Warn impossible to punish

On 18 February 2015 Deputy Head of the Federal Antimonopoly Service (FAS Russia) Andrey Tsyganov took part in the V Annual Conference of the International Compliance Association (ICA): “Compliance-Management: Optimization and Efficiency”, where he talked to representatives of business and legal community about specifics of antimonopoly compliance and the difficulties that emerge in the process of discussing possible mechanisms of its institutionalization.

The short-hand notes of the presentation:

– Dear colleagues,

Financial markets, combating corruption undoubtedly are the priority for compliance procedures. I believe that there is a place for this method of reducing the risks of doing business everywhere where there are the established rules and sanctions for not observing them. Therefore, I would like you to immerse in such specific action-oriented area as compliance in competition.

For the first time the “antimonopoly compliance” term appeared in 2013 in the Long-Term Strategy of the Federal Antimonopoly Service. FAS understands under it a corporate system of in-house prevention of violations of the antimonopoly law.

Why do we think it is of interest for business? Because developments in the antimonopoly law in the Russian Federation and in the world in general create new risks. For instance, today the most serious violations of the Law “On Protection of Competition” in Russia are punishable by a fine for up to 15% of the company’s turnover. It’s a lot, it is a real penalty.

There is also a risk of private claims. They are not much popular in the Russian Federation so far but in fact our lawyers reasonably believe that under the current law system it’s enough to obtain a decision of the antimonopoly body and claim damages, loss of expected gain or any other material benefits that were lost due to malicious actions of a monopolist on the market.

Another colossal risk is up to 7 years of imprisonment for participating in a cartel. 178 Article of the Criminal Code used to be “dormant” but was put into effect in 2014. First the antimonopoly body proves a violation and then the materials are mandatory forwarded to the law enforcement bodies to open a criminal case.

There is also reputational risk. It is not only “shaking” your name in media but actual refusal of counteragents to work with you, particularly, referring to their in-house compliance procedures. There were already such incidents when a company was removed from a list of business partners after violating the antimonopoly law. Such is life. This kind of practice is a danger for business. We think that this is the reason why many companies in the Russian Federation are implementing the antimonopoly compliance procedure. They are also employed by Russian branches of transnational corporations. It means that this practice exists in Russia.

Many experts, lawyers have understood that it is a special line for their business: consultations, expert examination. Previously a traditional method of interactions between law firms with clients was light competition due diligence (when after the antimonopoly body opens a case company attorneys and lawyers start cleaning documentation); now many people are aware that they might not have enough time and the approach should be more serious and the work must be started in advance. Therefore we see increasingly more projects when companies engage consulting and law firms, in-house lawyers to establish serious and well-balanced compliance-procedures aimed exactly to prevent the risks of violating the antimonopoly law.

As I already stated, the issue of antimonopoly compliance emerged quite recently – we started discussing it only in 2013 but we did it robustly. For this we have a traditional platform of the Non-Profit Partnership for Competition Support, with whom we maintain very close cooperation. These are the same lawyers and economists who see for themselves an enormous front of work on introducing compliance procedures, so they are active supporters and protectors of the process. We also meet on a regular basis at the platform of the Corporate Counsel Association because they are in-house lawyers who will also have to work with such compliance-procedures on a daily basis. Overall, there were a lot of various conferences, workshops and other sites where the issue was discussed in the past 2 – 3 years. In 2015 the Analytical Centre at the Government of the Russian Federation published, in our opinion, an interesting report on antimonopoly compliance, current practice and prospective developments, which means that the issue is already raised at the state level. There are people looking at the issue at the Economics Faculty of Moscow State University, so the work is going on. But I must say that plenty of questions still remain.

Why is antimonopoly compliance interesting for us? FAS does not only expose violators and hold them liable. The law and the Regulations on the Federal Antimonopoly Service specify that FAS main objective to develop and support competition, which means that we should support and approve any pro-competitive measures encouraging practical implementation of the norms of the competition policy. Anticompetitive compliance is one of such measures.

