A new maximum fine for failure to notify a reportable transaction
On 25 April 2019, the Antimonopoly Committee of Ukraine (the AMC) imposed two fines of unprecedented levels, totaling approximately EUR 3.8 million, for failure to obtain merger approvals.
The first fine of EUR 1.8 million was imposed on the TAS Group, which is controlled by a former member of the Ukrainian Parliament, Sergei Tygipko, for the acquisition of control over Dniprometyz, a subsidiary of Severstal. This precedent is outstanding not only because of the amount of the fine, which is 3.5 times higher than the historical maximum, but also because the authority did not clear the transaction due to sanctions imposed on Severstal, a Russian steel and mining company controlled by Alexei Mordashov.
The second fine of EUR 2 million was imposed on DCH Group, which is controlled by another former member of Ukrainian Parliament, Oleksandr Yaroslavsky, for the acquisition of control over Dnipropetrovsk Metallurgical Plant, a subsidiary of Evraz. By contrast to the Dniprometyz case, the AMC approved the acquisition of control over the Dnipropetrovsk Metallurgical Plant by the DCH Group following the case review.
Previous highest fines for failure to notify reportable mergers
In November 2018, the AMC imposed the highest fine at that time, which reached approximately EUR 500,000 for the acquisition of control over a Ukrainian bank without obtaining prior approval for the concentration. This was also the first time a fine was imposed on an individual as the ultimate beneficial owner (UBO) of the acquiring undertaking. The authority imposed a fine of UAH 15,000,000 on Serhiy Kurchenko despite the absence of a formal ownership link between the UBO and eleven individuals who allegedly acquired the bank for the benefit of the UBO.
Other recent high fines include a EUR 100,000 fine imposed in December 2016 on Brociti Investments Limited (Cyprus) and its director (both companies being affiliates of Burisma Holdings, an oil & gas company, which is controlled by former minister of ecology, Mykola Zlochevsky), for the appointment of top management in the target (Kub-Gas LLC) before approval was obtained for the transaction. This was the first time a fine was imposed in the context of “gun-jumping”, where control was actually acquired at the management level before AMC approval was obtained and share transfer completed.
Historically, fines for failure to notify foreign-to-foreign reportable transactions that have no effect on any Ukrainian markets have generally been within the range of EUR 6,000 to EUR 20,000.
What to expect next?
When imposing a fine for failure to notify a reportable transaction, the AMC remains consistent with its declared intention to increase penalties for concentrations having significant influence on Ukrainian markets. Meanwhile, fines for closing transactions that technically meet the filing thresholds but have no effect in Ukraine remain reasonably low. However, fines imposed by the AMC are intended to have a deterrent effect and are likely to continue increasing.
AMC’s likely focus of attention – how to react?
Moreover, recent attempts of the AMC to increase enforcement efforts may lead to additional fines for concerted practices occurring within the context of M&A transactions. For example, non-compete restrictions that are common in M&A transactions require a separate clearance for concerted practices. Failure to obtain such clearance may lead to fines that will be significantly higher than fines for merger control violations, up to 5% of the worldwide turnover of the responsible party.
In light of this, parties to M&A deals should never disregard the requirement to notify non-competes. The risk of extremely high sanctions for auxiliary restraints can be eliminated by notifying concerted practices either together with a merger filing or on a standalone basis. If submitted together with a merger notification, a non-compete filing is usually reviewed by the AMC within essentially the same timeframe, with no added documentary burden on the parties. All this makes concerted practices notification a reliable and relatively straightforward mitigation tool not to be overlooked, at least not until the AMC aligns its treatment of auxiliary restraints with the approach used by the most prominent competition agencies across the world.