Competition and Antitrust Laws.

a. General provisions.

The RF Constitution includes guarantees of freedom of economic activity, promotion of fair competition, and free movement of goods, services and finances (Art. 8). An implication of this principle is that private rights must not be used to hinder competition and abuse of the dominant position on the market (Art. 10 .1 of the RF Civil Code). Rules on competition and antitrust provisions are concentrated in the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets of 22 March 1991 No. 948-1 (as amended), the Federal Law On Protection of the Competition on the Market of Financial Services of June 23, 1999 No. 117-FZ (as amended); the Federal Law On Natural Monopolies of 17 August 1995 No. 147-FZ (as amended); the law On Protection of the Consumer’s Rights 7 February 1992 No. 2300-1 (as amended). Isolated antimonopoly provisions are also found in other laws (for instance, the law On Securities Market, the law On Joint-Stock Companies, the RF Federal Anti-Monopoly Service (hereinafter – FAS or Antimonopoly Body).

The system of special government bodies, including FAS (acting on the basis of the RF Presidential Decree of 09 March 2004 No. 314 On the System and Structure of the Federal Executive Bodies) and its territorial bodies were created to implement antimonopoly regulation and control abuse of dominant position; see also Art. 21 The Federal Law On Protection of the Competition on the Market of Financial Services).

Antimonopoly laws have extraterritorial reach. They apply to Russian and foreign legal entities and individuals as well as to actions, agreements executed abroad, if such activity has effect upon the RF markets. The Federal Law On Foreign Investments in Russian Federation of 9 July 1999 No. 160-FZ specifically mentions that foreign investors must comply with national antimonopoly legislation (Art. 18).

b. Monopolistic Activity.

The monopolistic activity is defined as operations (actions) of legal entities, individuals, executive bodies aimed at prevention, restriction or elimination of competition, including abuse of dominant position on the markets (Art. 4 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets).

A dominant position of a commercial entity (financial institution) is a situation where such entity may influence general conditions on the market for certain goods (services) or to restrict access to the same market by competitors (Art. 4 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Art. 3 of the Federal Law On Protection of the Competition on the Market of Financial Services).

The position is normally recognized as dominant if the commercial entity controls more than 65% of the market for such products. A position may not be recognized dominant if the market share is 35% or less. If the market share is less than 65% but more than 35%, FAS applies special criteria to determine whether a dominant position exists (Art. 4 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets).

A dominant position of a financial institution on financial market is determined by the respective antimonopoly body based on a market share by reference to amount of turnover. The RF Government establishes methods of (1) evaluation of financial institution’s turnover, and (2) determination of the areas and scope of particular financial markets (Art. 4 of the Federal Law On Protection of the Competition on the Market of Financial Services).

Operations of legal entities (groups of entities) with a dominant position, which restrict competition or infringe interests of third parties, are prohibited. Unlawful conduct includes: (1) withdrawal of commodities from a market to provide shortage or to increase prices; (2) imposition of unfavorable contract terms upon a party; (3) unjustified refusal to enter into contract with the particular customer(s); (4) consent to enter into a contract only upon the terms not acceptable for the other party; (5) use of discriminating contract terms which put a contractual party into an disadvantage as compared with other entities; and (6) maintenance of monopolistic high (low) prices. (For more details see Art. 5 of the Law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Art. 5 of the Federal Law On Protection of the Competition on the Market of Financial Services).

Antimonopoly legislation prohibits agreements (concerted actions) of competing commercial entities (financial institutions), which may result in restriction of competition, if the cumulative market share of these entities exceeds 35%. Such illegal agreements include the following: (i) violation of the pricing rules; (ii) manipulation of prices at the auctions, tenders; (iii) division of markets; (iv) prevention (creation of obstacles) for market entry by other competitors, elimination of other commercial entities (financial institutions) from the marketplace (Art. 6 of the Law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Art. 6 of the Federal Law On Protection of the Competition on the Market of Financial Services). Within 15 days from the moment of conclusion of agreements which are subject to scrutiny based on the above provisions, the parties thereto have to notify the antimonopoly body.

c. Unfair Competition.

