David Lowe: Hi, everybody and welcome to our ThinkHouse Webinar this morning on dawn raids. I'm David Lowe, I'm one of the organisers of ThinkHouse, our in-house lawyer community, and today's session comes very much from the ThinkHouse anti-trust update that we did in September where we touched briefly on dawn raids and particularly dawn raids in the new era of emerging from Covid, and we were overwhelmed by questions and it made us realise that there was appetite for everyone to revisit dawn raids. So that is exactly what we're doing today. I'm very pleased to be joined by Bernadine Adkins and Sam Beighton who are both anti-trust partners in our anti-trust team and who have just recently won Competition Team of the Year under the Legal Business Awards, so I am truly surrounded by experts here today.
So today we're going to be talking about dawn raids and this is the kind of territory we're going to cover. You know, back to basics - what is a dawn raid? Can you have a lawyer present? What powers does the Competition and Markets Authority (CMA) have, what limits, what about self-incrimination? What happens if somebody raids you today, the CMA raids you today and somebody hides the evidence? And then also how has the world changed? The world has changed but how has that impacted dawn raids and CMA investigations? Now to get the juices flowing and get you engaged, we're going to open with a quick pop quiz to help you think about dawn raids, and I'm conscious that you're not going to have a warning when a dawn raid is about to happen. These are questions you might have to answer in real time as we are doing today. So we have a couple of scenarios and I am going to read the first one and a quiz will come up. So the first one I want you to think about is, the CMA is conducting a dawn raid at the company's offices today! Which of the following items which are on or in your desk could the CMA officers review? Could they look at your laptop, your work laptop, your work mobile, your work notepads? What about your personal mobile which you've used for a work WhatsApp group? What about that personal diary that you have hard copy, on a personal phone maybe which you don't use for work? What do you think? Are you obliged to provide all or any of those to that?
A second question is, an officer in your company, a CMA officer, sees an appointment in your calendar that you'll offer a round of golf - that's a red flag, isn't it, for a dodgy cartel meeting? The appointment was meant for a member of the sales team who has recently left the company and it was sent to you by mistake. Can you explain this to the officer who asked if the sales member went to the meeting? You know that they did, but as the question relates to a former employee, can you refuse to answer on this basis?
And the final scenario here today is, towards the end of the day the CMA have been in the offices doing the dawn raid all day, a colleague finds a stack of files in a box and you know the files belong to that ex sales team member, you know the one that went off for a round of golf. In that box there's a number of highly confidential documents that shouldn't be made public and the CMA officers believe the files are relevant to the investigation and want to make copies. Can you as the in-house lawyer quickly check the files, take out these highly confidential documents before the CMA makes copies?
So let's just see how we're getting on with the polling… yeah, so I think general consensus is work laptop, work mobile, work notepads definitely can be taken. Some debate about whether your personal mobile and personal diary can be taken, especially the diary which has no work content. We've got the question about can you refuse to answer the CMA about the person playing golf, whether he actually went - most of you think no, but there's some would go yes you could refuse that. And then on the files to be shredded, can you remove any confidential information, most people think you can't but some people think you can. So, you know, there is some debate there and you will learn today what is the actual answers to all of those questions, and I'm going to share those results to you all.
So turning on then to our first area, back basics - Sam, Bernadine, what is a dawn raid? When do these take place?
Sam Beighton: Thanks, David, I'll pick this up. So 'dawn raid' sounds incredibly dramatic and of course it is but the dawn part is actually somewhat misleading because dawn raids, as you'll be aware, they normally take place shortly after the start of the working day, so usually between say nine and ten on a working day. As for the raid part, the raid is the CMA entering premises to exercises its statutory information gathering powers and in this context the CMA is able to enter both premises and as we will see it can also enter domestic premises. In terms of the information gathering powers that are being exercised, the reason for this is because the CMA has already opened an investigation, so as Bernadine will explain in more detail, whereas for the company this is the first stage, this is the start of something new, for the CMA this is the next phase of a process that's already started. So they are there because they have a reason to be there in their minds and in terms of the investigation and thinking about CMA investigations, we are thinking about either a civil investigation or a criminal investigation and I will explore those in a little bit more detail now.
