To successfully structure a cross-border transaction, it is important to do a careful antimonopoly law analysis at an early stage. Russian merger control requirements may apply in case of foreign-to-foreign M&A transactions with very little nexus to the Russian market. Likewise, Russian antimonopoly clearance may be required for the establishment of joint ventures. Unlike some jurisdictions, Russian antimonopoly law does not treat joint ventures any differently than other M&A transactions. Accordingly, joint ventures need to be analyzed from the perspective of the merger control rules, as well as the rules dealing with potentially anticompetitive agreements. Given that Russian competition rules are in some respects stricter than their counterparts in other jurisdictions and that merger control and other antimonopoly filings are time- and effort-consuming endeavors, it is essential to assess the implications for a particular transaction (including substantive and timing implications) at an early planning stage.
a. Merger Control Filings
A merger control filing must be prepared in the format prescribed by the Russian Federal Antimonopoly Service (the "FAS"). Not only is the amount of information and documents submitted in the filing fairly substantial, but also their scope and format differ in many respects from what foreign companies and their counsel have come to expect in other jurisdictions. Consequently, preparing a Russian filing, especially for a cross-border transaction involving large multinationals, tends to be a fairly involved process. While the actual timing is ultimately a function of the efficiency of the process, on average it takes about two months to prepare a filing. Applications for preliminary approval and post-transaction notifications require essentially the same amount of information and documents. Given that the FAS tends to take about three months to review an application for preliminary approval, the entire process (including the filing preparation stage) takes about five months on average. A preliminary consent must be obtained before the transaction is completed, i.e. before the transfer of shares or assets. By law, post-transaction notifications are to be made within 45 days within the completion of the transaction. While the FAS, in one of its official interpretations, has gone as far as to suggest that the notification should be done within 45 days of signing of the transaction documents (which obviously may take place long before closing), in practice, notifications are made after the closing (i.e. after the actual transfer of shares or assets).
Foreign companies often inquire about the consequences of failure to make a merger control filing in the context of a cross-border transaction . There is no simple answer to this question. On the one hand, the practical consequences of failure to file in some foreign-to-foreign transactions may not appear significant. This is because in order for the FAS to invalidate a foreign transaction or dissolve a foreign entity, it must (i) find out about a foreign transaction, (ii) decide to challenge it in court, (iii) obtain a Russian court decision to invalidate it and (iv) enforce such decision outside Russia (possibly in several jurisdictions). The chances of all of the above happening appear largely theoretical (especially given that there is no recognition of court awards between Russia and most western jurisdictions). Importantly also, there are no provisions in the Russian law that would allow the FAS to proceed against the parties' indirectly held Russian assets and subsidiaries or their executives. On the other hand, however, the FAS is an increasingly powerful Russian regulator and to the extent the parties intend to do business in Russia in the long term, they need to carefully assess potential reputational and relationship damage vis-à-vis the FAS that a failure to file might entail.
b. Rules on Potentially Anticompetitive Agreements
The broad and absolute prohibition on certain types of anticompetitive agreements established by Part 1 of Article 11 of the Competition Law has important implications for a wide specter of international transactions, ranging from joint venture agreements to services or consultancy contracts with individuals. Various non-compete, exclusivity and non-solicitation provisions commonly used in many jurisdictions may potentially be viewed as a violation of Russian competition rules and, as previously indicated, may not be enforceable. To date, there is still insufficient practical guidance from the FAS and the Russian courts as to nuances of the application and enforcement of those restrictions.
Generally, the Russian prohibition on potentially anticompetitive agreements appears to be much broader than the corresponding rules in the US or EU. There are no clear guidelines or procedures that would allow to take advantage of the exemptions envisaged for potentially anticompetitive arrangements or practices that may have countervailing benefits for the economy or consumers. This clearly is one of the developing legal areas to be closely watched in the coming years.
c. The FAS Jurisdiction
The FAS jurisdiction extends to monitoring compliance with the antimonopoly regulation by business entities and individuals, as well as government agencies and municipal authorities, and taking action to prevent anticompetitive practices. Among other things, Article 23 of the Competition Law authorizes the FAS to (i) investigate potentially anticompetitive practices, (ii) issue mandatory orders aimed at restoring competition (by requiring termination or amendment of anticompetitive agreements and prescribing other actions aimed at restoring competition), (iii) impose penalties for violations of the antimonopoly laws (to the extent provided by the law) and seek court decisions to invalidate or terminate anticompetitive agreements or concerted actions, confiscate revenues received in violation of antimonopoly laws or liquidate or break-up legal entities engage in monopolistic conduct.
The FAS also has oversight over natural monopolies. Transactions involving shares or assets of natural monopolies require clearance in accordance with the Russian Law "On Natural Monopolies".
The authority and political clout of the FAS has been growing in recent years. Lately, it has been scrutinizing what appear to be long-existing anticompetitive practices in various industries and markets. Among other things, the FAS has been actively targeting cartels, as well as abuses of dominant position. Based on the information available on the official website of the FAS, a new anti-cartel department has recently been established within the FAS.
The FAS has been appointed as the authorized federal agency overseeing foreign investment into Russian strategic industries in accordance with the new Russian Law "On the Procedure for Foreign Investment into Business Entities of Strategic Significance for Ensuring National Defense and State Security" (the "Strategic Investment Law") that was adopted in spring 2008. The actual substantive decision making on specific proposed investments takes place at the level of the Government commission established pursuant to the law, while the FAS performs a purely technical function of accepting the applications and issuing the commission's decisions.
Russian antimonopoly regulation is still evolving, with many uncertainties and compliance challenges remaining. Many of the key provisions of the Competition Law are unclear and open to interpretation. As such, they require further interpretation by the FAS and by Russian courts. While in many respects similar to the antitrust laws of other jurisdictions, the legal framework established by the Competition Law is different in a number of key areas. Certain provisions commonly used in international transactions may not be enforceable in Russia. Russian competition law rules may apply not only to M&A transactions, but in a much broader transactional context as well. Given its peculiarities, investors are well advised to seek advice on the Russian competition law sufficiently early in the transaction structuring process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.