On 15 December 2022 the State Duma approved in the first reading the draft laws aimed at toughening criminal and administrative liability for participating in anti-competitive agreements.

The purpose of the amendments is to improve the tools of criminal law policy in the area of combating anti-competitive agreements and to increase the efficiency of the antitrust authority's control activity when conducting audits of compliance with the requirements that entry into such agreements be prohibited.

According to the explanatory notes to the draft laws, amending the legislation is grounded in a significant increase in the number of anti-competitive agreements over recent years and also in the fact that the existing mechanisms (in the form of insignificant administrative fines) for inhibiting business entities from committing unlawful acts to prevent the antitrust authority from carrying out audits do not in practice have an appropriate deterrent effect.

The draft laws provide for the relevant amendments to the Russian Criminal Code (the “Criminal Code”), the Russian Criminal Procedure Code (the “Criminal Procedure Code” and the Russian Code of Administrative Offences (the “Code of Administrative Offences”). Please find below our analysis of the main new developments.

A new version of article 178 of the Criminal Code (draft law No. 848246-7)

According to the current version of article 178 of the Criminal Code, a criminal offence is entailed by a restriction of competition by an agreement that is entered into between competing business entities which restricts competition (a cartel) and which is prohibited by Russian antitrust legislation, if such act has caused considerable damage to individuals, companies or the state, or has resulted in large income being generated.

The conclusion can be made that the specified wording is incorrect from the standpoint of antitrust legislation, which, in particular article 11(1) of the Law on the protection of competition (Federal Law No. 135-FZ “On the protection of competition” dated 26 July 2006), does not contain an indication of restricting competition. Moreover, the current version of article 178 of the Criminal Code recognises as an unlawful act only the entry into, rather than participation in, a cartel, which is also not in line with the understanding of this type of an offence.

The draft law proposes stipulating that the entry into, as well as participation in, a cartel which is prohibited by Russian antitrust legislation will be treated as a punishable offence if such offence has caused considerable damage to individuals, companies or the state, or has resulted in large income being generated.

We believe that the specified new development is grounded in and aimed at bringing the disposition of article 178 of the Criminal Code into line with the definition and signs of a cartel as established in the Law on the protection of competition.

The draft law also provides for additional aggravating bodies of criminal offences: (i) a cartel is concluded in mandatory bidding, (ii) a cartel is concluded by a person performing management functions within an organisation and a person that has more than 50% of the total number of votes attached to the voting shares (membership interests) in the issued (share) capital, and (iii) a cartel is concluded by an organised group.

The draft law introduces increased liability for a crime set out in the new aggravating bodies of an offence (see the table below) as compared with the general liability stipulated for entering into and participating in a cartel (article 178(1) of the Criminal Code). Please note that the Draft Law also toughens liability under article 178(1) of the Criminal Code, i.e. the maximum term of imprisonment for entering into or participating in an anti-competitive agreement is increased by one year and amounts to four years.

We believe that establishing additional aggravating bodies of an offence whereby the level of danger that the crime poses to the public is determined by the list of persons who committed it, is unjustified. This is because we believe that the level of danger of an offence should be determined based on the economic and other consequences of the crime.

The draft law also increases the threshold amounts of large and extremely large income (considerable and particularly considerable damage) that constitute the body of a crime under article 178 of the Criminal Code.

We believe that the doubling of the threshold amounts is grounded and will allow officers of business entities to avoid criminal liability for participation in cartels that does not result in significant damage to the economy.

In addition, the Draft Law adjusts the provisions of article 178 of the Criminal Code in terms of the conditions for a release from criminal liability for entry into a cartel.

According to the current version of article 178(3) of the Criminal Code, a person is to be released from criminal liability who “was the first among the accomplices in a crime to voluntarily report the crime, or who actively assisted in solving the crime and/or in the investigation, compensated for the damage caused by the crime or otherwise made up for the harm caused, and if the actions of such person do not contain another body of a crime”.

It is impossible to definitely conclude on the basis of the current version of article 178 of the Criminal Code which damage a person should compensate – the damage caused specifically by the person in question, the damage caused by the business entity which it represents, or the damage caused by all of the companies that entered into the cartel. Neither is it possible to conclude how such person should make up for the harm.

The Draft Law provides for another version of the specified provision whereby a person is released from criminal liability he/she “was the first among the accomplices in crime to voluntarily report the crime, actively assisted in solving the crime and/or in the investigation, compensated for the damage caused by him/her, returned the income that he/she has unlawfully obtained or otherwise made up for the harm he/she has caused, and if his/her actions do not contain another body of a crime”.

That is to say, a person should only compensate for damage and make up for harm that he/she has caused his/herself, and one of the ways to make up for the harm caused is the person returning the income that he/she generated unlawfully when carrying out criminal activity.

The specified new development better clarifies the possible ways for a person to make up for harm, including by returning the income that such person has generated unlawfully, with a view to being released from criminal liability for entering into and participating in a cartel.