So in relation to a civil investigation, what we see here is where the CMA has reasonable grounds for suspecting an infringement of UK competition law, it may decide to exercise its powers in relation to dawn raids to preserve and obtain evidence of that suspected infringement. Now for some types of infringement the CMA won't use a dawn raid, it will use different information gathering powers. However, if the CMA is looking is looking at things that are clandestine, secretive, particularly cartels between competitors, then you would expect the CMA to be coming in and using those powers under dawn raid provisions to preserve and obtain what may be limited evidence in the circumstances. Now the context of a civil investigation, is the businesses they're trying to investigate, it is not the individuals. That said though, there are still implications for individuals arising from civil investigations. We've listed some of the risks here for businesses - obviously fines, you'll be well aware of those, claims for damages but also individuals now increasingly face the risk of being disqualified from acting as directors and that can be for a period of up to 15 years. We will be focusing today upon the CMA but I think it is worth just flagging at this stage that other sector authorities can conduct dawn raids in relation to civil investigations, so Ofgem for example, Financial Conduct Authority, Civil Aviation Authority, to name but a few. So there are those concurrent powers that sector authorities have but we just have time today focussing upon CMA.
Looking then in relation to criminal investigations, so both the CMA and the Serious Fraud Office can investigate individuals in relation to the Criminal Cartel Offence. Now subject to certain limited exceptions, an offence is committed in this context if at least two individuals agree that at least two competing businesses, i.e. businesses at the same level of supply chain, will engage in prohibited cartel arrangements. Those would be the hardcore cartel activities, so price-fixing, market engineering, bid rigging, limiting output. So that is the cartel offence, both CMA and SFA can investigate. For individuals this is a high price to pay, there is the risk of up to five years' imprisonment and/or an unlimited fine and also the application of the Proceeds of Crime Act. So if somebody is found guilty under the cartel offence their personal assets may also be confiscated. However, so far criminal prosecutions have been comparatively rare. So since 2003 there have been three cases that resulted in five convictions. All of those were guilty pleas. In 2015 just around the corner from here at Southwark Crown Court we had the first completed criminal trial. Both individuals who stood trial were actually acquitted, they were found not guilty, walked free from Court. For the CMA this was seen as a loss and following that loss there was a general reluctance to pursue criminal prosecutions. Instead the CMA shifted its focus to direct disqualifications to emphasise personal liability.
So does that mean a cartel offence is back on the shelf with dust gathering upon that? I'm afraid that's not the case because we've seen a memorandum of understanding entered into by the CMA and the Serious Fraud Office in 2020 outlining the possibility of greater co-operation which suggests a re-engagement with pursuing criminal cartel investigations. So we don't have the time unfortunately in today's session to cover all of the criminal investigations but I think it is worth flagging that where there is a civil investigation it cannot be ruled out that couldn't then become a gateway for a criminal investigation although there may still be standalone criminal investigations that we see emerging in the future. But as I said before this for the CMA is another stage in the process. However, for the company it is the start of something new and I'll hand over to Bernadine to discuss those points.
Bernardine Adkins: Thank you, Sam. Again I think it's important to be aware, and this I think does colour how one should manage a dawn raid, the discrepancy as between the CMA and a company and so it bears onto frankly inequality of arms. So on the one hand, at the start of a dawn raid the CMA will have a whole host of information, either they've had a complaint or more likely a leniency application, a whistleblower, it may go so far as for example in the Galvanised Steel Watertanks case, actually they already would have had video evidence of a cartel meeting. Or alternatively, and we're likely to see this is the case, own intelligence. The CMA has its own intelligence unit now, it will be looking at figures and saying 'we don't like what's happening in this particular market, there seems to be… prices are going up very much in the same sort of way, something suspicious is going on here.' And those people are making… we're seeing fewer leniency applications as people are concerned about damages. The CMA is placing more reliance upon own intelligence.