Actions designed to gain advantage by means contradicting to antimonopoly legislation, business customs and fair dealing and causing damages or infringing business reputation of other entities are recognized to be unfair competition and thus prohibited. Such actions may include: (i) publishing inaccurate, false information; (ii) inadequate comparison of own goods (services) with goods (services) of other suppliers; (iii) acquisition, exploitation, disclosure of commercial and official secrets (private data) without consent of the owner; (iv) deception of consumers as regards the manufacturer, quality, etc. of the goods; (v) sale of commodities which infringe intellectual property rights (e.g. trade marks) (Art. 10 of the Law On Competition and Restriction of the Monopolistic Activities on Commodity Markets).

Improper advertising is recognized as unfair competition (the Federal Law On Advertising of 18 July 1995 No. 108-FZ).

d. State control over formation of large-scale companies.

Antimonopoly legislation provides for a system of measures to control the mergers and acquisitions which may lead to monopolization. Instruments of state control are requirements of (1) prior consent or (2) subsequent notification of the Antimonopoly Body regarding corporate restructuring (reorganization).

Prior consent of the Antimonopoly Body is required in case of mergers and acquisitions of commercial entities if the cumulative value of their assets (including assets of affiliated entities) exceeds 200,000 minimum statutory wages (MSW) (Note: at present the MSW equals to about 3,5 US dollars).

To clear the above mentioned corporate reorganizations with the Antimonopoly Body, an applicant has to disclose the following information: a set of documents required for the state registration of legal entities (see Section “Business Organizations (Formation)”), application for the consent to mergers or joining, information on types of activity and production volume of the commercial entity etc. (Art. 17 [2] of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets).

Subsequent notification of the Antimonopoly Body within 45 days from the moment of the state registration of changes in corporate status is required in cases of (1) incorporation, mergers and joining of non-commercial entities (associations, unions, non-commercial partnerships) if they include at the least two commercial entities among its members, (2) changes in the membership of non-commercial entities (associations, unions, non-commercial partnerships) if they include at the least two commercial entities among their members (3) incorporation of commercial entities where the cumulative value of assets of founding members according to the latest balance sheet is more than 200,000 MSW, (4) mergers and acquisition of commercial entities where the cumulative value of their assets and/or assets of their affiliates according to the latest balance sheet is more than 100,000 MSW, but not more than 200,000 MSW. Such notification may lead to the inquiry into effects which reorganization may have for the market competitive conditions.

e. State control over acquisition of assets, shares, mergers and acquisitions etc.

Acquisition of assets and shares in charter capital of legal entities is subject to state controls in the following cases: (1) acquisition of more than 20% of issued voting shares (stocks) of a commercial entity (financial institution) (is not applicable to founding members of a legal entity at the time of its formation); (2) acquisition of more than 10% of fixed (capital) assets of another commercial entity; (3) acquisition, by contract or otherwise, of the rights, which enable a person to manage commercial activity or exercise the powers of the managing body of another commercial entity (Art. 18 The Law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Art. 16 of the Federal Law On Protection of the Competition on the Market of Financial Services).

Prior consent of the Antimonopoly Body for such transactions is required if the cumulative value of assets of the commercial entity and of the acquiring party exceeds 200,000 MSW or one of these entities (a party of transaction) is registered with FAS as having a dominant position. If the cumulative value of assets is between 100,000 and 200,000 MSW, FAS shall be notified of the transaction within 45 days after the date of the transaction (Art. 18 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Art. 17-19 of the Federal Law On Protection of the Competition on the Market of Financial Services).

Also in accordance with the Federal Law On the Central Bank of the RF No. 86-FZ of 10 July 2002, a legal entity must obtain a prior permission of the RF Central Bank to acquire more than 20% of the shares in charter capital of a bank or another lending institution and to send notice to the bank in case of acquiring shares in the amount exceeding 5% (Art. 61).

Operations, transactions, agreements, state registration of legal entities (all mentioned above in the present section), violating antimonopoly rules, may be invalidated (challenged) in court in the action instituted by antimonopoly bodies.

Antimonopoly legislation extends to affiliated persons, i.e. the legal entities (or individuals) which may influence business activity of commercial entities and solo businessmen (a member of the Board of Directors, a general manager, the major shareholder (20% or more), a subsidiary (owned by more than 20%) are recognized as affiliated persons) (Art.4 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets).

f. Federal Antimonopoly Service.

FAS has functions of promoting competition, restricting and preventing monopolistic activity as well as unfair competition on markets (Chapter 4 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Chapter 7, of the Federal Law On Protection of the Competition on the Market of Financial Services; RF Government Resolution of 07 April 2004 No. 189 On the Issues of the FAS).

