Competition authorities worldwide continue to impose heavy fines for cartel behavior. In their 2012 fiscal years, the US Department of Justice’s Antitrust Division levied a record-breaking $1.1 billion in criminal fines, the Canadian Competition Bureau imposed criminal fines in the amount of CAD$22.2 million, and the European Commission rendered civil cartel fines amounting to €1.9 billion.
A firm’s potential exposure from a cartel, though, is not limited to a fine for “substantive” violations of competition laws. Regulators can impose penalties for “process violations” for obstructing or interfering with a cartel investigation, raid, or subpoena. Such behavior can give rise to other federal crimes, such as “obstruction of justice,” with accompanying stiff penalties.
Additionally, failing to comply fully with a raid or subpoena can harm a firm’s credibility with regulators, which may undermine efforts to obtain leniency or be considered for a decrease in fines due to cooperation at a later stage in an investigation. Finally, inadequately responding to a raid or subpoena may impair a firm’s fact investigation and ultimately prejudice its overall defense strategy.
We discuss below some of the general best practices that should be implemented before, during, and after a dawn raid or subpoena. These practices will help your firm avoid compliance pitfalls and put it in a favorable defensive position in order to respond quickly and effectively to investigations by potentially multiple regulators as well as lawsuits by customers and other potential private claimants.
Pre-Dawn Raid or Subpoena
- Compliance program and antitrust audits: The best way to avoid a raid or subpoena is to prevent misconduct with a thorough and up-to-date antitrust compliance program. Antitrust audits can help detect problems before they become big enough to attract the attention of the competition authorities.
- Document management: When not anticipating potential investigation or litigation, the company should examine with counsel how effectively to balance between preserving information that is important to comply with applicable legal and regulatory requirements, on the one hand, and reducing the burden and potential future risks from preserving every piece of information, on the other hand. Following sensible document management and retention policies goes well beyond e-mails, and includes files on mobile phones or shared drives, voicemails, and system backup tapes. In particular, privileged documents (paper or electronic) should be clearly identified and, to the extent practicable, segregated from non-privileged documents.
- Disaster recovery systems: Have an effective disaster recovery system and encourage employees to use shared drives and document management systems instead of local drives to save files. This ensures that day-to-day operations can be restored if personal computers or physical documents are seized during a raid.
- Implementing a dawn raid procedure: A written dawn raid procedure should be prepared and kept up-to-date. All receptionists or other staff who have responsibility for dealing with the public at a company should have “arms reach” access to the dawn raid procedure. The procedure should refer all persons with warrants or subpoenas to one of a number of designated company representatives. For example, the procedure should identify an onsite raid coordinator and IT point person.
During a Dawn Raid
- Contact counsel: Contact in-house counsel immediately, then outside counsel. Request a “pause” before the raid starts to give outside counsel a chance to arrive onsite, but be aware that officials may be unwilling to give more than a short “pause.”
- Review search warrant closely: The onsite raid coordinator should review the search warrant closely to understand its scope (e.g., address of premises to be searched, products at issue, and relevant time period), and should also ask for a copy of the information or affidavit supporting the warrant.
- Communication to relevant employees: Send out a short and immediate communication to relevant employees to: (1) cooperate; (2) direct questions to raid coordinator or counsel; (3) not destroy any documents; and (4) not contact anyone about the raid.
- Dealing with privileged documents: Try to prevent privileged documents from being seized (if possible) but be careful to not cross over into obstruction of justice. If a particular document is in question, ask for it to be put aside and addressed once outside counsel arrives.
- Reacting to on-the-spot interviews: If prompted during the raid, the firm is obligated to provide officials with any basic information that is necessary to locate and access files within the scope of the warrant. However, answering substantive questions during a raid is not mandatory in many jurisdictions, and should never be done without outside counsel present. Have a person take notes (and, if necessary, assert privileges) during any interview, regardless of the topic being discussed.
- Paper the raid: Have someone “shadow” officials and take notes on which documents are collected (including which servers are searched, what users’ files are imaged, etc.) and how (e.g., search terms used), and to make sure the search is within the scope of the warrant (e.g., officials may not be permitted to image an entire computer). Make copies of documents or files that the officials seize or image, if possible. The company personnel shadowing the officials could serve as witnesses in any subsequent court hearing relating to the validity of the warrant and its execution. For this reason, the company and its counsel should carefully select the employees tasked with shadowing the officials.
