Why businesses should be prepared for dawn raids at employees’ homes - Michael Dean comment

Pretty rare, they are – but the prospect of a "dawn raid" by competition authorities tends to concentrate the mind of a business.

Picture a scene of doors being broken down by armed police – like a "Line of Duty" episode. Dawn raids are nothing like that! In fact, such "raids" are more likely to feature officials in suits or chinos than uniforms. The damned things don't even take place at dawn but at the start of the working day. They are, however, highly disruptive, high-stakes and high-pressure events.

The handling of what follows can impact significantly on the eventual outcome of a case, potentially costing millions. Management's first awareness is usually being notified that a dozen inspectors are in reception. And with employees working remotely, an increased focus on employees’ homes should be expected.

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These surprise inspections seek evidence of serious infringements of competition law – that strange area of law that attempts to prevent businesses fixing markets or reducing the benefits of competition for consumers.

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In the UK, gathering evidence of anti-competitive arrangements, such as price-fixing or market-sharing, generally falls to the Competition and Markets Authority (CMA). Other regulators, such as Ofgem or the Financial Conduct Authority, can also get in on the act. The European Commission can no longer do so (a pity, as they were so entertaining) but the Commission can still obtain evidence from UK sites, if accessible from systems within the EU.

Raids are resource-intensive and carefully planned, often coordinated across a number of sites. They occur when the authority considers evidence will not be coughed up, or may even disappear, if simply requested. They will be pretty certain there is something to find, usually alerted by a whistleblower, a complaint, or having discovered something fishy whilst investigating a merger.

Not breaching competition law in the first place is a good way of avoiding investigations, but that's not always possible. Businesses are often unaware of what their employees are up to or indeed what the law is. One client during a raid repeatedly claimed "there's no cartel" then told me "we just phone up the competitors every month to tell them what our prices are going to be".

Frantically deleting documents must be avoided, and is pointless when most data is backed up, warns Mr Dean. Picture: Getty Images/iStockphoto.Frantically deleting documents must be avoided, and is pointless when most data is backed up, warns Mr Dean. Picture: Getty Images/iStockphoto.
Frantically deleting documents must be avoided, and is pointless when most data is backed up, warns Mr Dean. Picture: Getty Images/iStockphoto.

Very reassuring – not! Understanding the basics of what is illegal is a good step, though it can be complex, especially involving supply chains. Or a business persuades itself that what it is doing is just fine! Everyone should be aware of the storm that descends on a business, potentially for years, under an investigation.

Guidelines

When a raid happens, there isn’t time to get out the "headless chicken" handbook; ideally you should have clear guidelines to hand that increasingly should cover an inspection at domestic premises.

Staff should know how to react to inspectors, being civil without being overhelpful, whilst ensuring the inspection team doesn't take liberties with its remit or powers. The CMA can ask questions – but what can you refuse to answer questions on? There is a limit to what inspectors can search for.

Michael Dean, partner specialising in competition law with Dentons legal firm in Scotland. Picture: contributed.Michael Dean, partner specialising in competition law with Dentons legal firm in Scotland. Picture: contributed.
Michael Dean, partner specialising in competition law with Dentons legal firm in Scotland. Picture: contributed.

Frantically deleting documents or trying to sneak evidence out of the building must be avoided and is pointless when most data is backed up. That behaviour is illegal and attracts heavy fines. Urgent steps should be taken to discover what is at the root of the investigation as doing so could save millions of pounds in penalties.

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How many businesses truly know where all their corporate documents are held? Data is on numerous devices and paperwork everywhere, from the office to bedrooms. The authorities have the powers, provided they have obtained a court warrant, to search domestic premises for relevant documents. Evidence may be on personal devices, laptops, tablets and mobile phones, and on various platforms such as WhatsApp, LinkedIn and chatrooms.

Any industry can be targeted, but some sectors, such as construction products, energy and automotive, are more acquainted with them than others. These often involve contacts necessary between competitors.

Collusion

And it’s not just traditional cartel arrangements on price- or market-sharing – several car manufacturers were fined a total of €875 million (£747m) last year for agreeing to limit clean emissions technology. In March this year, others were raided by European Commission officials over suspected collusion in the recycling of cars and vans.

We should expect more investigations in the coming year. With raw material costs rising, companies needing to raise prices to recoup profits have cover to do so but will not want to be out of step with the competition. The first to move may lose business. A quick chat with a rival about what they plan to do about pricing is tempting, but highly illegal.

The general outcry on price rises from consumers should increase pressure on the CMA to be seen to take action and impose penalties. Relying on future damages actions, on behalf of whole classes of consumers who may have been diddled, costs millions of pounds in legal fees for businesses, but that is little comfort now for consumers. And such cases have yet to produce anything significant for customers.

Businesses shouldn’t over-panic about the prospect of dawn raids, but they should avoid complacency and instead be prepared. Make sure management and staff know what is not permitted and what to do should an inspector call. Have clear policies in place and now, more than ever, ensure your systems take home and hybrid working into account.

Michael Dean, partner specialising in competition law with Dentons legal firm in Scotland

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