GOOD MORNING EUROPE: Preparing for a Wave of Dawn Raids and Investigations Across Europe

GOOD MORNING EUROPE: Preparing for a Wave of Dawn Raids and Investigations Across Europe

July 6, 2023

Earlier this year, TransPerfect Legal Solutions held our second conference on the Future of UK and EU Competition Regulation, bringing together a wide range of external counsel, in-house lawyers and legal technologists from the UK and Europe for this special, in-person event.

One fascinating panel discussion tackled the crucial topic of 'dawn raids' — unannounced onsite inspections by competition authorities when they suspect a company has breached competition law. Given that authorities can impose substantial fines (up to 1% of company turnover) in the event an investigated company does not cooperate properly, it is vital that companies and their advisors are well-equipped to respond to a dawn raid if and when required.

We were fortunate to hear from expert advisors with first-hand experience in this space, namely Ludmilla Le Grand (Counsel, Latham & Watkins), Jessica Martin (Principal Associate, Eversheds Sutherland), Natasha Tardif (Managing Partner – Paris, Reed Smith), Peter Forsberg (Partner, Hannes Snellman) and Jérémie Jourdan (Partner, White & Case).

In this post, we highlight the key insights and practical takeaways for advisors that emerged from this illuminating discussion.

Dawn Raids Are Back in Full Swing

Following a significant dip in dawn raids during the pandemic when the world went into lockdown, competition regulators have since been promising a resurgence of dawn raids. In 2021, Margrethe Vestager (Executive Vice President of the European Commission [the Commission]) announced ‘a new era of cartel enforcement’, citing a drop in leniency applications. Meanwhile, in 2022, Michael Grenfell (Executive Director of Enforcement at the UK Competition and Markets Authority [CMA]) warned, ‘Cartelists need to understand that the days of the CMA having to refrain from dawn raids are over’.

Recent data from White & Case’s Dawn Raid Analysis Quarterly suggests that these promises were not empty and that dawn raids are making a comeback. For example, Q1 2023 saw nearly as many dawn raids across Europe (24) as the whole of 2020 (26), and at the time of our conference, the Commission had already executed three dawn raids in the fragrance, fashion and energy drinks industries. Since then, the Commission has conducted a fourth dawn raid in the synthetic turf sector.

From a birds-eye view, there is a notable trend towards dawn raid activity in consumer industries, which suggests a conscious desire by the regulators to show they are protecting consumer interests – likely in recognition of the impact of the cost-of-living crisis. Another development is the increase of global cooperation amongst competition authorities, illustrated by parallel dawn raids conducted by the Commission, CMA, US Department of Justice and the Swiss Competition Commission in the fragrances sector in March this year. The announcement of a working group amongst the competition regulators of the UK, US, Australia, New Zealand and Canada further emphasises the shift towards a cooperative approach for authorities worldwide.

Don’t Underestimate Requests for Information (RFIs)

The changing landscape of work post-pandemic has also transformed regulatory methods. In addition to the return to dawn raids, our panel noted they are seeing a rise in clients receiving requests for information (RFIs), as they offer authorities a more cost-effective and less invasive means of gathering information.

However, advisors should not be lulled into a false sense of security, as RFIs still have the potential to be disruptive, expensive and time-consuming for companies because the scope of information and documentation requested can be huge.

Dawn Raids at Home: More Myth Than Fact

Similarly, whilst the rise in remote working has prompted concerns about potential dawn raids at home, in reality, these are generally considered a last resort by regulators due to their invasive nature and associated procedural safeguards. Despite a few instances of such visits during the pandemic by the French competition authority and the Commission, it is unlikely that home raids will become the norm.

Various legal and logistical hurdles alongside the readily accessible data on company servers, even when an employee is working from home, suggest that regulators will likely continue to favour conventional office raids.

Ensure Employees Understand Their Obligations to Disclose Personal Devices

Whilst homes might be safe for now, personal devices are not. With the increasingly widespread use of personal laptops and mobile phones for work and bring-your-own-device policies, regulatory scrutiny of such devices continues to be a focus for authorities. Cases in France (where an employee used his wife’s email to contact fellow cartel members) and the Netherlands (where a company was fined when employees deleted messages from a relevant WhatsApp group) demonstrate that even seemingly private conversations can become evidence in dawn raids.

This underscores the importance of companies ensuring their employees understand the potential consequences of using personal devices for work. In too many cases, employees are shocked and affronted when required to give up access to information they believed was private.

Preparing for Raids in the Era of Electronic Data

A key challenge faced by companies when responding to dawn raids or RFIs is the exponential increase in electronic data year on year. With the advent of the ‘paperless office’, physical documents have been largely superseded by electronic data, the sheer volume of which can be staggering. A common position amongst regulators is that if data is accessible to the company, it should be accessible to them, irrespective of whether it's stored on a remote server. This poses unique challenges for companies and, in particular, their IT departments, who have historically not been on the frontline dealing with these regulatory demands.

