05 Oct, 2015

A Short Guide on Dawn Raids

This Short Guide provides guidance on how to ensure an effective response to an unannounced inspection (known as a “dawn raid”) of the Commission for Protection of Competition of the Republic of Serbia (further Competition Commission).  Topics covered include:

  • What to do at the beginning of a dawn raid
  • Managing an ongoing dawn raid
  • What to do at the end of a dawn raid
  • Do’s and Don’ts at each stage

This Short Guide will consider the key practical points and legal issues to bear in mind when facing a dawn raid.  It should be used to assist your company in providing an effective response in the event of dawn raid.

This Short Guide does not act as legal advice and should not be regarded as such.

I. Introduction

If the Competition Commission suspects that an infringement of the Act on Protection of Competition (further Competition Act) has occurred, it may carry out unannounced inspections (known as “dawn raids”) at the premises of companies suspected of involvement.

A dawn raid, which may take place in multiple locations, simultaneously places a considerable pressure on different segments of a business and can be very stressful.  The Competition Commission agents have wide powers to search the company’s premises, private premises of individuals working for the company, examine and seize business records and documents and request oral and written statements from any staff member.

Therefore, putting in place an effective internal dawn raid response strategy before being confronted with one is crucial.  All employees must know how to handle a dawn raid, and what their legal obligations and rights are.  If a company fails to comply with its legal obligations during a dawn raid, significant fines can be imposed, and individuals may also face the criminal sanctions.  At the same time, it is important to minimize the impact of the dawn raid on day-to-day business of the company and ensure that the company’s rights and the limits on the Competition Commission agents’ powers are respected.

This short guide is designed to provide an overview of the key stages of a dawn raid and to outline the steps which should be taken to ensure that a company subject to a dawn raid responds in an efficient manner whilst minimizing legal risk.

Our intention is to provide a useful starting point for the development of a more elaborate and detailed dawn raid response strategy tailored to address the specific needs of company.

 

I. What to do at the beginning of a dawn raid

An adequate initial response to a dawn raid is one of the most important steps which must not be neglected.  Therefore, all persons involved in this phase of a dawn raid should be trained to follow the company’s internal dawn raid response strategy.

1. The receptionists

Competition Commission agents will arrive unannounced and, usually, during working hours.  The first persons to face them will, most likely, be the receptionists.  It is important that the receptionists have clear instructions of how they are to proceed and whom they should alert first.  They should be trained to follow the company’s internal dawn raid response strategy (a reminder of initial steps available at reception desk may be useful).

It is important that all persons stay calm and cooperate with the CPC agents.  You will be presented with a CPC decision notice providing details on the scope of the search and the reasons of the search.

The key initial steps to be taken include:

  • Alerting a senior member of the Company’s Dawn Raid Team
  • Requesting and taking a copy of the Competition Commission agents’ authorization documents (in particular, the Competition Commission decision notice) and their ID cards
  • Preparing a list of Competition Commission agents
  • Arranging name badges clearly identifying the Competition Commission agents as visitors to the premises

The agents should be told that a senior member of company staff is on his way and asked to wait at the reception, an empty meeting room or other suitable space whilst these preliminary administrative tasks are completed.

At this stage, all conversations with the agents should be kept to matters of pure administration – conversation should not concern the business or the subject matter of the dawn raid.

It is important to explain to any staff member aware of the dawn raid that they must not discuss the dawn raid except where expressly authorized to do so.

It is highly recommended that an instruction is issued that no shredding of documents or deletion of electronic materials is to take place on the day of the dawn raid until further notice.

