signed any one of these anti-competitive agreements did not differ from each other in any way.

On April 17th, 2017, Federal Law No. 74-FZ entitled "On Introducing Amendments to the Russian Federation Code of Administrative Offenses” (hereinafter - the Law) was adopted [1]. This Law introduces significant amendments to Article 14.32 of the Code of Administrative Offenses (hereinafter – the RF CAO), which establishes responsibility for concluding agreements that restrict competition and carrying out impermissible concerted actions. Because the Law was adopted, liability for these actions will be differentiated, depending on the materiality of the violation.

Below we give a comparative table that clearly illustrates the changes that have occurred in the regulations for administrative liability and implementing impermissible concerted actions.


Type of offense

Liability before the Law came into effect

Liability pursuant to the Law

1.

Signing a cartel agreement, or participating in one (except for cartels formed for bidding)

Executive officer:

Fine in an amount ranging from 20,000 to 50,000 rubles; or

Disqualification for a period up to three years

Legal entity:

Fine

- in an amount ranging from 1 to 15% of:

  • the amount of revenue earned from selling the goods in the market where the offense was committed; or
  • the amount of expenses incurred for acquiring the goods in the market where the offense was committed ; OR   

- in an amount ranging from 1/10 to 1/2 of the initial cost of  the commodity subject to bidding, but not more than 1/25 of the aggregate amount of revenue earned from selling all the goods.

The size of the fine is reduced to 0.3–3 % of the amount of revenue earned by the offender from selling the goods or the amount of expenses incurred for acquiring the goods, provided that:

- the sum of the revenue earned from selling the goods, or the expenses incurred by the offender to acquire the goods, exceeds 75% of the aggregate amount of revenue earned from selling all the goods; or

- selling the goods is performed at regulated prices (tariffs).

Minimum amount of fine – 100,000 rubles

Executive officer:

Fine in an amount ranging from 40,000 to 50,000 rubles; or

Disqualification for a period from 1 to 3 years

Legal entity:

Fine in an amount ranging from 3 to 15% of:

- the amount of revenue earned from selling the goods in the market where the offense was committed; or

- the amount of expenses incurred for acquiring the goods in the market where the offense was committed.

Minimum amount of fine  – 100,000 rubles

2.

Signing a cartel agreement for bidding,[2] or participating in one;

Signing an agreement between the customers and bid participants that aims to, leads to, or could lead to limiting competition and/or  creating advantageous conditions for some of the bid participants, or taking part in this kind of agreement

Executive officer:

Fine in an amount ranging from 20 000 to 50 000 rubles; or

Disqualification for a period ranging from 1 to 3 years

Legal entity:

Fine in an amount ranging from 1/10 to 1/2 of the initial cost of the commodity subject to bidding, but not more than 1/25 of the aggregate amount of revenue from selling all the goods.

Minimum amount of fine – 100,000 rubles

3.

Signing a vertical agreement that is impermissible, or participating in one

Executive officer:

Fine in an amount ranging from 15,000 to 30,000 rubles; or

Disqualification for a period up to one year

Legal entity:

Fine in an amount ranging from 1 to 5 %:

- the amount of revenue earned from selling the goods in the market where the offense was committed; or

- the amount of expenses incurred to acquire the goods in the market where the offense was committed.

Minimum amount of fine  – 100,000 rubles.

The size of the fine is reduced to 0.2–2 % of the amount of revenue earned by the offender from selling the goods, provided that:

- the sum of the revenue earned from selling the goods, or the expenses incurred by the offender to acquire the goods, exceeds 75% of the aggregate amount of revenue earned from selling all the goods; or

- selling the goods is performed at regulated prices (tariffs).

In this case, the amount of the minimum fine is 50, 000 rubles.

4.

Signing a prohibited anti-competitive agreement, except for those agreements indicated in items 1-3 above, or participating in one

Executive officer:

Fine in an amount ranging from 15 000 до 30 000 rubles

Legal entity:

Fine in an amount ranging from 1 to 5 %:

- the amount of revenue earned from selling the goods in the market where the offense was committed; or

- the amount of expenses incurred to acquire the goods in the market where the offense was committed.

Minimum amount of fine – 100,000 rubles.

The size of the fine is reduced to 0.2–2 % of the amount of revenue earned by the offender from selling the goods, provided that:

- the sum of the revenue earned from selling the goods, or the expenses incurred by the offender to acquire them exceeds  75% of the aggregate amount of the revenue earned by the offender from selling all the goods; or

- selling the goods is performed at regulated prices (tariffs).

In this case, the minimum amount of the fine is 50,000 rubles

5.

Impermissible concerted actions related to business activity

Executive officer:

Fine in an amount ranging from 20,000 to 50,000 rubles; or

Disqualification for a period up to three years

Executive officer:

Fine in an amount ranging from 40,000 to 50,000 rubles; or

Disqualification for a period up to three years

Legal entity:

Fine in an amount ranging from 1,000,000 to 5,000,000 rubles

Legal entity:

Fine in an amount ranging from 1,000,000 to 5,000,000 rubles

Individuals:

Fine in an amount ranging from 40,000 to 30,000 rubles.

