"Discount" for antitrust compliance: Proposed reduction in fines based on effective compliance systems in Russia

The Federal Antimonopoly Service of Russia ("FAS") has been promoting antitrust compliance programmes for several years. The measures pursued by the FAS are outlined in a corresponding draft law[1] that is under governmental review, as well as in recommendations issued by the FAS in April 2017. Most experts and FAS speakers believe that the draft law is in its final version and will submitted to the State Duma in the near future.

Draft law to amend Russian competition law

The cornerstone of the draft law is a "discount" for compliance, i.e. the reduction in penalty amounts (by 12.5%) for antitrust violations if an effective compliance system is in place at the enterprise concerned.

Only having an effectively functioning compliance system in place can help a company gain the benefit of a reduction in the administrative penalty. According to Maxim Ovchinnikov, Deputy Head of the FAS, the corporate antitrust compliance system must be a properly implemented and effectively functioning system, and not just an imitation of such a system. This raises questions as to the criteria for determining the effectiveness of an antitrust compliance system and the regulator's discretion in assessing the effectiveness of such a system. Most experts agree that the current version of the draft law does not specify the necessary elements of an effective antitrust compliance system in sufficient detail.

State corporations and enterprises, natural monopolies, and some other companies and undertakings that are majority-owned by the state will be obliged to implement an antitrust compliance system. Failure to comply with this rule by entities for which implementation of an antitrust compliance system is mandatory will result in administrative fines both for legal entities and the management amounting to up to RUB 50,000 (approximately EUR 750).

Proposed contents of a corporate antitrust compliance system

The FAS's draft law defines only in very general terms that in order to implement an antitrust compliance system, a Russian legal entity must adopt an internal regulation (or set of regulations) and/or apply other internal regulations which may include internal regulations of another (even foreign) entity in the same group (a parent company, for example) provided that such documents apply to the Russian entity and include the following items:

1. Requirements for the risk evaluation procedure with regard to antitrust risks associated with the company's business;
2. Measures aimed at reducing the risk of antitrust violations associated with the company's business;
3. Measures aimed at controlling the functioning of antitrust compliance;
4. Procedures to make the company's employees aware of such regulation (or regulations) and/or such documents (internal policies, codes);
5. Information about the company officer responsible for antitrust compliance.

Benefits of an effective antitrust compliance system

• Reduction in antitrust risks due to the introduction of antitrust compliance;
• Rapid detection and internal investigation of a potential violation and efficient internal collection of relevant information concerning the violation, which may be subsequently used for the purposes of an immunity/leniency application;
• Reduction in liability amounts due to a "discount" for compliance (according to the draft law 12.5% of the penalty amount);
• Improvement in the company's risk-profile level, which is essential when facing routine inspections on the basis of the risk-based approach[2]. According to a government initiative, introduction of antitrust compliance by a company will reduce the company's risk level to a lower category. For example, for a company with an annual turnover in excess of RUB 10 billion (approximately EUR 150 million) with a "moderate risk" level, which entails routine inspections by the FAS once every five years, implementation of the antitrust compliance system will result in a full release from routine inspections by the antitrust authority.

FAS recommendations

While the draft law is undergoing a revision process by the Russian government, the FAS is active in its own development of subordinate legislative acts concerning corporate antitrust compliance systems. Several months ago, the FAS prepared its Methodological Recommendations on the Introduction of Internal Control over Compliance with Antitrust Legislation, State Defence Orders Legislation and Legislation Regulating Procurement Activities for Defence and Industrial Complex Enterprises and Executors of State Defence Orders[3] (the "Recommendations").

The FAS states that the Recommendations are based on best practices for implementing compliance systems in large corporations as well as on the experience of foreign competition authorities and quality management principles stipulated by the ISO 9001 standard.

The Recommendations are primarily addressed to the defence and industrial sectors and companies involved in state defence orders, but are also intended to serve as guidance for companies in other business sectors. According to the FAS, the Recommendations list the requirements that a company must meet in order to prove that it has implemented a properly functioning system rather than just simulating such activity.[4]

However, the FAS recognises that due to numerous amendments to the draft law made (or to be made) in the course of its revision by the government, future discrepancies between the Recommendations and the final text of the law to be adopted are unavoidable. Due to this, Artem Molchanov (FAS) admits[5] that the publication of additional clarifications on antitrust compliance is planned for the future.