A new version of article 151 of the Criminal Code (draft law No. 848246-7)

The Draft Law provides for amendments aimed at establishing alternative jurisdiction (for investigators of the Russian Investigative Committee and of the Russian Ministry of Internal Affairs) for a preliminary investigation to be carried out in criminal cases initiated under article 178 of the Criminal Code.

We believe that vesting the Russian Investigative Committee with powers to conduct a preliminary investigation in cases initiated under article 178 of the Criminal Code is aimed at expanding the jurisdiction to which this category of cases is subject and is logical owing to such cases being closely related to official and corruption crimes that are investigated by the Russian Investigative Committee.

Amendments to the Code of Administrative Offences (draft law No. 848369-7)

The punishment in the Code of Administrative Offences has been toughened for preventing unscheduled audits of the antitrust authority

The main way to obtain evidence of a cartel is the antitrust authority conducting audits which audited business entities do their utmost to resist in practice.

The fines imposed in the event of preventing an audit do not inhibit unlawful conduct of audited companies, since for such entities preventing an audit and paying a small fine¹ is more favourable than paying a turnover-based fine if the antitrust authority obtains the relevant evidence.

The Draft Law proposes to supplement the Code of Administrative Offences with special article 19.4³ and to establish a sanction for preventing audits of the antitrust authority from being conducted as to whether the prohibition on the entry into an anti-competitive agreement is complied with, if this has resulted in it being impossible to conduct or complete the audit. The amount of the fine will depend, among other things, on the amount of the offender’s revenue:

• RUB 15,000 – RUB 30,000 for individuals;
• RUB 30,000 – RUB 50,000 for officers;
• 1/1000 – 1/100 of the aggregate amount the offender’s revenue from the sale of all goods (work, services), but not less than RUB 50,000 – for legal entities.

We believe that in practice, when administrative liability is being imposed on persons under the specified article, issues may arise as to which actions may be classified as resulting in it being impossible to conduct or complete the audit.

It should be pointed out that audits of the antitrust authority aimed at identifying anti-competitive agreements are conducted in the area of government defence procurement, and therefore persons doing military service and persons with special ranks may prevent them from being conducted.

In order to create an additional mechanism for preventing offences in the specified area, the Draft Law proposes that article 2.5 of the Code of Administrative Offences be supplemented with a provision that persons doing military service are also liable under article 19.4³ of the Code.

The possibility of administrative liability being mitigated for persons cooperating with the antitrust authority or of such persons being completely released from administrative liability

Among the mechanisms for identifying and eliminating anti-competitive agreements and concerted actions, one of the most efficient mechanisms involves applying programmes for a release from and for mitigating liability.

Please be reminded that Note 1 to the current version of article 14.32 of the Code of Administrative Offences provides for conditions for a release from liability for entering into an anti-competitive agreement (performing concerted actions). A person is to be released from administrative liability if it was the first to fulfil all of the requirements set out in the law.

According to the text of the Draft Law, the conditions for a release from liability remain unchanged in general; however, it is provided that not only is a person to be released from liability who was the first to fulfil all of the conditions specified in the note, but so is a person who entered into a cooperation agreement with the antitrust authority in order to be released from liability provided that such person fulfils all of the conditions of the agreement.

Note 5 to the current version of article 14.32 of the Code of Administrative Offences provides for conditions for a reduction in the amount of the administrative fine for committing the relevant offence. However, the administrative fine in the amount set out in the note is imposed on legal entities that were the second and the third to fulfil the relevant conditions.

The Draft Law does not provide for conditions in which the amount of the administrative fine will be decreased. However, it is proposed to exclude from the note at hand the provision that the amount of the fine may be decreased only for the entities that were the second and the third to fulfil the conditions. However, unlike the current version of article 14.32 of the Code of Administrative Offences, the Draft Law provides that the provisions of notes 1 and 5 do not apply to persons that entered into an anti-competitive agreement (performed prohibited concerted actions) for which liability is provided for in article 14.32(7) of the Code of Administrative Offences².

We believe that the specified new development will facilitate the antitrust authority obtaining information about anti-competitive agreements, including about the period during which they have been in effect and specific manifestations, which includes evidence, from persons that are directly involved in the anti-competitive agreement.

What to think about and what to do

The upcoming new developments may significantly toughen the measures of both criminal and administrative liability for participating in anti-competitive agreements and for unlawful acts of business entities aimed at preventing the antitrust authority from carrying out audits.

In addition, the new developments aimed at changing the procedure for administrative liability to be mitigated for a party to an anti-competitive agreement/for them to be released from administrative liability, will contribute to improving the activity of the antitrust authority to identify and eliminate such agreements, and to business entities withdrawing from such agreements with the least losses for their economic stability owing to the amount of the fine being decreased or the fine being lifted.

We recommend becoming familiarised with the Draft Laws and following up on their progress, and then, once they have been adopted, taking their provisions into account when conducting professional activity.

Pepeliaev Group’s experts