And so the CMA will have spent many, many weeks sifting through evidence. It will have obtained a warrant from the High Court in certain circumstances which is a high burden to traverse. They would have briefed the staff - there can be quite a few staff. They will be all pumped up with adrenaline, excited to get moving. They will have spent the night before at a Premier Inn, be all ready to go over two days and have hired a van, be there early in the morning. They will have instructed external IT consultants to use the forensic software to mirror laptops and telephones. And in contrast the poor business, which will have a very, very different set of preparedness, and it will be a whole spectrum, from on the one hand you have some businesses which will have lovely beautiful internal policies and procedures, in an ideal world there'll be clear simple instructions and staff will know exactly what to do. On the alternative there actually could be a very, very complex manual and staff quite frankly simply don't have the time to review those procedures.
The other side of the spectrum is some people have absolutely have nothing in place and life being as it is often the very people that you are relying upon to manage it may not be there that day. Plus we've seen that the CMA tends to look at Companies House in terms of who they name on the warrant authorisation and often the person named in Companies House simply often isn't at the office and so the people who would be there to manage it are simply not named or asked for and the receptionist, it might be a temp reception that day, it may happen that day. And so there can be quite a bit of chaos, certainly in the initial start of a dawn raid with that discrepancy as between the CMA, as I said, pumped up, tooled up, ready to move straight away because it's there because it thinks something quite serious and illegal has taken place, it has evidence and it wants to get moving, whereas the business often is in a state of complete confusion.
David: So OK, so at least the dawn raid is not at dawn, but you've explained how they've got lots of powers, that they might be civil and they might be criminal and we'll be worrying and wondering about that, and I think, Bernadine, you made that really good point that they're all tooled up. But I'm just thinking about the in-house lawyers listening this, I mean, surely the business has the right to say, 'hang on, we need to get our lawyers here, please wait at the door, we'll sort out our lawyers and get ourselves ready for this' - surely?
Bernardine: No, frankly, there is no right for a lawyer to be present during a dawn raid and yes you can request under the CMA rules, you say yes you can request. In principle the CMA may wait a reasonable time and it may ask for certain undertakings, so for example to prevent destruction of evidence. But quite frankly that's a textbook answer. The reality is they are unlikely to wait, simply because the reason they have opted for a dawn raid and to dedicate those scarce resources to having 12 people or so out of the office for two to three days is because they suspect that there is a danger of destruction of evidence and so they will not sit chastely in reception while you're waiting to get hold of an external lawyer or get the in-house lawyer on the premises. So in practice businesses need to move very fast. Do not try to delay things by giving a health and safety lecture for example. See if you can agree a delay. Expect though people are very unlikely to get a delay. What we tend to find works well in practice as in-house Counsel, first of all know beforehand how your IT works. Is your IT mirrored and basically is it recorded overnight, so are you able to reassure the CMA essentially, putting to crudely, you've secured the crime scene. Are you able to say, reassure them, 'I've spoken to IT. We've got a picture of what has happened as of midnight last night, that has now been preserved. Please can you give me an hour while we get external Counsel on site?' So that is something you can try and do is give concrete of how you actually have secured the scene and usually once they know that they have got a secured scene they tend to try relax because otherwise they are very, very keen to get you evicted because in their mind, somebody is standing over a shredder shredding documents.
David: Our next question is about the domestic situation just to flag we are going to cover business premises first and then we will get to domestic premises because they are really important, but we wanted to set a baseline first before we got to that so turning to what powers the CMA has are they like the Police? Can they just sort of crash and burn so to speak?
