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Dawn Raids


In this article we examine the power of the Office of Fair Trading and the European Commission to conduct dawn raids and offer guidance for companies under investigation, and companies wishing to avoid investigation and prepare themselves for potential investigation. The recent changes to the enforcement regime have given the competition authorities even wider powers to investigate than they had before. With strict, even criminal, penalties for infringement of the competition laws, the awareness of employees of the duties of the company and the powers of the investigating authorities during a dawn raid is essential, and this article aims to clarify such duties and powers.

Since 1 May 2004, the EU competition laws, ie. Articles 81 and 82 of the Treaty of Rome, have been enforced by the national authorities, such as the Office of Fair Trading in the UK, as well as the European Commission. The Commission delegated its powers to enforce these Articles to national authorities in order to allow it to concentrate on the most serious infringements. This has meant that dawn raids will now most likely be conducted on UK businesses by the OFT. The Commission’s powers of investigation have been increased to allow it to crack down on serious infringements.

Dawn raids by the OFT

The investigative powers of the OFT are contained in the Competition Act 1998. The OFT's investigating officers may:-

  • enter premises, including vehicles, without a warrant and without notice. They cannot enter private homes unless they are also used in connection with an undertaking's affairs or an undertaking’s documents are kept there. They will do so during business hours, and will usually allow a reasonable amount of time for the company's legal advisors to arrive (see Access to Lawyers below). They must bring with them a written notice stating the purpose and subject matter of their investigation and the offences which can be committed by, for example, not complying with one of their requests.
  • take copies of any document which they consider relate to any matter relevant to the investigation.
  • require any person on the premises to provide an explanation of any document which they consider relates to any matter relevant to the investigation.
  • require any person on the premises to state to the best of his knowledge and belief where any relevant document can be found.
  • require information stored in electronic form to be produced in a form in which it can be taken away.
  • require the compilation of information that is not already in recorded form, eg. market share information or a description of a particular market using the knowledge or experience of the sales manager. The OFT must, however, specify that it requires the same in the written notice.

The OFT also has power to search third party premises, though it will usually give two days’ notice of its intention to do so. It may also request documents and information at times other than during an investigation of premises, and from any person (for example, suppliers, customers or competitors), not just the parties to an agreement. To do this it must send a notice to such person setting out the documents or category of document it requires.

Following an on-site investigation, the OFT may issue a further written notice specifying further documents and information it requires, and the notice may also state the time and place at which a document or information must be produced and the manner and form in which it is to be produced.

Limitations on the power

Scope of power

The power to search is not a power to search per se, but the company must produce any documents the OFT requests. The subject matter of the investigation, as stated in the written notice the officials must produce, limits the officials’ powers, as they are only entitled to access to documents relevant to that subject matter. For example, a company which manufactures garden furniture and Christmas decorations, if it is being investigated in relation to the garden furniture market, will not have to show the officials documents relating only to Christmas decorations.

The defence of self-incrimination

The OFT may not compel the provision of oral answers to questions which might involve an admission of the existence of an infringement, it being their job to prove the same. It may, though, compel the provision of specified documents and of documents or information relating to facts, such as whether a particular employee attended a particular meeting.

Legal privilege

The OFT may not compel the provision of documents that are protected by legal privilege, ie. communications between lawyer and client. 'Lawyer' includes in-house lawyers for the purposes of OFT investigations.

Confidential documents

The OFT can compel the provision of documents that are simply confidential. Confidential documents should be marked as such and put in a separate confidential annex. The OFT will only disclose these to third parties to the extent that it is necessary for its purposes to do so.

However, information that relates to the affairs of any individual or to any particular business of an undertaking is not to be disclosed during the lifetime of that individual or while the business is carried on unless consent has been obtained from the person who originally provided the information and, if different, the individual to whose affairs the information relates or the person carrying on the business to which the information relates. There are, however, several exceptions to this, including where disclosure is made for the purpose of facilitating any function of the OFT under Part 1 of the Competition Act: eg. granting or cancelling an individual exemption.

Investigations under warrant

Where force might be required to obtain entry, the OFT must obtain a warrant. The OFT's powers are more extensive where it has been granted a warrant: it may use reasonable force to enter premises, and may take originals of documents and keep them for three months if copying is not practical or if taking them away appears necessary to prevent their disappearance. The OFT will take copies of all other documents of the 'relevant kind', ie. the kind in respect of which the warrant was granted (s28(2)(b)) and which will be specified in the warrant.

Access to lawyers

The OFT, on arrival, will normally allow a reasonable period of time (no more than a couple of hours) for outside lawyers to arrive, unless the business has an in-house lawyer. However, access to a lawyer is not a right and the OFT are entitled to refuse it and to refuse to delay the start of an investigation.

