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Russian Competition Law and Sanctions

Russian Competition Law and Sanctions

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Foreign sanctions are forcing international companies to carefully evaluate their contractual relationships with Russian counterparties. In this respect Russian competition law provides obstacles that may be difficult to over-come.

Among other things, the sanctions prohibit international companies from entering into or continuing business relationships with specific individuals and from conducting business in Crimea. International companies may also try to ensure that their Russian counterparties do not resell goods to those specific individuals, and they may try to prepare for the possibility that their Russian counterparties will be qualified in the future as someone they are prohibited from doing business with. 

The resulting changes in the interaction with Russian counterparties may cause issues under Russian competi-tion law. For example, restricting the resale of supplied goods is, as a rule, prohibited under Russian competition law. Further, companies with a dominant market position may refuse to enter into a contract or treat counter-parties equally only for economic, technical, or other justified reasons. When assessing market dominance, the relevant goods market can sometimes be defined very narrowly, such as a single medicine, specific consuma-bles, or spare parts. Russian competition law also contains a catch-all clause that generally prohibits any agree-ments that result or may result in the limitation of competition. Last, but not least, the coordination by one entity of market behavior of two or more other entities that are active on another market may be regarded as a pro-hibited coordination, such as a manufacturer coordinating the prices offered for its products by dealers. 

These restrictions may become relevant in certain sanctions-related scenarios. For example, the refusal by a market-dominant company to supply or to continue to supply its product to specific individuals identified by the international sanctions or to customers in Crimea may violate Russian competition law. The contractual covenant imposed on a counterparty not to resell goods to those individuals or to customers in Crimea may violate Russian competition law with respect to resale restrictions and the general prohibition of restrictions to competition, and may also lead to antitrust violations by the Russian counterparty where it has a dominant market position. It is possible that an international company may be regarded as a market coordinator by imposing identical sanc-tions-related restrictions on all of its dealers in Russia.

Solutions to the resulting conflict between foreign sanctions and Russian competition law must be assessed on an individual basis. In certain cases exemptions from Russian competition law may apply, particularly in case of low market shares. However, uncertainties usually remain, as the relevant market is often difficult to determine exactly. One may also argue that the threat of significant fines under foreign law in case of violation of sanctions provides sufficient economic justification for deviation from general antitrust restrictions, in particular for domi-nant market players. However, previous Russian administrative and court practice on a similar conflict between Russian competition law and foreign anti-corruption regimes, as well as the recognition by the Russian Supreme Court of foreign sanctions contradicting Russian ordre public, render it unlikely that foreign sanctions can be used as justification of anti-competitive behavior under Russian competition law.

This puts international companies in an uncomfortable position, as the potential liability under Russian competi-tion law is not low. Violations of Russian competition law may result in fines that are mostly turnover-based and can amount to up to 15% of the annual turnover on the relevant market. Personal fines and other implications may also be imposed on key employees.

There are apparently no cases in which the Russian competition authority has, so far, pursued violations of Rus-sian competition law that were triggered by compliance with foreign sanctions. In 2014, the Head of the Russian Federal Antimonopoly Service stated in an interview that the authority was not using its tools, at least at that stage, in order not to worsen relations. For instance, the controversial (and widely-reported) decision by Google not to make Google Play available in Crimea resulted in no measures by the Russian antitrust authority.

As regards Russian countermeasures to foreign sanctions in general, an initially proposed strict approach of im-posing criminal liability on compliance with foreign sanctions has been abandoned and only the less severe form of administrative liability is still under consideration. It remains to be seen which position the Russian competition authority will pursue in the future with respect to sanctions-related measures taken by international companies. 

By Stefan Weber, Head of Moscow Office, and Hannes Lubitzsch, Associated Partner, Noerr 

This Article was originally published in Issue 5.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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