6.

Performing impermissible concerted actions

Executive officer:

Fine in an amount ranging from 20,000 to 50,000 rubles; or

Disqualification for a period up to three years.

Legal entity:

Fine

- in an amount ranging from 1 to 15% of:

  • the amount of revenue earned from selling the goods in the market where the offense was committed; or
  • the amount of expenses incurred to acquire the goods in the market where the offense was committed; OR

- in an amount ranging from 1/10 to 1/2 of the initial cost of  the commodity subject to bidding, but not more than 1/25 of the aggregate amount of revenue earned from selling all the goods.

The size of the fine is reduced to 0.3–3 % of the amount of revenue earned by the offender from selling the - 

Executive officer:

Fine in an amount ranging from 10 000 до 20 000 rubles

Legal entity:

Fine in an amount ranging from 1 to 3 % of:

- the amount of revenue earned from selling the goods or expenses incurred by the offender to acquire them exceeds 75% of the aggregate revenue earned from selling all the goods; or

- selling the goods was performed at regulated prices (tariffs).

In this case, the minimum amount of the fine is 50,000 rubles.

7.

The conclusion of an anti-competitive agreement by a government agency or local government authority, or the performance of impermissible concerted actions by same

Executive officer:

Fine in an amount ranging from 20 000 до 50 000 rubles; or

Disqualification for a period up to three years

The liability for this violation remains the same


This means that because the Law was adopted the scope of administrative liability will increase for the following violations:

  • Signing a cartel agreement, or participating in one (except for cartels formed for bidding) – the size of the fine and minimum time period for disqualification for executive officers will increase. The minimum amount of fine that is imposed for legal entities will also increase (from 1% to 3 of revenues/expenses). In addition, the possibility of applying a reduced fine is barred in those cases when goods are sold at regulated prices, or the revenue from selling the goods in the market where the offense was committed, amounts to a considerable share (more than 75%) of the offender’s aggregate revenue. If it used to be that in these cases the size of the fine could not exceed 3% of the amount of revenue/expenses in the relevant market, then now it can reach up to 15% of these kinds of revenue/expenses. Correspondingly, for companies that are doing business chiefly in one market, the size of the potential sanctions for a violation related to cartel agreements increases substantially.
  • Cartel agreements for bidding – the minimum time period for disqualification for executive officers will increase. Besides that, as with other cartel agreements, the possibility of applying a reduced fine is barred in those cases when goods are sold at regulated prices, or the revenue from selling the goods in the market where the offense was committed, amounts to a considerable share (more than 75%) of the offender’s aggregate revenue.
  • Impermissible concerted actions related to business activity – administrative liability for this violation will be introduced for individuals, and the size of the minimum fine for executive officers will increase.

At the same time, the Law mitigates liability for the following violations related to anti-competitive practices:

  • Impermissible vertical agreements – the size of the fine is reduced as well as the time period for disqualification for executive officers. For legal entities, the maximum size of the fine is substantially reduced (from 15% to 5%). Together with that, the possibility of applying a reduced fine remains in those cases when goods are sold at regulated prices, or the revenue from selling the goods in the market where the offense was committed, amounts to a considerable share (more than 75%) of the offender’s aggregate revenue. And the maximum size of the fine in this situation is also decreased, and is 2% of the amount of revenue/losses that are earned or incurred (instead of 3%, the way it was before).
  • Other anti-competitive agreements – the possibility to apply measures for disqualification is barred, and the size of the fine is reduced, for executive officers. For legal entities, the scope of administrative liability for other anti-competitive agreements changes to the same extent that the changes for vertical agreements do that are described above.
  • Impermissible concerted actions – the possibility to apply measures for disqualification is barred, and the size of the fine is reduced, for executive officers. For legal entities, the maximum size of the fine is reduced to 3% (instead of the 15% that it was before). The possibility of applying a reduced fine remains in those cases when goods are sold at regulated prices, or the revenue from selling the goods in the market where the offense was committed, amounts to a considerable share (more than 75%) of the offender’s aggregate revenue. And the maximum size of the fine in this situation is also decreased, and is 1% of the amount of revenue/losses that are earned or incurred (instead of 3%, the way it was before).

This means that the Law stipulates significant differentiation of liability for signing anti-competitive agreements and for performing concerted actions, and should permit the degree to which they present danger, and their negative impact on the state of competition, to be taken into account fairly.


[1] The Law will enter into force 10 days from the time it is officially published.

[2] Forming a cartel for bidding means an agreement between two competitors that leads to the prices during bidding increasing, decreasing, or being maintained at a certain level.

VEGAS LEX_Дифференциация ответственности за антиконкурентные соглашения_04.2017

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