Comparison to other jurisdictions

Similar concepts for reductions or exemption from liability have been seen in a number of jurisdictions, such as the UK and Spain, while EU and German law do not provide for such measures.

The European Commission has apparently never reduced a fine because of the existence of a compliance system at the time of the infringement[6]. However, in seven fairly old decisions – adopted between 1982 and 1992 – the Commission reduced a fine because the companies concerned had set up their compliance systems after the start of the Commission's investigations. The Commission has not granted any reductions because of a compliance system since then[7]. In its 2011 compliance brochure the European Commission confirmed its position of not reducing fines solely because of a company's compliance attempts. According to the Commission, "for the purpose of setting the level of fines, the specific situation of a company is duly taken into account. But the mere existence of a compliance programme will not be considered as an attenuating circumstance. Nor will the setting-up of a compliance programme be considered as a valid argument justifying a reduction of the fine in the wake of investigation of an infringement".[8] The same position has been upheld by the EU courts.

The national competition authorities of the EU member states do not grant immunity from fines to companies that have a compliance system, either. However, in some jurisdictions companies' efforts towards compliance can be rewarded by a reduction in fines.

In the UK, the penalty calculation guidance does not regard the mere existence of a compliance system in a company as a mitigating factor. However, as stipulated in the guidance, "in an individual case, evidence of adequate steps having been taken to achieve a clear and unambiguous commitment to competition law compliance throughout the organisation (from the top down) – together with appropriate steps relating to competition law risk identification, risk assessment, risk mitigation and review activities – will likely be treated as a mitigating factor"[9]. There have been a number of examples of successful companies, including Hasbro UK. Ltd. in 2003, that achieved fine reductions of up to 10% granted by the former UK competition authority (the Office of Fair Trade) on the grounds of the "adequate steps" taken with a view to ensuring compliance with antitrust law[10]. The same approach has been continued by the current competition authority of that country, the Competition and Markets Authority.

In France, Article L464-2 of the French Commercial Code allows the French competition authority to reduce financial penalties where an infringing company has committed not to challenge a statement of objections made by the French competition authority. In such a case, a company can get an additional reduction in the fine if it undertakes to set up a compliance programme (or to upgrade an existing one). This fine reduction can amount to as much as 10 per cent.

In Spain, according to the criminal code amended in 2015, exemption from corporate criminal liability may be granted to a company that had a compliance system in place before the violation was committed, and only if the compliance system in question meets the requirements stipulated by law. However, these provisions do not directly apply to the penalties set by the competition authority.

The U.S. Sentencing Guidelines[11], which serve as basic document for determining fines for antitrust and other offences, list the implementation of an "effective compliance and ethics program" by the defendant as one of the circumstances that may lead to a reduced fine. According to the U.S. Sentencing Guidelines, in order to have an "effective compliance and ethics program" the company must (1) exercise due diligence to prevent and detect criminal conduct; and (2) otherwise promote an organisational culture that encourages ethical conduct and a commitment to compliance with the law[12]. In this context, the guidelines stress the importance of the programme being "generally effective in preventing and detecting criminal conduct," while the failure to prevent or detect a particular offence does not necessarily mean that the programme is generally not effective in preventing or detecting offences.

The recent enforcement practice reflects the importance the U.S. Department of Justice (DoJ) attributes to defendants implementing "rigorous" antitrust compliance programmes. In United States of America v. Kayaba Industry Co.[13], 2015, a Japanese manufacturer of shock absorbers for the automotive industry was charged with bid-rigging and price-fixing with respect to shock absorbers for vehicles sold in the US. In its sentencing memorandum, the DoJ recommended a significantly reduced fine for Kayaba Industry Co., because the defendant, among other things, had implemented a new, "comprehensive and innovative compliance policy" that "sought to change the culture of the company to prevent recurrence of the offense"[14]. The recommended fine represented a significant "downward departure" (by 40%) from the recommended minimum of a fine defined under the U.S. Sentencing Guidelines. As a partial explanation for such a reduction, the DoJ pointed out that the defendant's compliance policy had "the hallmarks of an effective compliance policy including direction from top management at the company, training, anonymous reporting, proactive monitoring and auditing, and provided for discipline of employees who violated the policy[15]".