Sam: OK so focusing as you said on business premises and thinking about CMA investigations so what the CMA can do in terms of entering business premises, in my experience what we have found is that typically it depends on the size and the layout etc. You are normally looking at least two to three days in terms of dawn raids. That is a typical duration so these things are not quick things, it is not like lightning striking. This does take some time so they are sometime so are at some time in your office, be prepared to be hosting them. The powers that they have will vary depending upon what is being used to conduct the dawn raid so maybe conducted under a warrant or it may be conducted under authorisation from the CMA itself. These are quite important distinctions and for a business being investigated It is critical to know what you are dealing with because as you will see the powers differ between the two so just starting off with a warrant which is the most far reaching in terms of powers available to investigating officers so under a warrant it is possible for the officers to use reasonable force to enter if necessary, not against the person but against the premises for want of a better expression so you can use reasonable force to enter. I am not aware of that happening on anything you have worked on or previous cases but it just has a power and the most important power in this briefing note is its ability to actively search the premises so the officers can turn up, they can start going through filing cabinets, they can start going through laptops and can actively search the premises. They can also require individuals to give explanations of relevant documents and also to state where relevant documents may be found and obviously for the CMA coming into an office that is really important that they can ask people because otherwise they will be here for much longer than two or three days, if they will have to go through everything by themselves. Can ask where X is and then that person is required to go and show them where that item may be found. In addition they can conduct compulsory interviews and we will touch upon this a bit later on where individuals and in the context of compulsory interview are required to answer the questions put to them by the CMA. They are also able to read documents for later review to determine their relevance so seize and sift powers and this may come about where the investigating offices have reasonable grounds to believe that perhaps a box of documents is relevant to the investigation. They do not have time at that stage, it is not reasonably practical at that stage, to actually go through that box on the premises and work out what is and what is not relevant so under seize and sift powers they could take that whole box of original documentation with them and do that review process in detail off the site.
They are also able to copy relevant documents, take extracts and remove relevant documents to preserve them and in addition they can use whether means as reasonably necessary to interference with relevant documentation and we commonly see this where as I mentioned a dawn raid of business premises may go on for two to three days. It is not unusual for the CMA every time it leaves at the end of day 1 or day 2 to seal parts of the premises it has not yet got on to looking at to ensure that whatever is in those parts, perhaps it is a filing cabinet, perhaps it's the archive room, is not then subject to interference in that intervening overnight period. And finally, the CMA is able to require the bookings information that is stored electronically is made available in a form that can be readily removed so not taking original copies but effectively taking copies of whatever may be on electronic devices again to get a review of those documents that have been stored electronically to determine their relevance after the actual dawn raid itself.
So that is under a warrant and just moving on them to think about an authorisation. What I am trying to do here is to make it hopefully kind of user friendly in terms of ease of reading by just striking out things that drop out when we start using authorisation so under an organisation the key aspect is its ability to actively search. That means the individuals are instead required to produce relevant documentation so rather than officers themselves going and searching, they can ask individuals can you, not show them where it is, go and get it for me, bring it to me and then you turn pages for me, let's go through this documentation so have that power.
Seize and sift falls away under authorisations, they do not have that power under an authorisation to gather up originals and to take them off the premises in that way so maybe it is the key powers that do fall out however the officers still have a lot of powers available under an authorisation just to pick up so they can still conduct compulsory interviews, they can still seal the premises and again really importantly they can still require electronic copies are made for documentation stored electronically and just to give a recent example of a case in which we saw the relevance of electronic documents/electronic devices.
Roofing Materials which is an investigation into a suspected infringement with competitors and gauging anti-competitor practices. What we saw there was a director using their personal mobile is initiate and maintain contact with competitors and actually began doing this after a competition compliance course. I mean who says you learn nothing on these things - the clear take away was switch to personal mobiles (laughter). So on the back of that the officers requested the director's personal mobile during the dawn raid. Once they have that they then forensically analyse so that includes deleted text messages so things that people may think they have lost. What we have learnt over the years is it is very difficult to destroy things electronically, it is very, very hard to do so is put through forensic analysis, various things we have covered and the evidence obtained contributes to a finding of infringement. Now the company itself was fined just over £8 million for that infringement but as I mentioned before with individual liability the individual is then disqualified from acting as a director for six and a half years on the back of that infringement.
