Michael Dean: Be aware that dawn raids on businesses do happen

As your business day begins, it is difficult to comprehend why any powerful and distant agency would be so interested in the practices of your business, that it would want to subject you to an intense surprise inspection backed up by warrants.

Michael Dean is a Partner, Dentons

Reports that the US Department of Justice (DOJ) is investigating farmed salmon exports in the wake of a European Commission dawn raid must have left food producers a little perplexed. The fact is that many agencies worldwide are interested in trading practices, which they suspect are artificially raising prices or dividing up markets within their countries (for example, through the exchanging of information on pricing, volumes or other data).

In the salmon case, the allegation, flatly denied by the producers, is that arrangements in Norway have affected the price of Norwegian Atlantic farmed salmon sold into EU markets (resulting in a European Commission raid) and into the US, hence the DOJ warrant.

All competition authorities have the ability to mount surprise investigations, appearing at a company without notice. The UK Competition and Markets Authority (CMA) mounts similar investigations in the UK, as do sector regulators such as the FCA and Ofgem. Obtaining evidence which lies outside their jurisdiction can be a problem. Those accused tend not to be keen to hand over evidence in response to a request. In the salmon case, the European Commission appears to have wanted data sitting in Norway, but it had no jurisdiction to actually raid there. It can, at present, raid UK companies and therefore targeted UK subsidiaries of Norwegian salmon producers to access Norwegian-based evidence through group IT systems. The UK’s CMA will have to rely on similar practices following the expiry of the Brexit transition period if it is trying to get evidence, located elsewhere, of practices in the EU which raise prices in the UK.

From the moment an inspection starts, the company must quickly conduct its own investigation to find out what has been going on or what has prompted the investigation. Are there illegal communications? Might someone have blown the whistle to the regulator? These investigations are intense. They move very quickly, often involving interviews and many gigabytes of data – emails, chat room conversations, texts and WhatsApps. Any attempts to hide or destroy evidence, such as deleting WhatsApps, after the investigation starts will itself be penalised. If there are indications of a potential infringement in another jurisdiction, it is imperative to decide, quickly, whether to notify the authorities there (before anyone else does) in order to seek immunity, or to tough it out. Every raid is different.

It is serious stuff. Fines can reach 10 per cent of turnover. For cartels, individuals can be prosecuted – a regular occurrence in the US. The UK also prosecutes individuals, but with mixed success. Infringing companies often face enormous damages actions. A familiar pattern is that the European Commission raids a market and, within a few weeks, an action is lodged in the US by lawyers on behalf of classes of subsequent purchasers who have suffered damage. Such claims are increasingly common in the UK. Individuals can be extradited to the US to serve jail time. The CMA will, as a matter of course, seek to have management disqualified as directors.

The European Commission’s powers to initiate surprise inspections in the UK expire at the end of this year. The Commission will always be able to issue proceedings against anti-competitive arrangements by UK businesses that have an effect in the EU, but will have the problem of accessing evidence here, unless perhaps it resorts to raiding networked group companies located in member states. Likewise, the CMA will lose the right to request authorities in EU member states to gather evidence on their jurisdiction of arrangements harming UK markets. The CMA hopes for continued cooperation from other member states.

Not every case against a business succeeds, of course. The evidence may be insufficient. The relevant business may successfully argue that the activity in question, such as an exchange of information, is not actually anti-competitive, or it may show that it was not involved. All this is eye-wateringly expensive and best avoided, if possible, by ensuring that someone has considered whether any trading practices carry risk in the organisation’s home or any overseas market.

Being reasonably prepared for the morning you find a dozen officials in your reception area might also be useful.

Michael Dean is a Partner, Dentons