OREANDA-NEWS. January 20, 2011. The Federal Antimonopoly Service (FAS Russia) opened administrative proceedings on the case of price collusion between “Retail Lending Company” CJSC (“KRK” CJSC), “Retail Lending Company” Commercial Bank (“KRK” CB) and insurance companies “KRK-Strakhovanie” Ltd., “AlphaStrakhovanie” OJSC, “MSK” Insurance Group” OJSC, “Rosgosstrakh” Ltd., “Admiral” Insurance Group” Ltd., “Renaissance Strakhovanie” Group” Ltd. and “Russkaya” Insurance Company” OJSC on the market of vehicle insurance (KASKO). The minimum “turnover fine” for the cartel participants will be determined within two – three months and shall be no less than 70 million Rubles, stated Deputy Head of FAS Russia Andrey Kashevarov speaking at the briefing, reported the press-centre of FAS.

“Three insurance companies cooperated with FAS in course of the investigation. The first company took advantage of the leniency programme for cartel participants and there are grounds for full relief from paying the “turnover fine” under the Code on Administrative Violations. There are also grounds to apply the minimum fine for the two other companies. “Russkaya” Insurance Company” OJSC will not be fined due to the bankruptcy procedures”, explained Andrey Kashevarov. The names of the companies are not disclosed while investigation is not completed.

Earlier FAS Russia found that the bank and the insurance companies violated the antimonopoly law (Clauses 1 and 5 Part 1 Article 11 of the Federal Law “On Protection of Competition”).

The case was initiated upon FAS Russia’s receiving complaints from 24 citizens who reported that when buying vehicles by installments or on credit, the insurance companies or the bank had attempted to impose disadvantageous conditions. In particular they:

- restricted the buyers’ choice of insurance companies to insure the pledged vehicle;

- did not decrease the insurance cost despite reduction of the vehicle costs.

FAS Russia also included in the case file the agreements between “KRK” CJSC and insurance companies, which specified the conditions of a Special Programme and made the following arrangements:

- Insuring ground vehicles, “KRK” CJSC as the agent can apply the tariff rates at 9.99% of the cost of a new vehicle – for each insurance year;

- Such conditions shall also be applied to insure the borrowers of “KRK” Commercial Bank (the “Optimal” loan).

Thus, arrangements between “KRK” CJSC, “KRK” Commercial Bank and insurance companies:

- fixed the insurance rates for KASKO at 9.99%;

- the borrowers were obligated to pay the insurance premium every year as if they had a new vehicle without taking into account the vehicle wear and tear, the coefficients for accident-free driving, etc.

Since 2006 the KRK group of persons includes “KRK-Strakhovanie” Ltd., which also renders services for insuring the vehicle pledged to “KRK” CJSC and “KRK” Commercial Bank under the above conditions.

FAS Russia concluded that such arrangements had been reached between the KRK Financial Group, including “KRK-Strakhovanie” Ltd., and six insurance companies: “AlphaStrakhovanie” OJSC, “MSK” Insurance Group” OJSC, “Rosgosstrakh” Ltd., “Admiral” Insurance Group” Ltd., “Renaissance Strakhovanie” Group” Ltd. and “Russkaya” Insurance Company” OJSC. The arrangements have been in place for five years.

Therefore, out of 24 insurance companies inspected by FAS Russia, actions of seven companies had the signs of violating the antimonopoly law. The group of persons including a credit organization - “KRK” Commercial Bank ( OJSC), an insurance organization - “KRK-Strakhovanie” Ltd. and a company selling vehicles by installments and simultaneously providing the services of an insurance agent – “KRK” CJSC violated the law by concluding agreements with the above insurance companies. “Agent agreements were also concluded between the remaining 17 companies and “KRK” CJSC. However, these were framework agreements that did not contain any arrangements, which would violate the antimonopoly law”, explained Andrey Kashevarov.

“This is a precedent case. As a result of the collusion, consumers in fifteen Russian regions were inflicted damages, including Moscow, St Petersburg, Nizhniy Novgorod, Voronezh, Samara, Perm, Rostov, Tyumen, Ivanovo and Chelyabinsk regions and the Republic of Komi. We hope that in the future the market participants will pursue fair business practices”, said Deputy Head of FAS Russia.

Mr. Kashevarov did not exclude a possibility of transferring the case to the law enforcement bodies to initiate a criminal case under Article 178 of the Criminal Code of the Russian Federation.

Reference:

Investigating the case, FAS Russia jointly with the Rostov Office of FAS Russia carried out dawn raids in Moscow and Rostov-on-Don and found communications between bank officers and some insurance companies, which confirmed the fact of collusion.

For instance:

On 23rd November 2009: “Well, theoretically until FAS Russia has learned about additional agreements about the tariff programmes, it is possible for us not to submit them. Accordingly, there will be no grounds to apply sanctions due to tariff collusion and restriction of competition… It is necessary to know, which documents should be forwarded to FAS from yourselves …”

On 19th October 2009: “…Received an offer from the Company… for insuring vehicles at 9.99% of the cost of the new vehicle (under the “Interest-Free Installments” Programme and the “Optimal” Auto Loan) with various commissions, depending on the vehicle model (see the enclosed file). Please approve the work with the Company…under the suggested tariff scale …”

On 27th October 2009: “Please note that the Company’s policy…in interaction with the antimonopoly bodies is that immediately upon receiving a request this insurance company “surrenders”: completely discloses the information about interaction with its counteragents, and about existing agreements and their content. It enables the insurance company to avoid liability by fully shifting it to its partners….”

12th February 2009: “Is there a possibility to contact… and express out discontent that they registered our client in Chelyabinsk according to the market [rate]? Is it possible to push them to return the money so that the client would be registered under our conditions, of course if we manage to push the client to file such an application to the Company?...”

March 2009: “Another client of us has run to the Companies… under the market rates. Is it possible to somehow inform the Chelyabinsk branch so they do not insure our clients under the market tariffs and that all clients are insured under special conditions directly by ÊRÊ”.

Reference No.2

1. Article 14.32 of the Code of the Russian Federation on Administrative Violations provides for imposing fined: upon legal entities - from 1% to 15% of the income of the violator gained by selling goods (works, services) on the markets where the violation was committed; on executives – from 20,000 to 50,000 Rubles.

2. Article 178 of the Criminal Code provides for criminal liability for preventing, restricting or eliminating competition by concluding competition-restricting agreements when the violation:

- Caused damages on an especially large scale (3 million Rubles);

- Resulted in gaining especially large income (5 million Rubles.).