Russia’s competition authorities are using competition law to hit foreign businesses that try to eliminate corruption from their business’s supply chain, the Gazette has learned. 

Concerns about the practice centre on the pharmaceutical industry, where companies face a choice between fines and remedies imposed or agreed by Russia's Federal Anti-Monopoly Service (FAS) and breaching strict bribery and corruption laws of jurisdictions such as the US and UK. 

The suspicion is that FAS targets companies that have dropped manufacturers and distributors who fail compliance checks.

In one recent case, Baker & McKenzie partner Paul Melling told the Gazette, ‘the FAS said effectively – you don’t need to do compliance [checks] as you cannot be affected by what your distributor does’. ‘This is quite wrong under the FCPA [the US Foreign Corrupt Practices Act], and also under Russian law,’ he added.

Previous cases in the public domain included insulin manufacturer Novo Nordisk, which faced action in 2010, and the manufacturer of multiple-sclerosis drugs Teva Parmaceutical Industries (2013). There have been four known cases, and more are ‘confidently expected’, Melling noted. FAS deploys a loose definition of market dominance to gain jurisdiction in these cases.

The attempt by companies to clean up all parts of their corporate chain face a challenge, as FAS has made clear that corporate intelligence checks cannot be taken into consideration. ‘FAS won’t accept that just because someone like Kroll or Control Risks have raised a red flag, you can refuse to deal with them,’ Melling said.

‘You’d better have formal confirmation from the Russian authorities of corruption.’ 

The conduct of FAS would seem to align with the Putin government’s drive for ‘localisation’, Melling concluded: ‘It’s part of the process of localisation. There is a heavy dependency on foreign pharmaceuticals – it’s amazingly high. With localisation Russian manufacturers and distributors are feeling very powerful, and they feel that FAS is behind them.’

He added: ‘We are currently in a situation where you have to be very careful. The message to the healthcare sector - and others - is clear. Make sure your people on the ground know they need to consult with lawyers when appointing distributors and suppliers.’