- Record objections: Ask officials to make notes in their records concerning any objections raised (e.g., privilege or relevance).
- Overnight security: Put in place a security guard overnight to ensure seals on doors or boxes are not broken.
- Interoffice communication: Find out if other offices (especially in other jurisdictions) are being raided simultaneously. If not, alert key employees of the raid so that they are prepared for one.
Post-Dawn Raid or Subpoena
- Launching an effective internal investigation: The internal fact-finding investigation must begin immediately so that a firm can understand the scope of the potential issues (e.g., products at issue, the affected business units and markets, and the relevant time period). Outside counsel will conduct preliminary interviews of the relevant business personnel and an expedited and targeted initial review of potentially sensitive documents. Key strategic decisions, such as whether to seek leniency, cannot be made until key decision makers, in consultation with outside counsel, understand the firm’s potential exposure. Forming a small “clean team” (often led by in-house counsel) can be an effective means of making important decisions regarding the investigation, updating senior leadership, communicating with important customers and the public, and deciding on a cooperation strategy (if appropriate) with regulators.
- Preserving the attorney-client privilege: In certain jurisdictions with active cartel enforcement, like the European Union, there is no attorneyclient privilege recognized between business personnel and in-house counsel. Accordingly, all communications concerning a firm’s response to a raid or subpoena in those jurisdictions must include outside counsel who are recognized within those jurisdictions to preserve the privilege over such communications and prevent them from being turned over to regulators and potential claimants.
- Getting the right help on the ground: As soon as the internal investigation begins, work to identify other jurisdictions potentially implicated by the alleged misconduct. Retaining local counsel in these other jurisdictions is critical to help with fact gathering from a firm’s local offices, preserving applicable privileges, and obtaining necessary input on the local regulators and leniency regime to inform strategic decision making.
- Getting a hold on the documents: A firm’s obligation to preserve documents potentially relevant to the cartel investigation begins as soon as a raid occurs or a subpoena is received. Work with outside counsel to: (1) identify employees who possess potentially relevant documents; (2) instruct these employees in writing (if originally done orally, this should be supplemented in writing) to preserve existing and future documents (wherever that information is stored, e.g., e-mail, phone messages, instant messaging, etc.); (3) ensure that those instructions are implemented; and (4) put in place proper backup and preservation procedures on all relevant information technology systems. Under no circumstances should original versions of potentially relevant information be destroyed or deleted in the ordinary course from a firm’s office(s) in the jurisdiction where the raid occurred or the subpoena was issued. Also, while a firm’s obligation to preserve and produce potentially relevant documents may extend to foreign offices, a firm should nevertheless avoid moving documents into a jurisdiction where a local regulator has the power to compel their production.
- Implementing a smart travel policy: Key employees involved in the alleged misconduct should avoid unnecessary travel into jurisdictions where enforcers have launched an investigation, especially those where competition laws are enforced criminally, and they should pack wisely if the trip is unavoidable. Persons of interest can be put on a watch list that causes them to be stopped, questioned, and even have their belongings inspected upon arrival in the country, so a firm should consult with outside counsel about the risks associated with particular employees traveling abroad.
- Effective communication (within and without): A raid or subpoena can slow day-to-day operations, cause concern among employees, and trigger the filing of private lawsuits by customers or other claimants. Consider issuing an internal notice to relevant employees stating that the routine investigation does not necessarily mean any laws were broken, yet stressing the importance of keeping confidential the fact that an investigation is underway. Employees responsible for interfacing with the public should be briefed on how to respond to inquiries from the press. Avoid saying “no comment,” but also do not disclose the existence of any non-public investigation. If the raid or subpoena has already been publicized, the press should be told only that the company is cooperating with an ongoing investigation.
The immediate aftermath of a new cartel investigation is a critical period of time. Failing to properly handle a raid or a subpoena can result in serious “process” penalties and prevent a firm from making the “right” strategic decisions. In consultation with outside counsel, the above general practice pointers should be refined to fit your firm so that it is not caught off guard when a cartel investigation hits and time is truly of the essence.
Co-written by Weil, Gotshal & Manges LLP attorneys Adam Hemlock, Eric Hochstadt, Steven Reiss, and Kaj Rozga.