Russia Clarifies Position on Anticorruption Compliance and Russian Antimonopoly Law

In September 2010, Russia's Federal Antimonopoly Service ("FAS") held OOO "Novo Nordisk," the Russian subsidiary of the Danish pharmaceutical giant, liable for what it described as due diligence practices inconsistent with Russian law. As a result, FAS fined Novo Nordisk 86 million roubles (approx. $3 million) and ordered the company to refrain from the due diligence practices in question. The decision was challenged by Novo Nordisk, and after extensive negotiations a settlement was reached. The Commercial (Arbitrazh) Court of Moscow approved the settlement yesterday, July 28, 2011.

 

The settlement between FAS and Novo Nordisk provides much-needed guidance on the expectations of FAS when reviewing allegations of the illegitimate refusal to deal with prospective business partners. Because of the disruption of business and penalties that may result from a FAS investigation (e.g., fines of up to 15% of annual turnover in the relevant market), companies should ensure that their compliance policies – and due diligence procedures in particular – are sufficient for a high-risk market like Russia while tailored to the expectations of FAS regulators.

Due diligence measures and grounds for refusal to deal

Companies occupying dominant positions on the Russian market face strict obligations not to discriminate unfairly against candidate business partners. Dominant companies may refuse to deal with otherwise-qualified distributors and other business partners only on grounds provided by Russian antimonopoly law.

FAS confirmed that due diligence may be a part of a dominant company's distributor-selection process. The results of such due diligence, aimed at uncovering financial, corruption and other risks, may serve as a valid basis for the rejection of a potential counterparty.

During the due diligence process companies may request necessary information from a candidate and may take reasonable measures to confirm such information. A company may reject any candidate who refuses to cooperate with the due diligence review. The company also may reject candidates who submit false information, who appear on U.S. government or certain other international watch lists of suspect counterparties, or who have government officials among their ultimate beneficial owners (or families thereof) and refuse to take steps to distance their official activities from the business of the candidate.

A company may also reject a candidate with a history of corrupt activity, provided the corrupt acts are confirmed by the findings of a government agency. Such findings may be manifested in a decision of a competent criminal, administrative, civil or other disciplinary body.

In approving these measures, FAS made clear that companies must not abuse the right to exercise proper due diligence. Unreasonable delays may be treated as an abuse of this right.

Refusals based on suspicion of corruption

Companies may not reject a candidate based upon the mere suspicion of improper payments or other corrupt behaviour. Where a company suspects that a candidate has a history of corrupt business practices, the company should investigate the concerns fully but in a timely

manner to avoid any appearance of using the due diligence process as a pretext for an unlawful refusal to deal with the candidate.

This need to balance the demands of anticorruption and antimonopoly laws means companies holding dominant positions on the Russian market must implement thoughtfully designed and effective due-diligence procedures.

Russian anticorruption laws

There is a common misperception that Russian law takes a weaker stance on corruption than its foreign counterparts, particularly in terms of liability for the corrupt acts of intermediaries. Recent amendments to the Russian Code of Administrative Offences have brought Russian anticorruption law closer to the U.S. Foreign Corrupt Practices Act ("FCPA"), the UK Bribery Act and other leading anticorruption laws by providing severe penalties for companies benefiting from improper payments made by third parties. In order to avoid liability, companies must take "all measures within their power to prevent" improper payments made on their behalf, measures that clearly contemplate thorough due diligence efforts.

Actions to consider

Companies operating in Russia should review and refine local due diligence procedures – or design new procedures – with yesterday's settlement in mind. Companies should consider the following steps to ensure that their procedures suit existing ethics policies and applicable anticorruption and antimonopoly law:

  1. Review your place in the Russian market to assess the risk that FAS may classify your company as "market-dominant" with regard to certain products.
  2. Review internal policies and procedures – as written and as practiced right now – to ensure a clear and consistent approach to due diligence.
  3. Incorporate anticorruption compliance into all aspects of due diligence, including legal, financial and technical reviews.
  4. Follow up on any compliance red flags as soon as practically possible to avoid the suggestion that the due diligence process has been unreasonably prolonged.
  5. Clearly document all diligence steps undertaken as well as the candidate's cooperation or lack thereof.
  6. Communicate to candidates that the refusal to cooperate fully with due diligence requests may serve as a basis for refusal.

With any questions related to the correlation between Russian antimonopoly and anticorruption laws, please contact Edward Bekeschenko or Anton Subbot in the Moscow office of Baker & McKenzie.

With any questions related to the FCPA, the UK Bribery Act or other anticorruption law, please contact Jonathan Nelms in the Moscow office of Baker & McKenzie.

Baker & McKenzie

Share/Save