Merger control trends 2019: AMCU is coming for beneficiaries and boosting fines to a whole new level

On April 25, 2019, days before Orthodox Easter, the AMCU adopted two outstanding decisions, fining DCH Group and TAS Group for merger control violations UAH 58,000,000 (app. EUR 1,900,000) and UAH 55,000,000 (app. EUR 1,800,000) respectively. Both are diversified Ukrainian groups, each controlled by the country’s top businessmen – Olexandr Yaroslavsky and Serhiy Tigipko respectively.

Prior to the abovementioned fines, arguably the most notable AMCU decision regarding merger control involved the Serhiy Kurchenko group. It shall be considered as a landmark decision for several reasons:

✓ for the first time, a top businessman was fined as an individual;

✓ it was the first eight-figure fine (in UAH);

✓ it resulted in the maximum fine allowed by law.

Several years ago, Mr. Kurchenko, a beneficiary of a group having assets in various sectors in Ukraine and the CIS, indirectly acquired 80% of the shares in Brokbusinessbank, a top-15 Ukrainian bank whose assets were valued at UAH 28 billion at the end of 2013. Details about this purchase were widely reported in the press. However, there were no filings with the AMCU. In 2014, the AMCU launched an investigation.

It is remarkable that the AMCU discharged quite an arsenal of arguments to prove connections between the de-facto affiliated companies, which apparently were not intended to look linked to each other. To identify the control chain, the AMCU collaborated with the Prosecutor-General’s Office and the Security Service of Ukraine.

In the end, the AMCU proved that the companies which had acquired shares in Brokbusinessbank were actually controlled by Mr. Kurchenko. Such conclusion was based on the following findings:

✓decisions made by the companies during the meeting of shareholders of Brokbusinessbank were unanimous;

✓registrations of companies were made by the same representatives;

✓decisions of the general meetings of the companies taken during the same period were essentially the same;

✓shareholders of the companies’ owners were the same persons;

✓documents of companies were certified by the same notary;

✓interests of the companies were represented by the same persons during approximately the same periods;

✓companies’ directors were nominal (the AMCU interviewed some of them), while management of the companies was conducted by others;

✓companies’ financial statements were sent to the State Fiscal Service and their bank accounts were remotely managed from the same IP-address.

Furthermore, the AMCU took into account civil litigation during which the existence of control relations between the beneficiary and some of the direct buyer companies has been established.

So far, that was the most comprehensive argumentation the AMCU presented to prove the link between the companies and individuals. This opened the gate to further analysis in the cases.

As a result of the investigation, the AMCU determined that the acquisition of the shares in Brokbusinessbank by the businessman was a concentration that met certain thresholds and, therefore, had to be approved by the AMCU. Thus, the AMCU decided to impose on Mr. Kurchenko a UAH 15,000,000 fine (app. EUR 500,000 according to current exchange rates).

This decision was a landmark one because the AMCU resorted to a rarely applied legal rule allowing the imposition of a fine on an affiliate that benefited from the violation. Such a decision was prompted by the fact that in this case, the group owner, according to the AMCU, was the only person who had benefited from the concentration. Moreover, the AMCU also emphasized in its decision that the obstruction of the investigation by the defendant was one of the decisive factors in the determination of the final amount of the fine.

Significantly, the fine amount is very close to the maximum allowed by competition law. The size of the fine imposed on the beneficiary is 4.7% of revenue earned by the defendant and related persons in the accounting year preceding the year in which the fine is imposed, while the maximum amount is 5%.

The Antimonopoly Committee of Ukraine recently published its 2018 annual report, which showed that along with a decrease in total number of considered concentrations, the AMCU doubled the number of investigations into concentrations.

Probably, during the Kurchenko investigation, the AMCU systemized its tools for proving control relations. Hardly a coincidence, a new AMCU internal regulation had been adopted a couple of weeks before the discussed decision was taken. This regulation, called Methodological Recommendations on the Application of the Definition of Control, would definitely serve as the basis for the AMCU’s further investigations.

Therefore, we expect the following trends in Ukrainian merger control:

✓more AMCU decisions regarding non-transparent business structures in Ukraine in the near future;

✓more activity by the AMCU in markets monitoring and investigating transactions which were never filed with the AMCU; even if these are foreign-to-foreign transactions of international companies.

Once again, the AMCU is showing business that it is an institution to be reckoned with. The AMCU is strengthening merger control as it turns from ‘passive’ consideration of submitted filings as the only merger control measure to a more ‘active’ stance in monitoring markets and finding real incentives and the beneficiaries of M&A transactions.