FAS shares competence to regulate financial markets with other state bodies: the RF Central Bank (on the banking services market); the RF Federal Commission on Securities Market (on the securities market); the department of supervision over insurance activity of the RF Ministry of Finance (on the insurance services market) (Art. 21 of the Federal Law On Protection of the Competition on the Market of Financial Services).

FAS has broad powers in its sector, where it sometimes functions as a legislator, a judge and a policeman in the same matter. FAS is authorized to interpret antimonopoly legislation, issue delegated legislation on a number of issues and to submit recommendations concerning development of antimonopoly legislation to the RF Government. It conducts quasi-judicial proceedings in cases of violation of anti-monopoly laws and violation of consumer’s rights, and issues binding orders on the basis of such proceedings. Orders, warnings and recommendations of FAS issued on matters of its competence are mandatory. FAS is authorized both to transfer cases to the court and punish offenders (in particular, legal entities and their top managers) with administrative fines of up to 5,000 MSW (Art.3 [5] of the RF Administrative Code No. 195-FZ of 30 December 2001). Of course, acts of FAS may be challenged in the court (Art. 28 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets, Art. 31 of the Federal Law On Protection of the Competition on the Market of Financial Services).

FAS maintains the Register of commercial entities having a dominant position at the commodities and services markets. The procedure of the keeping the register is established by RF Government Resolution of February 19, 1996 No. 154. The Register is available for public (Art. 18 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets).

g. Liability.

The law provides for civil (compensation of damages), administrative (including penalties) and criminal (Art. 178 of the RF Criminal Code) liability for violation of antimonopoly legislation. (Art. 22.1 of the law On Competition and Restriction of the Monopolistic Activities on Commodity Markets; Art. 29 of the Federal Law On Protection of the Competition on the Market of Financial Services). Transactions which violate anti-monopoly laws may be invalidated by the court.

h. Price control.

Generally, parties to private transactions are free to agree on a price. However, in some cases the legislation provides for regulated and/or fixed prices. Such regulations are established for entities with a “dominant position” as well as for natural monopolies (see Section on Natural Monopolies below). Price controls are currently implemented by the executive legislation, namely the Decrees of the President and of the Government, acts of FAS, etc. Price controls in some spheres are also regulated by the federal laws (the law On State Regulation of Prices and Tariffs for Electric Energy and Heating No. 41-FZ of 14April 1995). The RF Government is competent to determine what commodities and services must be subject to the state regulation of prices and to enact the lists of such commodities and services.

i. Natural and State Monopolies.

A “natural monopoly” is a market situation where competition is not effective because of technological aspects of industry and commodities produced by natural monopolies (commercial entities included in corresponding Registers) cannot be substituted by other goods (Art. 3 of the federal law On Natural Monopolies No. 147-FZ of 17 August 1995). The law regulates seven spheres where natural monopolies are effective: (1) petroleum transportation by principal pipelines; (2) gas transportation by piping; (3) railway transport; (4) electric and thermal energy transportation services; (5) efficient-dispatch direction services in electric-power industry; (6) seaports, airports and transport terminals; and (7) postal (mail) services.

Special federal bodies regulate and control activity of natural monopolies (for instance, Federal Energetic Commission). These bodies have the powers similar to those of FAS’s bodies (see sub-section “FAS” above). They keep Registers of Natural Monopolies, enforce price controls, and supervise large-scale transactions of natural monopolies.

Bankruptcy and insolvency proceedings applicable to natural monopolies are governed by the special law.

The RF Constitution authorizes adoption of federal legislation providing for a state monopoly in certain sectors of the economy to protect public interests. Such provisions can be found in the legislation already. In accordance with Art. 4 of the Federal Law On the Central Bank of the RF No. 86-FZ of 10 July, 2002, the RF Central Bank has a monopoly right to carry out monetary emission. Federal Law on the Foundations of State Regulation of Foreign Trade Activities establishes that state monopoly for export/import of certain commodities may be provided by federal laws (such as Federal Law on Precious Metals and Precious Stones of 26 March 1998 No. 41-FZ; Federal Law on Technical Military Cooperation with Foreign Countries of 19 July 1998 No. 114-FZ). Licenses for export/import of such goods are issued by the competent federal executive body.