Ukraine merger control: USD 500,000 fine for beneficiary

01 03 2019

In December 2018, the Antimonopoly Committee of Ukraine published a landmark decision, which is considered as such in the Ukrainian antitrust environment for several reasons:
(1) for the first time, a top businessman is fined as an individual;
(2) the biggest merger control fine so far, probably first six-figure one;
(3) the closest big-case fine amounts to the maximum one allowed by law.

The businessman just fined by the AMCU was Serhiy Kurchenko who gained most of his assets during the presidency of fugitive ex-president Yanukovych. Those assets comprised energy companies, financial institutions, Ukrainian top-tier football club, real estate business, etc. One of his latest acquisitions was a deal to buy Ukrainian Media Holding estimated at USD 400-500M. In February 2014, after Yanukovych vamoosed the country, Mr. Kurchenko also left Ukraine. He is currently wanted in connection with suspicions of tax evasion and other alleged crimes. A year earlier, Mr. Kurchenko indirectly acquired 80% of the shares in Brokbusinessbank, a top-15 Ukrainian bank whose assets amounted to over UAH 28 billion at the end of 2013. The information about this purchase was widely reported in the press. However, there were no filings to the AMCU. In 2014, the AMCU launched an investigation.

Proving control relations

It is remarkable that the AMCU offered quite an arsenal of arguments to prove connections between 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:
(1) decisions made by the companies during the meeting of shareholders of Brokbusinessbank were unanimous;
(2) registrations of companies were made by the same representatives;
(3) decisions of the general meetings of the companies taken during the same period were essentially the same;
(4) shareholders of companies' owners were the same persons;
(5) documents of companies were certified by the same notary;
(6) interests of companies were represented by the same persons during approximately the same periods;
(7) companies' nominal directors were the laymen (the AMCU interviewed some of them), while management of the companies was carried by others;
(8) companies' financial statements were sent to the State Fiscal Service of Ukraine and companies' 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 Mr. Kurchenko 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.

Defining markets and figures

Using the data on Mr. Kurchenko's group, the AMCU found a horizontal effect of the concentration, as, when acquiring Brokbusinessbank, the businessman had already controlled Real Bank, another, rather small, Ukrainian bank. Thus, it was stated in the decision that concentration took place in the banking services market.

Besides, it is worth mentioning the approach taken by the AMCU to the identification of figures whose income will be the basis of calculating fine amounts. In dealing with this issue, the AMCU considered not only companies which had acquired shares in Brokbusinessbank but all companies ultimately beneficially owned by Mr. Kurchenko. Therefore, the fine calculation was based on the total revenue of the group.

Significantly, the fine amount is very close to the maximum allowed by the competition law. The size of the fine imposed on Mr. Kurchenko is 4.7% of income (proceeds) earned by the defendant and related persons in the accounting year directly preceding the year in which the fine is imposed, while the maximum amount is 5%.

Consequences

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 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. USD 500,000 according to current exchange rates).

This decision is a landmark one, because the AMCU resorted to a rarely applied legal rule allowing to impose a fine on an affiliate that benefited from the violation. Such decision was prompted by the fact that Mr. Kurchenko, according to the AMCU, is the only person who benefited from the concentration in hand. 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.

Probably, during the investigation, the AMCU systemized its tools for proving control relations. Hardly being a coincidence, a new AMCU’s internal regulation had been adopted a couple of weeks before the discussed decision was taken. Such 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 more upcoming AMCU decisions regarding non-transparent business structures in Ukraine.

Published: Kyiv Post, 1 March 2019

Authors: Anna Sisetska, Mykola Boichuk, Iryna Savchuk