Decisions and directions following an investigation

If the OFT's conclusion is that there has been an infringement, then before making the decision the OFT must give written notice to the person(s) likely to be affected by the decision and give them an opportunity to make representations. It may give them such written directions as it considers appropriate to bring the infringement to an end, for example by modifying the offending agreement or terminating it. Such directions may be given even before the investigation is completed, if they are necessary to prevent serious, irreparable damage.

Penalties

The OFT may impose a penalty only if it is satisfied that the infringement has been committed intentionally or negligently. If the OFT is satisfied that the undertaking acted on the reasonable assumption that s39 (Limited Immunity for Small Agreements) of the Competition Act gave it immunity in respect of the agreement, it will not impose a penalty. The OFT has published guidance on the amount of any penalty.

Dawn raids by the European Commission

The Commission’s powers are generally similar to those of the OFT but have been wider since 1 May 2004, when the new regime came into force. The powers are contained in Council Regulation 1/2003.

Requests for information

The Commission may send a simple request for information to an undertaking or association of undertakings, stating the legal bases and the purpose of the request, specifying what information is required and fixing the time-limit within which the information is to be provided, and the penalties for supplying incorrect or misleading information. It may do the same thing by decision, but shall then also indicate the right to have the decision reviewed by the Court of Justice. The Commission will forward a copy of the request or decision to the competition authority of the Member State in whose territory the undertaking is situated and the competition authority whose territory is affected.

Power to take statements

The Commission may interview any person who consents to be interviewed.

Powers of inspection

The Commission may conduct all necessary inspections of undertakings and associations of undertakings. It may

  • enter any premises, land and vehicles of undertakings, including private homes if it has a reasonable suspicion that records related to the business are being kept in them;
  • examine the books of and records related to the business;
  • take or obtain, in any form, copies of or extracts from such books or records;
  • seal any business premises and books or records for the period and to the extent necessary for the inspection;
  • ask any member of staff or representative of the undertaking for explanations of facts or documents relating to the subject-matter and purpose of the inspection and record the answers. It is undecided as yet whether this power enables the Commission to ask wide-ranging questions or is limited to enabling it to seek clarification of matters arising out of the records it is shown. The questioning should not take the form of cross-examination, and the inspectors cannot insist on questioning certain individuals.

The company must go further than to say to the Commission officials that all its records are at their disposal: they must actually produce the specific documents required (Commission Decision (80/334/EEC) Fabbrica Pisana OJ [1980] L 75/30). It should put forward someone who is able to answer the Commission's questions and provide explanations of documents, as putting an employee who knows too little forward could be regarded as refusing to help the officials with their investigation, which is a fineable offence.

While the company is entitled to request a signed inventory of the copies the Commission takes away, it will be wise to take extra photocopies so that it is has an exact record of what copies the Commission took away. The Commission will, on request, reimburse the cost of the photocopies it takes away.

Limitations on the power

Scope of the power

See the paragraph above on scope of the power to investigate applicable to dawn raids by the OFT, as it applies equally to dawn raids by the Commission.

Self-incrimination

While there is no right to silence during an investigation, the defence of self-incrimination applies. Employees being questioned may refuse to answer questions that may lead to an admission of a breach of competition law on the part of the company. This is only in relation to oral questions, however, and does not affect the company’s obligation to produce documents. The Commission may compel the provision of all documents relating to the alleged practices or agreements, even if those documents might serve to establish the existence of an infringement (case 374/87 Orkem v EC Commission [1999] ECR 3283, [1991] 4 CMLR 502; and case 27/88 Solvay & Cie v EC Commission [1989] ECR 3355, [1991] 4 CMLR 502).

Because this right is fairly complex, the legal advisor should be present when employees are questioned.

Legal privilege

The company does not have to produce communications between itself and its external legal advisors, and documents sent by or to its external legal advisors. But, unlike the case under the Competition Act discussed above, communications between an in-house lawyer and a company are not protected. Nor is a company entitled to claim privilege in relation to communications between itself and lawyers qualified in a jurisdiction outside the EEA, or documents sent by or to such lawyers.

Confidential documents

Confidential documents, as a general rule, must be shown to the inspectors and they may take copies of them. The paragraph above on how to treat confidential information during an OFT raid applies equally to Commission raids. However, the Commission's power is limited in the following way: if a document contains ‘business secrets’, which means information about a company’s business strategy and core interests, including, for example, customers, market share and production processes, the Commission may not disclose it to third parties. It is for the Commission to decide whether or not information is a business secret, but the company should be given the opportunity to contest a decision that information is not a business secret before it is disclosed to third parties. In the event of a dispute, the Commission will normally make a formal decision which can then be reviewed by the Court of First Instance.