We understand that it is different from compliances in other fields of company operations and from other mechanisms and tools of the antimonopoly policy. In our opinion, implementing compliance-procedures is not coercive. It is a soft tool of the national competition policy. It is not a formalized procedure. It includes mechanisms that must be absolutely individual for various companies because every industry has its own risks, each market has its own structure and each company has its own group of counteragents and a set of functional risks. A compliance-procedure aimed at preventing company participation in a cartel is inevitably different from a compliance-procedure, the purpose of which is not to mislead consumers or use prohibited symbols in advertising its products. These are different elements of the same process.

Antimonopoly compliance is also different from the leniency programme. You know, for instance, that a cartel member that was the first to approach FAS, “surrendered”, actively contributed to a cartel exposure, brought in evidence that facilitated cartel exposure and holding the violators liable, is fully relieved from an administrative fine, which, as I already mentioned, reaches up to 15% of the annual company turnover. The procedure of introducing corporate compliance is something different. It is not a trading policy that the federal antimonopoly body can force a company to implement. It is not the Rules for non-discriminatory access that also regulate relations between different market participants and can be applied either upon FAS decisions or approved by the Government of the Russian Federation. In this context there are many issues so our interaction is essential.

The first and the most important question at the moment is whether there are any additional incentives, for instance, alleviating sanctions for violations of the antimonopoly law so that companies implement antimonopoly compliance procedures, or existent internal corporate incentives would suffice? On the one hand, a company has advantages on the market if there are in-house control procedures, audit of possible risks of violating the antimonopoly law. A company can prevent violations and avoid the consequences. Or be the first to run to the antimonopoly body, “surrender” and escape liability for violating the antimonopoly law. On the other hand, perhaps there should be an incentive for the companies to start introducing compliance–procedures, taking into account that we have just started the process…

There is also a point of view that compliance is an anti-incentive in general. It is not a very good practice when a company wrore a beautiful paper based, for instance, on a thick book recently published by the International Chamber of Commerce in Russian (so they do not even need to translate anything), brought it to the antimonopoly body and said that “the company violated the law but has compliance-procedures and claims a “discount””.

Therefore, the regulator’s conduct can be absolutely different in terms of its activity in implementing compliance–procedures. Obviously, we can pursue a non-interference policy – let companies decide themselves. For example, senior corporate managers can advise what can reduce the risks, save funds, or an employee can persuade shareholders, company owners that implementing compliance will save several millions or even billions of dollars or Rubles.  The antimonopoly body will be only happy if it can happen.

We can actively facilitate implementing antimonopoly compliance, encouraging businesses and demonstrating our positive reaction.  We mostly follow this policy. So we believe that we must not intervene and request but we should enable the process, advocate it. In the near future we plan to devise and implement some “soft” recommendations that will reflect FAS attitude to implementing compliance-procedures.

A possible scenario of further developments is some certification of compliance-procedures implemented by a company. How can they be certified? By an independent certifying agency or via the antimonopoly body? It also must be discussed.

So far the Federal Antimonopoly Service does not have an official position whether compliance-procedures are incentives, coercion or a control tool. To make a decision a detailed analysis is required. In my view, it is rather risky to stick to the position that if a company has compliance-procedures it constitutes the grounds for alleviating punishments for violating the antimonopoly law. There are incidents when companies implement compliance while the antimonopoly body is already investigated a case...

One thing is clear. Under any circumstances the corporate antimonopoly compliance procedure must pass an efficiency and performance test. It does not matter who will conduct the test: in-house compliance officers, the antimonopoly body, an independent expert community or somebody else.

If we hold someone liable and the violator brings us a compliance-procedure asking that it must be a mitigating circumstance and claims that all exhausting measures are taken to prevent violating the antimonopoly law, FAS must evaluate whether there measures are truly exhaustive. It will determine solutions with regard to not only the size of the penalties for violations but overall liability for breaching the law.

Together we must find the answers to these questions in 2016 and present to the society the official position of the regulator on implementing corporate antimonopoly compliance procedure.

Thank you very much.