Dawn raids have become a fearsome weapon for regulators in Europe, and it appears that companies should be prepared for their use to increase as authorities clamp down on corporate abuses.
On 10 April, European Commission investigators carried out “unannounced inspections”—official-speak for “dawn raids”—across several EU member states over concerns that a number of sports broadcasters and media rights companies were involved in anti-competitive practices.
The Commission has concerns that the companies involved—which it has not named and will not do so until a formal investigation is announced—may have violated EU antitrust rules that prohibit cartels and restrictive business practices (under Article 101 of the Treaty on the Functioning of the European Union).
So far, Fox Networks Group (FNG), the operating unit of Rupert Murdoch’s 21st Century Fox, has confirmed that its London offices were raided. Netherlands-based Ziggo Sport, owned by Vodafone and Virgin Media parent Liberty Global, and sports rights and management agency IMG have also confirmed that they were raided in connection to the same complaint.
Unannounced inspections are a preliminary step into suspected anti-competitive practices.
“The fact that the Commission carries out such inspections does not mean that the companies are guilty of anti-competitive behaviour,” a Commission spokesperson said, “nor does it prejudge the outcome of the investigation itself.”
There is no legal deadline to complete inquiries into anti-competitive conduct. Their duration depends on a number of factors, including the complexity of each case, the extent to which the undertakings concerned cooperate with the Commission, and the exercise of the rights of defence. Typically, such investigations can last a couple of years, which means that legal action can hang over a company’s head for a long time, and reputational damage can fester. Added to that, legal costs can accrue rapidly, as companies conduct data searches on behalf of investigators—as well as for their own defence.
Mike Rainford, partner in the business crime and regulatory team at law firm JMW, says that it is important for organisations to cooperate with investigators—but also to retain as much control as they can of the situation. This means having a list of people that need to be contacted in an emergency, and that everyone understands—from the managing director to the office cleaner—what they should do and who should be called if a raid occurs. Having a dedicated internal response team may be a useful consideration for companies too, he says.
“If you attempt to be difficult, you will soon find that out that the regulator has more power than you do. However, this does not mean that you simply stand back and let it take charge: You use your legal rights to the full extent and ask questions, but you need to engage rather than stonewall.”
Philippa Hann, Partner, Clarke Willmott
“Dawn raids are a very effective tool for regulators and enforcement agencies, because the people who would ordinarily be able to question and check what they are doing are usually not in the building when the raid happens,” says Rainford. As a result, he says, “it has been known for investigators to take computers and documents that are not covered under the warrant.”
In the United Kingdom, companies have three months in which they can legally challenge the warrant and the search, after which any documents that are deemed not to be admissible can be returned. “But three months is a long time to be without the computers and servers that these documents might be on,” he adds.
Most companies will not have the appropriate resources in-house, so they should “call outside counsel and, if possible, have a criminal lawyer on the books,” says Rainford. “Criminal lawyers are more used to dealing with the police and investigators and will be less likely to be afraid or intimidated by their tactics,” he says.
Lawyers agree that working with the regulator/investigatory authorities is “paramount” to help the process move along as quickly as possible. It also “looks better” for the company if it is seen to be cooperative. Failing to comply with an investigation brought by a regulatory body may itself lead to difficulties, even if the company concerned is certain that there has been no wrongdoing. For example, failing to answer questions from the Financial Conduct Authority (FCA), the United Kingdom’s financial services regulator, could lead to the suspension of authorisation or permission to carry on any regulated activity.
Lawyers, however, add that cooperation does not mean that companies shouldn’t question what investigators are doing.
“You need to work with the regulator or authority, rather than against it,” says Philippa Hann, partner in financial services litigation at law firm Clarke Willmott. “If you attempt to be difficult, you will soon find that out that the regulator has more power than you do. However, this does not mean that you simply stand back and let it take charge: You use your legal rights to the full extent and ask questions, but you need to engage rather than stonewall.”
Rainford says it is important that compliance officers ensure that the company asserts its legal rights. “Read the warrant. Enforcement agencies and regulators can’t just walk in and take whatever they want. They can only take what is specific to the investigation, so check that they are not taking what is not covered under the warrant, which is usually quite prescriptive.”
Tips for enduring a ‘dawn raid’
Kristy Grant-Hart, CEO of Spark Compliance Consulting, offers six clear rules for compliance officers to consider should their organisations ever be raided by a regulator’s officials:
1. Stay calm. Dawn raids are scary situations, but staying calm will help you to respond appropriately.
2. Call your outside lawyer and in-house counsel immediately. Ideally, you will have already identified an outside lawyer to call if you have a dawn raid. Call your outside counsel immediately so that he or she can come to the office to accompany the official.
3. Ask to see a copy of the warrant or authorization for the dawn raid, then make a copy of it.
4. Don’t obstruct the investigation. Answer the official’s questions, but don’t give more information than is requested.
5. Don’t offer more documents than those directly requested.
6. Make a written note (and copies, if possible) of all the documents seized or reviewed by the official.
Other advice from law firms can be found here and here.
Source: Kristy Grant-Hart, CEO, Spark Compliance Consulting
Companies should check that investigators have the correct business address, have the correct number of accompanying persons, have the correct date and time, and establish which time periods and documents are covered as part of the investigation (companies should be aware that the inspectors are only entitled to obtain copies of documents on matters that fall within the scope of the warrant).
Companies should also ask what the scope of the investigation/order is. Compliance officers and in-house legal teams should also make sure that notes are made of all files and documents examined by the inspectors, and they should also—if possible—take copies of any papers that they remove.
Lawyers warn that companies should not destroy or hide documents—though they add that companies should not volunteer material unless it is specifically requested, either. They also warn that compliance officers and in-house counsel should ensure as far as possible that no legally privileged documents are seized or copied. Where there is a dispute, companies should request that these items are placed in a sealed envelope for later consideration by an independent third party.
Hann says that it is vital that organisations keep records correctly and that they can access them instantly. “It can prove very valuable in any investigation if a company can demonstrate that it has an effective document management and retrieval system in place. It highlights good risk management and corporate governance, and it can be crucial to prove a company’s compliance. It can also help reduce the time an investigation may last,” she says.
Another top tip for companies is to ensure that the investigators and/or regulators leave the necessary equipment for the department/organisation to continue to function, because there is no time limit for how long they may retain them. “The investigators only need the documents from the computers—not the computers themselves,” says Rainford. “If it is just a case of copying e-mails, word documents, and spreadsheets from a hard drive, ask them to copy them while you are present and leave the equipment, no matter how long it may take. I have requested this in the past and investigators have agreed to it.”
Any regulatory or police investigation puts a company under increased scrutiny, and the negative publicity surrounding such actions can linger for a long while depending on the organisation’s public profile and reputation. Lawyers warn that if a regulator gets it wrong and finds that there is no wrongdoing or case to pursue, there is often very little practically that a company can do about it—even though the process of a regulatory investigation or a dawn raid can be extremely expensive and time-consuming.
Some experts believe that trying to take legal redress, complaining officially to an ombudsman, or asking for a judicial review are often fruitless. As such, most companies simply put out their own positive press releases as a way of setting the facts straight for journalists, investors, and clients.
Rainford, however, offers a more direct approach. “If the authorities take no action after the dawn raid, consider suing them,” he says.