David: So Sam just going back to the poll we asked at the beginning, the golf club appointment in the diary of a previous employee but I think what I am hearing is if they ask you a question and you know the answer you must answer it.
Sam: Yes, a question of fact, you should answer that question. It is a factual statement that you are confirming.
David: And actually kind of question and say if you are a shadower so the person shadowing the CMA team and you are asked by the CMA team where a certain document is held but you genuinely do not know would that be accepted?
Sam: I actually think if you do not know you don't know. You can't answer what you don't know, so if you do not know I think it is perfectly valid to say I do not know perhaps the reason I am not usually in this team or on this floor for the first time. I am here shadowing but this person perhaps may know if you want to cooperate in that way so be seen to cooperate my sense is if they are looking for the documents, they will find them, and if you do not know where they are you could certainly say that.
David: Yes so they could ask who will know and they get a next question. And if you know, you need to answer. Understood. Great. So that was obviously all about business traditional dawn raid business premises which haven't really changed with Covid of course accept that many of us haven't been in the business premises for the last couple of years. When we did this back in September, the big area of interest was about people's homes. We are all working from home or have been working from home and we have got documents and laptops at home and our senior executive team do all that at home with piles of paper at home. What are the CMA powers about coming in your house?
Bernardine: In short David they are pretty extensive. Historically the ability for the CMA and other authorities to enter in domestic premises was a bit of a rump end of their investigative powers but now they are very, very real. The only small comfort in this is that they must be conducted under warrant so the CMA will not go into somebody's home lightly that is for sure, but they could certainly enter domestic premises which are premises which are used as a dwelling in connection with the affairs of them undertaking all where documents are kept so if you are bringing home your work diary or your work mobile or your personal mobile which is used in work, it is very, very simple and easy for the CMA to be able to establish it is appropriate for us to raid these particular premises an so when the CMA is raiding one it is able to use reasonable force and reasonable force can actually involve knocking the front door down quite frankly and also it can actively search. Contrast warrants for the business, it is does not have the ability to seize and sift in other words it does not have the ability to empty your study out and take the originals away. It can only take copies of the study but it can also require individuals to give explanations of relevant documents as Sam said the question of fact is this your handwriting? What does that say? I cannot read the handwriting. Also, compulsory interviews as well. I would have to say though I do question what probative value a compulsory interview would be under those circumstances, somebody being suddenly raided at home and questioned. They could take copies of documents which can include and we have seen this in the past where the CMA has raised homes they do take mirrors off people's sim card essentially to see who they have been texting and walling and also they can seal parts of the premises so it is imperative that people aware that if they deal off a study, they really overnight should not open that seal otherwise they will be in considerable trouble and basically require certain documents to be made available.
So this is very real. The CMA have used these powers in the past and anticipate they are going to be using them more. So one of the first things, a practical point for us to consider in the initial shock and confusion of a dawn raid is think who is not showing up, who has not reported in, who at top level sales level are we not hearing from because you may find that there may be people who have turned up at their front door step and they may well have turned up earlier than the 8.30am to 9.30am "dawn raid" and already absolutely submerged under a CMA investigation so that is a really important practical point is think outside the box in terms of yes we are being right now, is somebody at home in parallel being raided as well? So looking to the future, the CMA wants the Government to consider actually enhancing these powers to include a seize and sift which would basically be seizing the originals instead of taking mirror copies of laptops and mobile actually talking the originals so that joy is to come possible.
David: So the CMA has the power to get warrant to come into your house and look at documents and all that kind of stuff. Do they really? I mean there is one thing about what powers they have. Have they actually been raiding people's houses?
Bernardine: Yes they have absolutely yes and we anticipate that happening more.
David: Is that a new Covid thing or were they raiding people's houses previously?
