The ongoing Russian invasion of Ukraine has led to many businesses deciding to suspend their operations in or supplies to Russia, and to many others coming under increasing pressure from customers, shareholders and governments to do the same. But while complying with sanctions is essential, businesses should consider carefully how they approach voluntary suspensions of trade with Russian customers.
While a genuinely unilateral decision by a business to stop trading with Russia is permitted, any coordinated behaviour by competing businesses to take action that goes beyond the mandatory compliance with sanctions risks being in breach of competition rules.
This is because competition law prohibits agreements or "concerted practices" between businesses that have the object or effect of preventing, restricting or distorting competition. The definition of "concerted practice" is very wide – even an informal "understanding" between businesses can be sufficient.
This presents a risk if businesses are discussing with their competitors whether to suspend trading in Russia on a collective basis, rather than just making their own decisions. Coordinated behaviour is likely to be enough to qualify as a concerted practice, if not as an outright agreement.
This includes where such coordination is carried out by or through trade associations, or even via discussions with government bodies: businesses exchanging information about such matters through an intermediary can give rise to a so-called "hub and spoke" competition law breach. Even without active coordination, trade associations calling on their members to suspend their dealings with Russia can also give rise to risk, by creating at least the impression of a concerted practice even if members ultimately make their decisions to withdraw entirely unilaterally.
What's the risk?
Readers might reasonably ask why UK competition authorities would seek to discourage this behaviour even while UK politicians are encouraging it, or whether they would even have jurisdiction to intervene.
UK competition law only prohibits agreements and concerted practices with the object or effect of damaging competition within the UK, but there will be scenarios where this could be the consequence of a coordinated suspension of trade with Russia. For example, the businesses who participate in a 'boycott' (or those businesses' distributors) could become less competitive in the UK compared to their competitors who either maintain trade with Russia or never had any trade to suspend, potentially leading to a negative impact on UK prices and consumers.
While the Competition and Markets Authority might nevertheless be expected not to intervene in such circumstances, businesses that did engage in a coordinated suspension of trade to Russia could still be exposed to the risk of legal action by any customers or (perhaps most likely) distributors who suffered a loss as a result.
There is also the obvious point that collective decisions not to sell to Russian customers would clearly affect competition in Russia, which has its own competition law governing agreements and concerted practices. Businesses should therefore be aware that engaging, or even appearing to engage, in coordinated voluntary action towards Russia could expose them to enforcement action by the Russian competition authorities, which given the political environment could be both highly punitive and less likely to be reined in by judicial oversight than equivalent UK action would. This risk will of course be most acute for UK businesses that have assets, employees or some other 'on the ground' presence in Russia.
The key way to mitigate these risks is for any business that is considering suspending trade to Russia to ensure that it makes a completely unilateral decision. It is equally important to have an audit trail recording that it was a unilateral decision, including that it was not the result of any coordination with competitors, either directly or through third parties (public or private).
If you would like advice on these risks, including in relation to any decisions already taken by your business or in your sector, please contact Charles Livingstone, Jamie Dunne or your usual Brodies contact.