EXPERTS DISCUSSED THE ROLE OF CIRMINAL PUNISHMENT IN CARTEL PREVENTION

Head of FAS Anti-Cartel Department took part in the discussion between the Corporate Counsel Association and representatives of the Antimonopoly Service and the Ministry of Interior at the Round Table on “Approaches of regulators to enforcement practice of criminal liability for cartels”, organized by the Corporate Counsel Association (CCA) with support of “Baker McKenzie” International Law Firm

CCA President Alexandra Nesterenko welcomed the participants: “Tightening the norms on criminal liability for cartels is determined by the current practice of anticompetitive bid-ridding collusion which constitutes a serious threat to performance of the public procurement system. Another important factor is improving the interaction mechanisms between the Ministry of Interior and the Federal Antimonopoly Serviceto counter violations. CCA members are interested in clear and understandable mechanisms of cooperation between the agencies”.

Head of FAS Anti-Cartel Department Andrey Tenishev talked about tightening criminal liability for cartels. He pointed out that the antimonopoly body exposes more than 600 anticompetitive agreements annually, two thirds of which are cartels. Economic entities are held administratively liable for such violations; the number of criminal cases against top executives has been growing in the past two years, although such proceedings are still much rarer that the administrative ones.

Discussing the significance of the institution of criminal liability, Andrey Tenishev emphasized that its absence has a negative effect upon violations prevention and in some incidents generates cartel self-determination.

Criminal liability for cartels is specified in Article 178 of the Criminal Code of the Russian Federation. The key signs of delineating administrative and criminal liability imposed on corporate executives for cartels are the size of the gained income and the inflicted damages. According to Andrey Tenishev, however, Article 178 is not the only norm in the Criminal Code aimed at competition protection; there are also provisions on abuse of office, influence peddling, obstruction of lawful business operations, and so on.

Answering a question what impact tightening punishments will have upon the statistics of violations, the speaker mentioned a current research project for evaluating cartel latency; at the moment it is hard to predict its findings. The study will be completed by the end of 2019. Andrey Tenishev named three factors influencing the crime rate: severity and inevitability of punishment as well as moral deterrence. Introducing electronic trading in 2012 decreased the cartelization rate statistically significantly due to the established system of full anonymity of its participants. It is much more difficult for competitors to make arrangements and coordinate actions in the new conditions. Another preventative measure is a draft law on a Register of cartel members for legal entities and their founders.

Anton Subbot, a partner at “Baker McKenzie”, voiced an opinion that unlike turnover fines, criminal liability is not the main deterrent factor for big companies in terms of prevention. For small companies, on the contrary, criminal liability rather than fines is the most dangerous tool: they often use various bankruptcy schemes to avoid paying fines. Anton Subbot also pointed out that nowadays the awareness of market players about unacceptability of collusion with an ordering party or other bidding participants has increased considerably; many companies actively implement compliance systems and ensure their efficiency.

According to Andrey Tenishev, the current leniency norm (Note 3 Article 178 of the Criminal Code of the Russian Federation) is not very correct: to be relieved from criminal liability a person should be the first among other participants to report voluntarily about the committed crime, actively assist its exposure and (or) investigation and also fully compensate the damages caused by the crime through their own efforts. This norm is not applied because physical persons do not have sufficient funds to compensate the entire damages for cartel; and it is also not fair. The draft law on amendments to Article 178 of the Criminal Code specifies that only the damages caused by a particular person should be compensated by this person.

In his speech Anton Subbot touched cooperation between antimonopoly and enforcement bodies, concerning, for instance, material exchange if the same case is considered under criminal as well as administrative proceedings. Deputy Head of 24 Unit, B Division, the Main Department of Economic Security and Anti-Corruption, Police Colonel Alexander Shevchenko, answered that there are mechanisms enabling to easily resolve such controversial situations and effectively there are no issues in collaboration between the regulators. Moreover, further improvement and streamlining of the interaction systems between FAS and the Ministry of Interior is planned, efforts in this direction are undertaken by both agencies. Alexander Shevchenko explained the scope of competences of B Division, the Main Department of Economic Security and Anti-Corruption, of the Ministry of Interior.

Anton Subbot brought an opinion that digitalization makes investigation of antimonopoly violations significantly easier because plenty of traces are left in the electronic space. Andrey Tenishev agreed and added that even when auction robots or other programs are used, there are even more traces since any program initially must be bought, installed, tuned, in other words, a series of actions should be performed that are easily traceable by the regulator.

Answering a question about the reasons for initiating inspections by the Ministry of Interior, Alexander Shevchenko highlighted several main sources of information about the suspected violations: data received from FAS, market analysis in general and of particular auctions, as well as complaints filed directly to the Ministry of Interior.

Then the chief expert – auditor of 6 Unit, 2 Department the Main Department of Economic Security and Anti-Corruption, of the Ministry of Interior, Police Colonel Elena Shubochkina explained how damages caused by violating the antimonopoly law are calculated. She used an example of an auction for school construction:  in this particular case the damage was defined as the difference between the actual contract value and the money actually spent for construction.

Andrey Tenishev added that situation when is seems possible to prove the damage incurred as a result of unlawful bidding procedure, are rare. Nevertheless, criminal liability under Article 178 of the Criminal Code of the Russian Federation is possible not only when heavy damages are inflicted to the population, companies or the state, but also when large income is gained, exceeding 50 million RUB.

In most cases, the unlawful income rather than damages are calculated. Elena Shubochkina pointed out that toady there is no unified approaches to defining income. In practice, however, in the context of antimonopoly violations, all revenues for a deal are recognized as income, without deducting any actual expenses.

The final item was confiscation as an additional criminal-law punishment in case of holding the violator liable under Article 178 of the Criminal Code. It is written in the draft law submitted to the Government of the Russian Federation. Andrey Tenishev gave the following rationale for the amendment: all profit-motivated crimes are currently punished by confiscation; cartel also is a crime committed for financial gain so extrapolating the confiscation provisions to the income gained as a result of cartel operations seems to be a rather fair preventative measure.