The European Commission appears to be leading the way in a rise in dawn raids, possibly in an attempt to kick-start cartel enforcement following a possible decline in leniency applications in response to the surge in private damages actions.
The European Commission and the UK’s Competition and Markets Authority (the “CMA”) have the power to conduct unannounced inspections on the basis of suspected anticompetitive conduct. They can carry out dawn raids following a third-party complaint, on the basis of agency intelligence, or due to information received from a potential whistle-blower. Dawn raids place a considerable amount of pressure on multiple areas of a business at once and can be particularly burdensome to comply with, particularly if they take place at multiple locations or in several countries.
Competition authorities are thought to be receiving fewer leniency applications in light of increased private enforcement in the form of damages actions. Meanwhile their ability to launch dawn raids was hampered by the recent Covid-19 pandemic. Whilst current economic circumstances may bring about a heightened risk of cartel engagement (the CMA has publicly stated that any businesses seeking to exploit the current market circumstances risk robust enforcement action), it remains to be seen how the CMA will increase its cartel enforcement following a fallow period over recent years.
Meanwhile, the European Commission, accompanied by its counterparts from national competition authorities, recently carried out a series of dawn raids in several EU countries at the premises of a manufacturer of energy drinks on 20 March 2023. Around a fortnight earlier, on 7 March 2023, the European Commission, CMA, DOJ, and the Swiss Competition Commission also undertook parallel dawn raids at four of the world’s leading fragrance suppliers. This was the second time that the European Commission and the CMA conducted parallel dawn raids since Brexit; the two authorities coordinated unannounced inspections at the premises of several major carmakers a year earlier in March 2022.
Such coordination can be expected to continue post-Brexit, though it remains to be seen whether this is enough to counter a broader decreasing trend of cartel enforcement.
In any event, this increase in dawn raids serves as a timely reminder for businesses that it is more important than ever to ensure that internal compliance policies, particularly dawn raid manuals, are not just in place but refreshed and regularly updated. It would also be prudent to ensure that any protocols are adapted to the post-pandemic world in which agile working arrangements are becoming increasingly more common and widespread.
Failure to do so can result in tangible compliance issues. In addition to significant fines and potential director disqualifications of up to 15 years for the underlying conduct, businesses can also face penalties for non-compliance with the procedural requirements of a dawn raid. (For example, the European Commission has imposed multi-million Euro penalties for breaches of its procedural rules.)