In the midst of your morning coffee, reading your financial broadsheet of choice, you receive an alarming call from reception; officials from the European Commission (EC) have arrived at the office announcing a dawn raid. In the search for anti-competitive agreements, they have begun to seize mobile phones, papers and hard drives. Worse still, on this particular morning, you are 600 miles away at the World Economic Forum (WEF) with other senior employees – a nightmarish situation indeed, but one that is increasingly a harsh reality as opposed to a bad dream.
The steps taken during the subsequent 30 minutes are crucial, as they will substantially impact the way in which the ensuing investigation develops. As competition authorities can strike unannounced, even in the event of your absence, it is essential that suitable practices are put in place and that all staff are trained properly to ensure this process runs as smoothly as possible.
Reception should first establish which organisation the officials are from, what the purpose of the visit is and how many officials there are. A request for official IDs, business cards and a copy of the warrant or the decision authorising the inspection should be made in order to determine this. Reception should take copies of all documents handed over by the officials.
In the past, there have been instances where security guards have turned EC officials away in the belief that they did not have the authority to enter the premises. In the UK, cartels, price fixing and bid rigging can attract criminal sanctions. In the rest of Europe, they are mostly non-criminal offences, but nevertheless are prosecuted in quasi-criminal proceedings. So it is imperative that all staff know not to obstruct the officials in carrying out their investigation. Any failure to cooperate can also increase the ultimate fine, should investigators find evidence of anti-competitive behaviour.
Although staff should not impede the investigators, reception should politely ask them to await the arrival of the company's senior executives or, preferably, its lawyers. Reception should show the investigators to a waiting area (such as an empty meeting room) that does not contain any files or have access to the company's IT system, and they should be politely offered refreshments.
Reception must contact the company's legal department, who should immediately contact external lawyers with expertise in dawn raids. All copies of documents taken, including the warrant/authorisation decision, should also be sent to the lawyers. When the senior executive or lawyer arrives, they should check that each inspector mentioned in the decision document or warrant authorising the dawn raid is present. If any are absent, the lawyers must be informed of this fact, and who the missing inspectors are. The lawyers should also check whether the search warrant correctly identifies the address being searched. The inspectors should be informed that only the head of legal (or their designee) is authorised to speak for the company regarding the search.
Companies should consider using the 24/7 'dawn raid hotline' that some law firms offer. It is good practice to keep a note of this number in an easily accessible place at reception, along with an easily digestible 'dawn raid to-do list' which summarises the points above.
What to expect
Inspectors have wide powers, ranging from entering the company's premises, as well as the directors' and other staff members' private homes. The inspectors will examine and take copies of or extracts from business records and company books, irrespective of the medium on which they are stored. This includes email accounts, workstations, servers, local drives and mobile devices. The company should keep a copy of everything that the inspectors take. As most investigations will take place over multiple days, inspectors regularly seal records and even entire rooms. Inspectors can also interview individuals.
As the investigators will review soft copies of documents as well as hard copies, the IT team will play a key role in any raid. The IT team should be trained alongside reception staff and security staff accordingly. The IT team should assist the investigators to ensure any data is secure. They should also take a copy of anything that the investigators have searched or copied.
The team of external lawyers will also play an important role in the investigation and should arrive as soon as possible. Both the internal and external lawyers should work together to ensure the inspectors are only taking documents which they are entitled to. Where possible, each investigator should be closely shadowed by a lawyer. This way, the lawyers can try to identify the focus of the investigation and effectively monitor the activity of the inspectors.
International companies should bear in mind that investigators adopt different approaches depending on the country in question. In the US, law enforcement agents adopt a broader approach than investigators in the EU, taking copies of all potentially relevant documents (hard or soft). In the EU, on the other hand, inspectors will usually take up to 72 hours on the business premises examining each document individually. National competition authorities across Europe also differ in approach. For example, while the EC or the UK's Competition and Market Authority may ask questions about documents, the Bundeskartellamt in Germany would not do so.
First, the threat is real. Competition authorities are increasingly using dawn raids as an evidence-gathering tool across Europe, as they nearly always catch companies completely off-guard. Even in cases where anti-competitive conduct does exist, very few people at the company are likely to be aware of it. In February 2019, EC officials carried out unannounced inspections in several Member States at the premises of a number of companies in the farmed Atlantic salmon sector. In April 2018, four companies in the broadcast industry were subjected to dawn raids over suspected participation in a sports rights cartel. In this especially unfortunate case, the in-house legal team were out of office attending the international TV and digital content market in Cannes. The pharmaceutical sector has been a focus for many years, with multiple dawn raids by the EC and many national competition authorities, particularly in the UK, Italy and Spain.
Second, do not obstruct the raid. Investigators must not be obstructed at any time during the raid otherwise the company faces substantial fines. For example, E.ON Energie AG was fined €38m for (unintentionally) breaking a seal affixed to a door on their premises during a raid. Another company was fined €2.5m for diverting new emails to a different account during an investigation, after the company had been instructed to block those email accounts entirely.
Third, keep calm. Being subjected to a dawn raid is undoubtedly a traumatic experience. The prospect of investigators searching your laptop and mobile phone is certainly a daunting one. The disruption caused by the inability to work or access your email for up to 72 hours can be significant. Indeed, Marcelo Calliari, the former commissioner for the Brazilian Competition Commission, warned of how people who are under stress tend to do everything wrong. He reported witnessing people running to the bathroom trying to flush documents away, or in one case even eating documents.
While avoiding the physical consumption of evidence may seem like obvious advice, keeping calm in this situation is easier said than done. Ensure that you have appropriate procedures in place, including a general communications plan that it is aligned with and can draw upon your wider crisis management team plan. By showing investigators that you are not panicking, you will encourage a positive response, and ensure the investigation runs as smoothly as possible.
Be prepared, train staff, have a plan and follow that plan.
Originally published in Financier Worldwide Magazine, August 2019 Issue
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.