Start of an investigation
Access to IT systems and electronic files
Destruction of evidence during a raid
Refusing or failing to provide documents
Raids at non-business premises
Dawn raids (unannounced inspections into suspected competition law infringements) are a key investigative tool for the European Commission. Officials have broad powers to inspect corporate and residential premises, seize and copy documents, emails and other records, and interview employees.
Authorities are becoming increasingly tough on perceived and actual failures to play by the rules during a dawn raid, even in the case of accidental or unintentional obstruction. Serious fines have been imposed in recent years for a multitude of violations at both EU and national level.
In March 2013 the commission published updated guidance(1) taking an expansive view of its powers to conduct searches of electronic storage media, such as computers, tablets, mobile phones and universal serial bus (USB) keys.
Ensuring that proper procedures are in place during a dawn raid has never been more important.
At the start of an investigation the presence of external or in-house lawyers is no reason to delay.
A company may be assisted by its lawyers during an inspection. However, the presence of a lawyer is not a legal condition for the validity of the inspection. In KWS the General Court ruled that the commission can increase fines for undue delays (in this case by 10%) because KWS had no in-house lawyer onsite and insisted that officials wait in the lobby for its external counsel to arrive, delaying the start of the inspection by 47 minutes.
In practice, inspectors will not accept to wait longer than 15 to 30 minutes for lawyers to arrive, and then they will wait only if they are allowed access to the offices and departments that they are interested in to minimise the risk of document destruction. The inspectors will not wait if in-house lawyers are present on the company premises.
Reception staff and security should be instructed to:
- welcome the officials, check identification and read the decision authorising the inspection carefully;
- alert the most senior executive onsite, as well as in-house and external lawyers immediately; and
- ask the officials if they would consider waiting a short time for lawyers to arrive - if resistance is encountered, the inspection should be allowed to proceed but the legal team should be contacted by telephone to agree on ground rules at the outset.
The inspectors' most important source of information is the company's IT systems. The duty to cooperate includes giving a full explanation of a company's organisation and IT environment.
The days when raids focused on handwritten notes and photocopied documents are long gone. During its most recent raids (sugar and oil pricing), the commission took no paper copies of any documents, only electronic copies of electronic files on DVD. Companies raided will be given a copy of the DVD, with hyperlinks to the copied documents.
Inspectors can block individual email accounts and search a company's entire IT environment. The commission's new guidance makes clear that it may disconnect running computers from the network (to avoid conflicts with the IT processes that it wishes to run). It can also remove and reinstall hard drives from computers, although the commission itself considers this intrusive and will only do so in exceptional circumstances (eg, when hard drives are encrypted). It will demand administrative access rights support.
Inspectors may search desktops and laptops, as well as, among other things, employee blackberries, mobiles, iPads, DVDs or USB keys. These devices can be kept until the end of the raid, although the inspection team may return them earlier if they have been able to make a forensic copy. In practice, the commission is likely to regard any devices or data containers on the company's premises as fair game, even those that are owned personally by employees. The commission has no interest in reviewing purely personal information, but it will want to verify whether those devices contain any business-related information. Objecting to this process can cost the company dearly and lead to years of litigation.
The commission is also likely to use its own equipment (hardware and software) to conduct a forensic search capturing valuable metadata. This makes inspections significantly more effective and leaves little room to hide. At the end of the inspection, the commission will remove all company data from its own equipment.
If the commission does not finish its selection of the documents on a hard disc or other data storage device during the inspection, it may secure a copy of the data in a sealed envelope and invite the company's lawyers to attend the opening of the envelope at its offices at a later date to review the content. National competition authorities have broadly equivalent powers.
Significant fines have been levied on companies which have tried to restrict or obstruct access to IT and electronic records.
In 2012 a Czech energy company was fined €2.5 million for restricting access to emails. Commission officials had ordered the blockage of email accounts of key personnel by setting a new password known only to the commission inspectors. The officials later discovered that the password for one account had been modified on the first day to allow the account holder access. A company employee had asked the IT department to divert all emails arriving in certain blocked accounts away from these accounts. As a result, incoming emails did not arrive in the relevant inboxes and thus could not be searched by inspectors.