A recent case illustrated the potential pitfalls: a company subject to a dawn raid took an unusually long time to retrieve information simply because they were not familiar with the procedures to extract data from their remote servers. This led the Commission to suspect a lack of cooperation and threaten a fine. Indeed, the physical location of a server could also add complexity, particularly if it is located in a different country.

Companies need to be mindful of their obligations and ensure their IT department is adequately trained to respond effectively. As regulatory authorities are now scrutinising considerably more electronic data than ever before, the involvement of the company IT director or external technology advisors throughout the raid is crucial.

Know Your Legal Privilege Rights – Especially When Conducting Internal Audits

However, companies need to know when they can refuse a regulator seeking to collect documents during a raid.When it comes to documents being seized by regulators, navigating the considerations of privilege in cross-border investigations presents a minefield for companies, primarily due to the significant differences in treatment across various jurisdictions. It's a critical facet of a company's rights, but a concept that lacks a consistent definition, even within the EU member states. Whilst advice from in-house counsel might be protected in the UK or Belgium, similar communications in France receive no such cover.

Coupled with the assumption of competition authorities that they can seize any document within their jurisdiction, even if physically located elsewhere, this creates a perplexing situation for companies. This predicament is particularly thorny when a US legal department provides advice that, whilst privileged in the US, might not be protected in the EU.

In the context of Commission investigations, in-house counsel must be alert to the risk of their advice not being covered by privilege. Practically, this means that in-house counsel must think twice before conducting an internal compliance review or a mock dawn raid to ensure that any output is adequately protected. Whilst the intention to find non-compliant behaviour is, of course, praise-worthy, internal communications outlining problematic fact patterns accompanied by discovered documents would present a treasure trove to an investigating regulator. Engaging external counsel to conduct such exercises would help companies seeking to benefit from legal privilege in the context of seeking legal advice.

Multinational Companies Need to Consider the Territorial Limits of Regulators’ Powers

Another potential defence to a dawn raid or RFI is to challenge the regulators’ power to compel the documents in the first place. In an important decision this year, concerning the German-domiciled parent companies of BMW and Volkswagen, the UK’s Competition Appeal Tribunal (CAT) established that the CMA does not have the authority to compel the disclosure of documents from companies without a sufficient UK nexus, effectively restricting the extraterritoriality of the CMA’s powers. The CMA is in the process of appealing this decision, raising concerns that this limitation of its powers risks substantially undermining its ability to investigate infringements, noting that its investigations increasingly involve cross-border, multi-national corporations. The CMA has also sought to address some of these concerns via the UK’s Digital Markets, Competition and Consumers Bill, which was introduced to Parliament on 25 April 2023.

In the meantime, advisors and companies should carefully consider their cooperation duties and broader strategies around disclosure when requested data is not in the possession or control of the specific regional company under investigation. Whilst an international company may be within its rights to refuse to disclose documentation located overseas and not accessible from the premises being raided, an alternative strategy might see a company comply with a regulator’s extraterritorial request in the hope of securing a reduction in fines.

Don’t Be Afraid to Challenge Regulators in Light of Irregularities

The recent appeal by Intermarché Casino Achats against a decision of the Commission to order a dawn raid offers hope for parties looking to challenge regulatory findings. In this case, a poorly substantiated Commission decision led the client to contest the dawn raid, arguing that there wasn't probable cause for suspicion of infringement as evidenced by the Commission’s subsequent disclosures. The General Court of the European Union eventually annulled the dawn raids due to the Commission’s procedural failings (ultimately leading to the closure of the whole investigation).

This underscores the importance for companies to know their rights and scrutinise regulators’ decisions and investigations carefully. If something seems amiss, particularly if an internal review finds limited issues in the seized documents, contesting the Commission’s decision may be a viable option.

Conclusion: Fail to Prepare and Prepare to Fail

With dawn raids making a resurgence, companies must work with their legal and technology advisors to adequately prepare. Proactive strategies hinge on implementing appropriate policies and procedures for the management of personal devices and electronic data and conducting robust training for internal IT and legal departments. At the same time, companies and their advisors must be aware of their rights regarding privilege, territoriality and correct procedure in order to best construct their response strategy when the regulator comes knocking.

At TransPerfect Legal Solutions, we understand the complex challenges faced by organisations navigating the ever-changing landscape of dawn raids and regulatory investigations. Reach out if you’d like to learn more about how our experts can support you to best prepare for the worst-case scenario through information governance consulting, forensic collection, eDiscovery and managed review support.

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By Stefan Nigam, Director, Consulting & Information Governance