2. The Company’s Dawn Raid Team

A senior member of the Company’s Dawn Raid Team should meet Competition Commission agents at the reception desk.  In the meantime, other members of the Company’s Dawn Raid Team should:

  • Immediately contact the in-house lawyer and/or external legal counsel(s), as well as other key individuals (e.g. directors, managers etc.) to inform them that a dawn raid is taking place and arrange a brief meeting/call/conference call to discuss a subject matter and purpose of the dawn raid
  • Verify the Competition Commission agents’ authorization documents (copied by the reception staff) and especially review the Competition Commission decision notice for validity and scope (usually, it states the legal basis for the dawn raid and the subject matter of the investigation in broad terms)
  • Establish a team of “shadowers” to accompany the Competition Commission agents at all times once the search starts in order to provide that a dawn raid is appropriately supervised. The shadowers should be briefed as to their tasks in the course of a dawn raid and the limits on the Competition Commission agents’ powers
  • Ensure that senior members of the internal IT team are available to assist the agents on any issues related to searching of electronic documents/data and fulfilling of agents’ requests to shut down telephone and/or e-mail systems during the dawn raid
  • Send an e-mail to all staff at the premises to explain what is happening and the need to be co-operative but to pass all questions/requests from the inspectors to the response team leader and not to discuss the fact of the dawn raid with anyone outside of the business

Before the search begins, the Company’s Dawn Raid Team should attempt to agree upon an approach with the leader of the Competition Commission agents’ team by which the search can take place, minimizing the interference with the day-to-day operation of the business.  Competition Commission agents are likely to ask for clarification on the internal organization of the company, its business areas, IT systems, and general layout of the building.

Agents should also be informed that requests for oral explanations should be directed to designated points of contact (the Company’s Dawn Raid Team leader or other).

3. Is the presence of an in-house lawyer(s) and/or external legal counsel(s) mandatory?

The Competition Act is silent on the question related to the presence of a legal counsel (either in-house lawyer or external legal counsel) during a dawn raid.  However, their presence during the course of the dawn raid is highly recommended in order to ensure that limits of the Competition Commission agents’ powers and the scope of the dawn raid are respected.

Therefore, if the in-house lawyer and/or external legal counsel would be present within a reasonable time, the Competition Commission agents’ team should be asked to wait for their arrival before proceeding with the inspection.

However, since there is no legal requirement for the Competition Commission agents to wait for the arrival of lawyers, should they refuse to do so, it is important that this is not insisted upon, as there is a risk this could be deemed to amount to obstruction of the dawn raid which could lead to significant fines being imposed.

If Competition Commission agents are not willing to wait for arrival of the lawyers, the dawn raid should be allowed to proceed, but the Company’s Dawn Raid Team should be in a permanent contact with an in-house lawyer or/and external legal counsel(s) by telephone (setting up a conference bridge for this purpose may be useful).

If Competition Commission agents insist on starting to review the documents before either in-house lawyer or external legal counsel arrive, one of the member of the Company’s Dawn Raid Team (usually the leader) may seek to agree with the leader of the agents’ team to limit the activities of the agents, at this stage, only to those necessary to prevent that no documents can be concealed or destroyed and that no company subject to parallel dawn raids can be tipped off (but no review or copy of documents and no questions before the lawyers arrive).

If this is not possible, it is important to identify, with the assistance from lawyers via telephone, the categories of documents and files which are likely to be relevant to the investigation, but which are low risk of containing privileged material.  If possible let the Competition Commission agents work through those categories of documents and files until the lawyers arrive.

TO REMEMBER:

DOs DON’Ts
>  Elaborate and implement a Company’s Dawn Raid Response Strategy before being confronted by a dawn raid > Be hostile to Competition Commission agents
> Ensure that all employees have received appropriate training and that they know what they should do in the event of dawn raid > Obstruct the dawn raid by refusing to cooperate
> Check the authorization documents of the Competition Commission agents and raise any concerns with in-house lawyer and/or external legal counsel(s) > Insist that Competition Commission agents wait for the arrival of external legal counsel(s) before starting the search if they refuse to do so when asked
> Immediately contact in-house lawyer and/or external legal counsel(s) and ask the Competition Commission agents to wait until lawyers arrive before commencing the search (but do not insist on it) > Try to destroy, delete or hide any items, documents, files or data (hard copy or electronic)
> Try to delay answering any questions (other than those of pure administrative nature) > Contact anyone outside the company to inform them that the dawn raid is taking place or to discuss any aspects of it
> Seek immediate legal advice if at any stage you are uncertain as to your rights and responsibilities

 

II. Managing an ongoing dawn raid

Despite the fact that no express obligation to cooperate with the Competition Commission agents is provided in the Competition Act, it is highly recommendable that the company cooperates actively during the raid by allowing access to the premises and providing any document and information requested by the Competition Commission agents which is potentially relevant for the investigation.