Mistakes can prove costly - the basic message to all employees is that it is company policy to cooperate. Raided companies are advised to cooperate as follows:
- IT staff should receive dedicated dawn raid training and guidelines;
- Officials must be allowed administrator-level access and IT administrators should take steps to ensure that no data are deleted or overwritten;
- Employees should be made aware that data protection and privacy is not a valid reason or defence to refuse inspectors access to certain devices or electronic files or folders; and
- Inspectors are not typically interested in purely personal information, but they will want to verify (by taking a cursory look) that certain information is indeed personal and not business-related.
In the 2007 Professional Videotapes cartel decision, one company's fine was increased by 30%, in part because an employee was caught shredding documents during an inspection. The Spanish, Swiss and Greek competition authorities have also imposed fines on companies because certain evidence that had been identified during a raid subsequently disappeared, or because companies tried to conceal documents or change the content of crucial documents during an inspection.
Both the commission and many national antitrust authorities take a very broad approach to their right to examine documents.
To avoid problems (and high fines), raided companies are advised to cooperate as follows:
- at the start of a raid, immediate instructions must be given to all employees that they must not destroy any documentation, emails or other electronic records until further notice;
- any routine document destruction should be suspended immediately; and
- questions from the inspection team regarding the location of certain documents should be answered truthfully and accurately by employees.
Where the commission or national authority cannot complete the inspection in a day, it will typically seal overnight the offices and filing cabinets which it needs to review. Employees of the company under investigation are prohibited from entering sealed rooms.
The commission imposed a €38 million fine on German energy company E.ON Energie AG for a broken seal. This fine was upheld on appeal despite E.ON's argument that the breach of the seal happened due to circumstances beyond its control (eg, the seal's age, aggressive detergents used by cleaning staff or vibrations in next door offices). In 2011 the commission imposed an €8 million fine in a case where it was established that the breach of the seal was purely accidental.
Where the commission has sealed a portion of the premises, it must be ensured that the seal is guarded by security personnel to prevent unintentional tampering. All employees must be informed, as well as outside contractors (eg, cleaning staff), to stay away from any sealed part of the premises, or where sealed desks or filing cabinets are located.
The commission may ask any member of staff for explanations on facts or documents relating to the inspection.
Employees' failure to answer can lead to the company being fined. The 30% increase imposed in the 2007 Professional Videotapes cartel involved an employee refusing to answer the commission's questions.
While the commission can impose fines on the company for a failure to cooperate or supplying misleading information only, some national authorities can also impose fines on individuals (eg, personal fines of up to €200,000 in the Netherlands and up to six months' imprisonment and/or a €7,500 fine in France).
Raided companies are advised to cooperate as follows:
- questions must be answered honestly, keeping answers short and to the point. Extra information should not be volunteered, but neither should officials be misled;
- questions which go beyond the explanations of facts or documents (eg, did you fix prices at this meeting?) should be referred to in-house or external lawyers. There are limited rights against self-incrimination, but there is no general right to remain silent; and
- a record of the questions and answers given should be kept.
Competition authorities may conduct inspections of non-business premises (eg, the homes or cars of senior employees) where there is a reasonable suspicion that books or other records relevant to the investigation are being kept there. These powers are used regularly.
The evidence found in the course of both business premises and the private residence of a director enabled the commission to fine the marine hose producers involved €131 million for a market sharing and price-fixing cartel.
The commission's powers are not as extensive when it raids private homes as in the case of raids on business premises. The commission can enter homes, examine any business records stored there and take copies, but it does not have the power to seal private premises or ask on-the-spot questions. National competition authorities accompanying the commission or acting on their own authority will often have broader powers.
Employees should be instructed to call the company's in-house legal team immediately in case of a raid at their home. The legal team can assess what would be the most appropriate and adequate assistance that can be provided to the employee(s) in question, depending on the circumstances - ranging from assisting the employee over the telephone, to the retention of an individual lawyer for the employee in jurisdictions where the employee's personal liability may be at stake.
The three golden rules of managing a dawn raid are as follows:
- remain calm and profession at all times;
- cooperate with inspectors; and
- ensure that no documents, emails or other electronic records are destroyed until further notice.
For further information on this topic please contact Kurt Haegeman, Tom Jenkins or Fiona Carlin at Baker & McKenzie by telephone (+32 2 639 36 11), fax (+32 2 639 36 99) or email (email@example.com, firstname.lastname@example.org or email@example.com).
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