Category: Russia

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.

Maxim Nikitin is the Chief Legal Officer of Atol Group in Russia. He started his career in law in 1998 at Debevoise & Plimpton. In 2001 he moved in-house before returning to private practice in 2011. In 2013 he moved back in-house as Chief Legal Officer with Virgin Connect, before moving to Atol in March of this year.

CEELM: When and why did you decide to become a lawyer? 

M.N.: I am from a lawyer’s family. My parents are both lawyers and apparently I was inspired to continue the family tradition from a young age. As I recall it, choosing my future career path was not a hard decision for me.

CEELM: You started your career in law in 1998. How has the market changed since that time?

M.N.: The market in Russia has changed dramatically since 1998. In the nineties the law was still in transition from the Soviet regulation to the current one. A lot of new areas of business were appearing, and the legal part was constantly lagging behind the requirements of the market. It was challenging to make a decision amid the lack of regulations because the results could not be predicted from the legal perspective. However, I would say it was an interesting time – and not only for lawyers. 

CEELM: Who is the one person you learned the most from?

M.N.: Wherever I’ve worked so far, I have always found colleagues from whom I could learn. And this is still true. I was perhaps also fortunate to meet and to work with strong professionals. We face new challenges every single day and each one is more difficult than the previous. 

CEELM: What kind of legal and personal skills are most valuable in your role at Atol Group?

M.N.: Risk assessment is the most required competence. Zero-risk solutions simply do not work. A lawyer has to understand business requirements and suggest solutions which prevent negative consequences and allow business to grow. In order to provide the right advice, lawyers must have strong management skills, be attentive to detail, and – at the same time – have a full view of the problem. 

CEELM: How big is your team? Did you put it together or did it exist before you arrived? 

M.N.: Before I joined Atol, the company had only one lawyer on board, and that was obviously not sufficient for the business. Now my team consists of four lawyers, plus myself. First, I examined the ongoing business processes in order to find out what bottlenecks were in the processes and what was still needed. After that I defined the areas that needed improvement and decided how big the team should be. Now each team member is assigned to a particular area. I think it is very important to find a balance between people’s specialization in order to better exploit their expertise and ensure some generality of skills to prevent disruptions if a designated lawyer is absent or cannot respond timely by any reason.

CEELM: What was the biggest challenge you faced in the last two years? How did you respond to it?

M.N.: As a matter of fact, the biggest challenge in my profession is the legislator. The law in Russia is still changing quite rapidly. What I studied twenty years ago at the university became irrelevant quite a long time ago and even what I learned two years ago has lost its relevance. You cannot rely on your own experience and you always have to check what the current legal regulations are. At least, basic legal principles have not changed dramatically and this helps sometimes. 

CEELM: If you could change one thing about the service you’ve received from external counsel, what would it be?

M.N.: The price. But it is utopia, of course, to expect legal advice for no cost. I understand why costs cannot be lower, because the quality cannot be compromised. What I expect from the external counsel is deep involvement in my business, which allows us to receive more professional and relevant advice.

CEELM: What’s your favorite tourist destination? Why?

M.N.: Usually I prefer active vacations. Lying on a beach with a glass of beer is definitely not my style. I love mountains, so usually, in the summer, we go hiking, in the winter, we go skiing. Fortunately, there are plenty of places to visit on this planet. If not the mountains, then it can be travelling without any exact destination – we just rent a car and go around the country, find nice rural places and observe life as it is. Something that you probably miss if you just visit capitals with their fancy life. 

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.