The Competition Commission agents have wide powers to:

  • Enter and search the company’s premises, means of transport, land and other premises in company’s registered office, as well as, under certain circumstances, the private premises of company’s representatives and staff
  • Examine business records and other documents whatever is its support (hard copy or electronic);
  • Copy and scan business records and other documents and, if that is not possible due to technical reasons, temporarily seize original documents
  • Seal all business premises and business records during the investigation
  • Take ‘oral statements’ from the company’s representatives or employees and ask for delivery of their ‘written statements’ and documents relevant for investigation
  • Undertake others actions in accordance with the aim of the investigation

However, Competition Commission agents’ powers are not absolute.  It is important that each Competition Commission agent is “shadowed” at all times and is not permitted to go beyond the scope of its powers.  “Shadowers” should be briefed on the applicable rules and encouraged to seek advice from in-house lawyer or external legal counsel if in any doubt.

1. Entering the premises

Competition Commission agents have the power to enter and actively search the business premises, means of transport, land and other premises in the company’s registered office and other location where its business activities are conducted.

It should be pointed out that, if the access to the business premises is denied, Competition Commission agents are: (i) empowered to enter to it by force (assisted by the police officers), and (ii) the company risks the significant penalties and fines, and individuals may also, under certain circumstances, face criminal sanctions.

Competition Commission agents are also empowered to enter and search the private premises of the company’s staff (directors, managers and others) if they have a reasonable suspicion that business-related records relevant for the investigation are being kept on those premises.

However, if the access to private premises is denied, agents must seek to obtain a warrant in order to proceed with investigation.

Since the case law of the European Court of Human Rights (ECtHR) clarifies the limits of state agents’ powers to enter business and/or private premises in the course of the investigation, it is important that members of the Company’s Dawn Raid Team be aware of it and that the company in-house lawyer and/or external legal counsel be present from the initial phase of the dawn raid.

2. Reviewing and copying of documents

Competition Commission agents have the right to require any documents to be produced which they consider to be relevant to the subject matter of the investigation specified in the Competition Commission decision notice and to make copies of them.

That can include both hard copy or electronic documents (including e-mails) stored on any electronic storage device (desktops, laptops, mobile telephones or other).  Competition Commission agents also have the power to actively search the business premises and to temporarily seize original documents.  In the case of appropriation of original documents it is very important to take copies of each document taken by the Competition Commission agents, if possible.

It is important to notice that Competition Commission agents are equipped with forensic hardware which can run powerful review software.  So their approach to searching and reviewing electronic data is becoming more sophisticated.

It is therefore important to have a senior member of the IT team on standby to assist the agents with any IT-related issues, including providing access to password-protected documents and providing “administrator access rights” support.  The “shadowers” should also try to take a note of any keyword search terms used by the inspectors when searching electronic data.

Throughout the dawn raid, it is very important that all “shadowers”, if possible, make copies of any potentially incriminating documents to the members of the Company’s Dawn Raid Team without delay.  This will be crucial for the risk assessment that should be made following the dawn raid.

3. Privileged documents and out-of-scope documents

As a general rule, agents of competition authorities are not permitted to require production of any documents which are protected by the legal privilege or any documents which are not relevant to the subject matter of the investigation as defined in a decision notice or warrant (so called ‘out-of-scope’ documents).

However, it seems that the fact that documents contain confidential information covered by the legal privilege do not offer any protection from being reviewed and copied by the Competition Commission agents during the raid.

