Russian Federation: New Antimonopoly Law Changes Criteria For Filings

This fall will see the entry into force of new antimonopoly legislation which will affect both Russian and foreign companies alike and eliminate many gaps and uncertainties that exist under the current regulatory framework.

At present, competition on the Russian market is governed by two laws: the long outdated RF Law No. 948-1 "On Competition and Restriction of Monopolistic Activities on the Commodities Market," dated March 22, 1991, as amended; and RF Law No. 117-FZ "On Protection of Competition on the Financial Services Market," dated June 23, 1999, as amended (collectively, the "Current Antimonopoly Law"). The Current Antimonopoly Law will finally be replaced by a single and more modern RF Law No. 135-FZ "On Competition Protection" (the "New Antimonopoly Law"), which was signed by President Putin on July 26, 2006, and will enter into force on October 26, 2006.

In addition to unifying the regulation of commodities and financial markets, the New Antimonopoly Law has the following advantages:

The New Antimonopoly Law clarifies such terms as "commodity," "commodities market" (which was amended to include not only the Russian market but also the global market), "group of persons" (which was amended to include, inter alia, a group of entities which have entered into an agreement which may result in major technological or trading advantages over other entities on the relevant market), "dominant position" (a concept of collective dominance is introduced), "monopolistic high prices," and "monopolistic low prices." In addition, the New Antimonopoly Law introduces certain new terms, for instance, "concerted practices aimed at restricting competition" and "coordination of legal entities’ activities by a third party."

The New Antimonopoly Law sets forth a list of violations related to the abuse of a dominant position on the market which are classified as violations per se (e.g., setting monopolistic high or low prices). No exceptions can be allowed by the court or antimonopoly authority with respect to such violations. At the same time, those violations which are not violations per se (e.g., a reduction or termination of production of certain commodities), can be allowed by the antimonopoly authority based on the principle of rationality, i.e., if the abuser proves that the abuse has a positive economic effect.

On the one hand, the New Antimonopoly Law reduces the list of transactions that are subject to control by the Federal Antimonopoly Service ("FAS"). On the other hand, it expands the criteria through which a transaction falls under FAS control. In particular, the following transactions will no longer require FAS approval:

• the establishment, merger or acquisition of non-commercial entities or changes in the participants’ structure thereof;
• the establishment of commercial entities, unless the charter of the company is paid for by shares, participatory interests or property of another commercial entity;
• charter capital increases of financial institutions;
• acquisition of shares or participatory interests, if such acquisition does not involve the acquisition of 25, 50 or 75% of shares (or 50 or 66.66% of participatory interests).

The New Antimonopoly Law introduces new criteria with regard to prior approval of or notification to FAS in connection with the acquisition of shares or participatory interests which is aimed at reducing the number of acquisitions which are subject to antimonopoly clearance.

Prior approval of the antimonopoly authorities is required if: (i) the total balance sheet value of the assets of the purchaser (its group of persons) and the target company (its group of persons) combined exceeds 3 billion Rubles (approximately US$113 million); or (ii) the total amount of sales revenues of the purchaser (its group of entities) and the target company (its group of persons) for the preceding calendar year exceeds 6 billion Rubles (approximately US$226 million); provided that the balance sheet value of assets of the target company (its group of persons) exceeds 150 million Rubles (approximately US$5 million).

A post-transaction notification of the antimonopoly authorities is required if: (i) the total balance sheet value of the assets of the purchaser (its group of persons) and the target company (its group of persons) combined exceeds 200 million Rubles (approximately US$7 million); or (ii) the total amount of sales revenues of the purchaser (its group of persons) and the target company (its group of persons) combined for the preceding calendar year exceeds 200 million Rubles (approximately US$7 million); provided that the balance sheet value of assets of the target company (its group of persons) exceeds 30 million Rubles (approximately US$1 million).

A transaction effected by a group of persons, if falling under the thresholds which imply obtaining prior approval, would require only a post-transaction notification if the information on the group of persons is duly disclosed to the antimonopoly authorities one month prior to the transaction.

The New Antimonopoly Law, in a very detailed manner, regulates the procedure for considering violations of antimonopoly regulations. These procedures are to become more like actual court proceedings. In particular, participants in antimonopoly hearings are granted the right to participate in the hearings, to review the file documents, to submit evidence, and to file motions.

Under the New Antimonopoly Law, a challenge to any decision or order of the antimonopoly authorities in court will suspend the execution of such decision or order until the court judgment enters into force.

The New Antimonopoly Law now clearly states that the requirements set forth therein apply to transactions between foreign companies as well as between foreign and Russian companies, if: (i) the transaction involves assets located in Russia, shares/participatory interests in a Russian company or other rights in relation to a Russian company; and (ii) such transaction could result in a restriction of competition on the Russian market.

Unfortunately, while the New Antimonopoly Law certainly introduces some progressive measures, it still seems to contemplate approval of the FAS for transactions that have a minimal effect on the Russian market but which are caught up in the rules due to the value of the target and the acquirer combined. This means that any major corporation acquiring a relatively small business in Russia will need to face the burden of receiving prior antimonopoly clearance for such acquisition.

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