Protecting your rights of defence in an increasingly intrusive enforcement environment

The right to due process and procedural fairness encompasses principles such as: (i) the right to legal representation; (ii) the right to be heard; (iii) respect for privilege; (iv) notification of the legal and factual basis on which an agency relies; (v) opportunity to challenge inculpatory evidence; (vi) checks and balances on decision-making with the relevant investigative agency; and (vii) the avoidance of undue delay.

These areas have come under increasing scrutiny as the spread of antitrust law globally has been coupled with increasingly intrusive enforcement agencies. While the agencies face expectations of enforcement successes, commentators have cautioned that enforcement activities must respect due process. The current high level of interest in due process is expected to continue through 2016.

Why is this a hot topic?

In 2015, the European Commission faced criticism in relation to due process. In the ongoing Euro Interest Rate Derivatives (EIRD) investigation, the European Ombudsman issued a finding of maladministration against the former European Competition Commissioner for appearing to be biased against the investigated party. This finding by the Ombudsman came mere months after the Commission was criticised by the Ombudsman for delay in providing access to important evidence in the Smart Card Chips investigation. The Commission is also facing an appeal - the first ever of a settlement - with Société Générale questioning the basis of fine calculations and alleging lack of equal treatment and protection of legitimate expectations.

In the US, commentators have renewed criticism of differences in procedure employed at the FTC and DOJ, which may result in different outcomes depending on which agency handles the matter. In response to this scrutiny, in August 2015 the FTC published a statement of enforcement principles to better align its merger procedures with those of the DOJ.

Businesses operating in China continue to experience difficulties around levels of transparency compared to their expectations in other major jurisdictions. When subject to merger investigation by China’s Ministry of Commerce (MOFCOM), parties have experienced less direct interaction with the case team, including less clear signposting as to potential substantive concerns. Businesses subject to behavioural investigations by the National Development and Reform Commission (NDRC - responsible for price-related antitrust investigations) and the State Administration of Industry and Commerce (SAIC - responsible for non-price related antitrust investigations) similarly find the comparatively rapid nature of the investigation process, and a sense of fewer clear procedural milestones, create some important challenges compared to their experience of investigations in the EU or the US.

To meet these concerns, various bodies have introduced guidance on due process and procedural fairness in 2015. The International Competition Network (ICN) introduced a list of investigative principles and practices seeking consistency in the key areas of transparency, engagement and confidentiality. Similarly, the Antitrust Section of the American Bar Association (ABA) published best practices for use by regulators in antitrust investigations.

Despite the FTC aligning its merger procedures with the DOJ, and changes at the European Commission, concerns about agency structure still arise - particularly the lack of separation between the prosecutorial and adjudicative functions.

“The combining of prosecutorial and adjudicative functions can lead to inherent bias on the part of a decision maker. Fundamentally it creates concerns about fairness where the same persons who initiate cases are then tasked with ultimately determining whether the decision to prosecute was well taken.”

Terry Calvani, Of Counsel, Washington DC

Areas of risk

Risks to protection of due process are heightened in certain areas, such as dawn raids. An agency’s decision to authorise a dawn raid may be based on limited evidence submitted by an immunity applicant without adequate review or appropriate objectivity. Additionally, the wide scope of dawn raids and e-discovery creates a risk of “fishing” expeditions for potentially infringing behaviour. This puts a premium on timely and effective in-house and external legal advice.

For many parties under investigation, the opportunity to “join issue” over fundamental facts strikes at the heart of whether a proceeding is fair. Nonetheless, in some settings, the accused never has the ability to address directly the decision maker.

Often complex evidential and economic data used in antitrust investigations or complex merger cases is confidential to third parties. How authorities balance respect for legitimately confidential information with parties’ rights to review all necessary evidence in a particular case can be a critical issue. Authorities such as the European Commission often grant access to particularly sensitive data in an access to file process or data room at the Commission’s premises. Failures by authorities to provide sufficient access to underlying evidence (whether because documents are so heavily redacted that they cannot be understood or whether they have not been provided at all) can be particularly problematic.

Legal privilege and different standards applied by regulators internationally also remain a concern, especially in cross-border investigations. In the EU, court rulings have held that in-house counsel communications are not privileged. There has also been uncertainty regarding legal advice on very sensitive matters, such as patent litigation, provided by advisers qualified outside Europe. Other jurisdictions recognise legal privilege to an even lesser extent - where privilege is waived in one jurisdiction it can have a knock-on effect on whether the same documents should be disclosed elsewhere. The uncertainty over legal privilege can make effective communication during a dawn raid more difficult.

“Legal privilege is recognised in many systems as a fundamental right, but there are growing concerns that dawn raids and other investigative measures by antitrust regulators internationally are being applied overly broadly. Timely specialist legal advice is essential to protect companies’ procedural rights during a dawn raid or in e-discovery. Helping protect legal privilege in such a context is particularly important”.

James Aitken, Partner, London

Looking ahead to 2016:

A number of important issues which impact how complaints are dealt with in 2016 should be closely monitored:

  • Adoption of new international guidance: Will the ICN’s or ABA’s guidance actually influence antitrust agencies?
  • Mitigating risk: Having detailed procedures in place internally, and undertaking training on such procedures with external counsel, can help protect companies’ due process rights in any dawn raid, race for leniency, access to file or interview. Companies expecting investigations by certain agencies should discuss with their global co-ordinating counsel how best to manage an investigation in these jurisdictions.
  • Due process in the EU: The Commission’s approach should be watched closely to see if concerns about bias are addressed. The General Court’s decision on Société Générale’s EIRD appeal will also be of interest to anyone potentially impacted by the Commission’s process for calculating fines.

“It remains to be seen whether the development of best practice-style statements will generate real substantive changes in the way that antitrust authorities pursue their investigations. For well-established authorities, it may be difficult to effect institutional change that allows these practices to bed in. However, if they do not, this will affect the willingness of defendants to come forward and report wrong-doing. In an increasingly international enforcement environment, they will only do so if there is a certain standard of due process in all jurisdictions concerned.”

Tobias Klose, Partner, Düsseldorf