The Competition Act introduces further confusion by providing, on one hand, that its provisions on protected data (designed to ensure that the content of the data and/or their source is not revealed to the public) shall also apply to a privileged communication and by remaining unclear whether the privileged communication encompasses the communication between the company and its in-house lawyer, or it remains limited to company’s communication with external legal counsel, on the other hand.

The CPC decision-making practice with regards to the adequate protection of privileged documents in the course of dawn raids is still lacking.  Therefore, it is important that an in-house lawyer and/or external legal counsel is/are advised, both in the process of elaboration of the company’s dawn raids response strategy and in the course of the dawn raid.

It seems important, however, early on in the course of the dawn raid to identify any documents protected by the legal privilege and put them to one side.  An attempt should be made not to disclose those documents to Competition Commission agents by providing an explanation as to why the documents are privileged, which could be done by:

  • Disclosing the heading or certain passages of the document
  • Producing other documents referring to the disputed document
  • Making a formal statement as to the nature and content of the documents

If Competition Commission agents refuse to consider those documents privileged, an attempt should be made to put the documents to one side or to hold it separately in a sealed envelope pending later determination by the president of the Competition Commission, which will avoid delaying the dawn raid.

All “shadowers” should be made aware of the applicable rules, and they should intervene (seeking support from the Company’s Dawn Raid Team and/or lawyers as necessary) if the Competition Commission agents try to review or copy documents which are irrelevant, privileged or otherwise protected.

A record should be kept of every document reviewed and copied by the Competition Commission agents during the dawn raid.  In practice, Competition Commission agents are likely to provide a list of the documents they are taking away with them at the end of the dawn raid, but it is advisable to keep a separate ongoing record also.

4. Answering questions

As a general rule, the agents of competition authorities are likely to have the authority to ask employees to provide explanation of documents and/or explanation of facts, or even to carry out mandatory interviews.

The relevant provisions of the Competition Law use the vague concept of “oral statements” and “written statements” (which must be given by the date fixed by the Competition Commission agent).  It is not clear whether the Competition Commission agents are empowered, in the course of the dawn raid, to carry out interviews with company’s representatives and staff or only to ask on-the-sport questions requiring explanation of documents and/or explanations of facts.

Therefore, it is crucial that this issue is addressed in the Company’s Dawn Raid Response Strategy and that in-house lawyer and/or external legal counsel is/are actively involved and advised in the course of dawn raid.

It is certain that Competition Commission agents may ask questions to any staff member and request that they provide factual replies.  However, any question that goes beyond the factual clarification shall not be permitted.  As the Competition Commission agents’ questions could be directed at anyone and not just to the points of contact designated by the Company’s Dawn Raid Team, all staff should be instructed to provide specific, truthful and factual replies but offer no extra detail.

In all cases, any questioning of company’s staff should be, if possible, postponed until after the dawn raid has come to an end and anyone being asked questions should be supported by a lawyer at all times.  A record should be kept of all questions asked and of answers provided.  If a person is asked questions to which they are unable to provide an answer immediately, the company should offer to provide a written response at a later date.

5. Dealing with seals

Under the Competition Act, Competition Commission agents have a power to place seals on the business premises and business records for the duration of the dawn raid.  This will be the case especially if a dawn raid lasts for more than one day in order to prevent any interference with documents contained within those sealed premises.

It is very important to make everyone at the premises aware that they must not temper with the seals under any circumstances, since damaging or destroying the seal is a criminal offence punishable by fines or imprisonment of up to one year.  It is also important to note that the company may also be, under certain circumstances, subject to criminal liability risking significant fines.

Therefore, the company should take all appropriate measures in order to prevent a breach of the seal.