Investigations under warrant

The Commission officials are not permitted to force entry onto premises or into vehicles or filing cabinets if they are refused it. But if they are refused entry, they are able to obtain the assistance of the OFT, which will enter premises with a warrant, using reasonable force, in the event of obstruction of either a Commission investigation or an investigation being carried out by the OFT under EC law (Competition Act 1998, ss 61-65).

Access to lawyers

The Commission is not obligated to delay the start of an investigation while external legal advisors arrive, but it will normally do so if the company has no in-house legal advisors, its management undertake to ensure that the business records remain in the place and state they were in when the Commission officials arrived, and the officials are not hindered from entering offices of their choice.

Powers of the OFT when investigating cartels

Cartels are, basically, horizontal agreements between competitors not to compete with each other. They include price-fixing, market sharing, limitation of production or supply and bid-rigging. Under the Enterprise Act 2002, dishonest participation in a cartel is a criminal offence. The OFT has extensive powers to investigate them under the Enterprise Act. These powers are used in parallel to its powers under the Competition Act 1998, as described above. The OFT may choose to conduct an investigation under its powers under the Competition Act while the Serious Fraud Office simultaneously conducts a criminal investigation into the cartel offences.

The OFT may gather evidence of cartel activity at any time by informal methods such as enquiries by correspondence, in meetings or in telephone calls. Individuals are not obliged to respond to such informal enquiries. However, once the OFT has reasonable grounds for suspecting that a criminal cartel offence has been committed, it may conduct a formal investigation under the Enterprise Act 2002. In a formal investigation, it has, amongst other things, the power to:-

  • require persons to answer questions, provide information, and produce documents that are relevant to the investigation;
  • conduct interviews under caution;
  • tap telephones and use hidden cameras and informants;
  • require the person producing the above documents to provide an explanation of them;
  • require the person who was required to produce them to state, to the best of his knowledge and belief, where they may be found;
  • take copies of the documents;
  • enter and search premises under a warrant, using reasonable force if necessary, and take original documents.

The officials may refuse to wait for an individual’s or company’s legal advisors to arrive before commencing a search under warrant, but will usually allow a friend, neighbour or other person to witness the search.

The OFT must serve a written notice stating the subject matter and purpose of the investigation and the nature of the offences which may be committed by failing to co-operate with an investigation, before it may see the relevant documents or ask questions. The warrant, if there is one, will also state these.

Limitations on the power

Legal privilege and the defence of self-incrimination apply, although a person who refuses to answer questions or provide information or documents without a reasonable excuse commits an offence. As regards confidential documents, only confidential banking material may be withheld.

How to deal with dawn raids

A company under investigation will want to minimise the evidence it wants to give away, but should also be wary of being fined for obstructing the investigation. The company has a duty to co-operate actively with the inspection, ie. help the inspectors in any way that it can, and it must do more than merely provide access to documents: it must look out the actual documents requested (Case Fabbrica Pisana (OJ L 075 21/03/1980)). It must also do so carefully, as there are fines for negligently supplying incorrect or misleading information or producing incomplete documentation.

Companies should educate all relevant staff in the basics of the OFT’s and Commission’s powers of inspection, and the company’s duty to co-operate and duty not to hide or destroy documents or tell third parties that the raid is happening. Receptionists should be trained, as well as the key members of staff who will show the inspectors around.

When the OFT officials or Commission inspectors arrive, the company should read the notice or authorisation they are required to produce. In the case of a Commission raid, if the inspectors have with them a Commission decision authorising the raid, the company has no choice but to allow them to enter and carry out the inspection. In other cases, it will very rarely want to obstruct the investigation in any event for reasons explained above. The company should then ask its legal advisors to attend as soon as possible. It should make sure that no employee attempts to dispose of documents or warn other people of the raid. It should provide a meeting room for the sole use of the inspectors. One employee should be allocated to each inspector to note carefully all their requests and everything they do, explain where things are and how documents are filed, and ensure that all documents copied for the inspector are also copied for the company. Such employees should ideally know about legal privilege, the defence of self-incrimination, and the extent of the inspectors’ powers generally. Anyone who is to be officially questioned should do so in the company of the company’s legal advisor.

As soon as the inspectors have gone, all relevant employees should meet to discuss and record what has been asked for and taken, and what the response to questions asked has been. If any answer to a question or documentation supplied has been incorrect or incomplete the company should very quickly inform the OFT or Commission. The company should be able to pin-point the OFT’s or Commission’s areas of interest, and should make its own internal investigations into whether or not an infringement has occurred and decide on what defences may be open to it, and what tactics to use to deal with any infringement, such as applying for leniency. If leniency is to be applied for, this must be done very quickly. If the company suspects that the OFT or Commission will need further information, it should volunteer this quickly to show that it is co-operating.

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