KEY POINTS TO REMEMBER

DO DON’T
> Establish a team of “shadowers” to accompany the Competition Commission agents during the dawn raid > Do not leave the Competition Commission agents unsupervised at any time
> Ensure that an internal IT expert is available to assist the Competition Commission agents > Give any documents or information which has not been expressly requested by the Competition Commission agents
> Ensure that a clear record is kept of everything that happens (including documents reviewed/copied/seized, any questions asked and answers given) > Refuse to supply information or documents (unless advised to do so by a lawyer) or attempt to destroy, delete or hide any documents
> Ask for immediate legal advice if at any stage you are uncertain of your rights and responsibilities > Try to enter any room or other premises sealed by the Competition Commission agents or attempt to destroy the seal

 

III. The end of the dawn raid

1. A closing meeting

At the end of the day, a meeting should take place between the Competition Commission agents and the Company’s Dawn Raid Team, during which the company should:

  • Establish whether the dawn raid is finished (and company can return to its normal day-to-day business activities) or the Competition Commission agents will continue the investigation the following day and, if this the case, whether they require certain areas to remain sealed over night
  • Establish which company sites will continue to be involved (this is particularly important if a number of premises have been raided) and at what time Competition Commission agents will be returning
  • Seek confirmation that the company has co-operated with the agents during the dawn raid and that any seals imposed during the dawn raid have not been tempered with
  • Establish, if applicable, a list of factual points brought up during interviews on which a written clarification is to be given and reserving the right to supplement any answers already given;
  • Establish a list of any outstanding documents which the company is requested to provide
  • Identify any areas of disagreement, reserving the right to challenge the power of the Competition Commission agents’ to take disputed documents (on the basis of irrelevance or privilege);

A record of the dawn raid will likely be drawn up by the Competition Commission agents, including an inventory of the documents seized and a record of the questions asked.  The representative of the company will be asked to sign the record in order to confirm that the company agrees that the record and inventory is correct.  The representative of the company should:

  • Read the document carefully and compare it to the company’s own record
  • Ask to make any corrections and/or additions
  • Make note of any statements in the record with which you disagree
  • Include notes of any difficulties encountered with the Competition Commission agents during the dawn raid
  • Ask the copy of the document
  • Refuse to sign the record if it does not correspond with what has been taken/copied adding that were not allowed to make any desired change(s)

2. Debriefing

Once the Competition Commission agents have left the premises, a “debriefing” with the in-house lawyer and/or external legal counsel(s) should be held to try to establish whether there is any substance to the allegations being made against the company and to discuss strategy for dealing with the dawn raid.

In this meeting it should also be discussed whether any further explanations or documents need to be provided to the Competition Commission and the team should be prepared for any follow-up request for information by the Competition Commission by telephone or letter, and ensured that the relevant staff are briefed of this possibility.

A review of all documents copied/seized by the Competition Commission agents and precise and fact-based written report of the raid should be prepared as quickly as possible in order to assess the level of risk faced by the company.

If any inaccurate information has been given in either the documents provided or in the answers to questions, the leader of the Competition Commission agents’ or case officer should be notified as quickly as possible in order to correct the pretense given by misleading or ambiguous answers or documents.

It is important also to suspend any routine document destruction policy and prevent electronic documents to be deleted.

Any personal comments on the raid in writing or by telephone should be avoided.

3. Publicity

It is important to consider how to deal with the inquiries about the dawn raid and the company’s involvement in any infringement of the Competition Act, both internally and externally.

Management of the dissemination of appropriate non-confidential information internally will also be useful (by e-mail or management team briefings).

After the dawn raid, Competition Commission may issue a press release confirming the dawn raid have been carried out.  If the fact of the dawn raid becomes public (Competition Commission statement or otherwise) the company will need to consider its response strategy.

KEY POINTS TO REMEMBER

DO DON’T
> Obtain confirmation that the company has cooperated throughout the dawn raid > Allow the Competition Commission agents to leave without holding a closing meeting with them
> Check the list of documents that have been copied/seized by the Competition Commission agents > Discuss the dawn raid with anyone outside the company
> Reserve the right to challenge the power of Competition Commission agents to take certain documents
> Carry out a risk assessment as quickly as possible
> Consider internal and external publicity issues
> Decide on follow-up strategy and further steps to be taken

 

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