Bernardine: They were. I mean in fact since the inception of the Competition Act it was a possibility then. Actually 2004 they made it harder to raid insofar as they said you must have a warrant in other words, you have to go before the High Court with evidence, convince a judge look we have reasonable reason to believe that this illegal act has happened and there is a possibility of destruction, so it is a high burden but the CMA has been using those powers pre-Covid and we now anticipate some raids in this area. We have not seem them yet. The European Commission has started raiding apparently under Covid secure circumstances, which they are all wearing masks so we envisage this should start soon.
David: Right OK so this is not new but it is just becoming more apparent and there is a higher risk the CMA is going to be in people's homes because the stuff is at people's homes now because people have been working at home.
Sam: It raises the temperature for certain individuals. We have been working at home for 18 months. It gives the definition of domestic premises. There must be millions of homes in the country now that fall within that category which before were maybe borderline, so I think there is that additional risk and it is something for the companies to bear in mind in terms of not everyone would have the risk of their home being the subject of a dawn raid but it is definitely something to factor into the training, to give a message to key people that this is what we need to do, be aware of this and in terms of how you equip people, if the worst case scenario was to happen.
David: No not surprisingly we are getting flooded with question so we will just pick up some of them because some of them because I think is good to ask them in the heat of the talk. What happens if they raised the FD's house but the FD is not at home and it is just his wife and kids or husband and kids at home? Do they have to wait for the FD to be there or can then come in?
Bernardine: It is the premises they are interested in. The person in question does not have to be there is entering into the premises to take copies of other documentation that is there and one of the questions us absolutely they cannot just look at them at work mobile, they can have the IT forensics, the software and they will basically take a copy of it and they will do the same for laptop. They will take a copy of it.
David: And if we are being really, really blunt about it in terms of the powers essentially there can be no other premises as long as they have tried to make contact with someone and they couldn't do it, they could still go into premises because relates the premises and not having someone there to be overseeing and invigilating the dawn raid. They have information about powers and they have the ability and statute to exercise those.
Bernardine: And reasonable force will include breaking the door.
David: So then the message in your refreshing your dawn raid manual is to remind certainly the senior executives that it is possible they could be raided at home but they are entitled to ask for the warrant but if there is a warrant then you have to stand aside and let them in and actually it might be sensible to tell other people they live with just in case they are not in at the time to be aware that this could happen. That is what I am hearing I think.
Bernardine: It is a balance. I certainly wouldn't tell every single member of staff you could be raided at home. I think that would panic people and they would be frightened to do their day job so I think it is a careful balance. You are basically make compliant sensitive people aware of this rather than everybody in the business.
David: Somebody has asked would it be reasonable to assume that dawn raids of domestic premises are limited or geared towards the directors?
Sam: I think that is a reasonable starting point. I think you can also pull into that category to be honest the high risk people so people who are perhaps head in sales teams. They have got that more kind of competitive contact type role in the organisation. In terms of cases that we have been involved in and cases on a public record I would say it is tilted more in terms of proportionality that there are more directors who would perhaps have their domestic premises inspected but it is certainly not just directors so it would also be sort of key people in leadership team so people have got that competitor facing world.
Telling everyone cross the business be aware you might have your front door knocked. That I think makes them feel very nervous actually doing their day jobs, they are confident in their day to day role. They may also question what the business is actually doing if you send a widespread message that at any point the door could be knocked by the CMA. It is a question, as Bernadine said about having that balance and looking at who by reference to your own business would be a high risk individual for want of a better expression and making sure that they then have the know-how that if the worst case did happen, that they were equipped to deal with that as best they could.
David: Now on that point about as an in-house lawyer you are being raided at the business premises, be aware that who is not in may be being raided at home. Can you ask the CMA if they are raiding anyone at home?
Bernardine: You can ask but they will not tell you, but you can ask. They are not there to make your life easier.
David: Right OK which is why you have gone got to be proactive.
Bernardine: Assume the worst. Assume the worst.
David: And can the person who is at home being raided is he or she allowed to call into the office to say help I'm being raided?
Bernardine: I think there is no such thing as allowed, but I think it would be a very, very reasonable request and to be quite forceful in terms of saying this is a reasonable request. I need to do this and the CMA want to facilitate this happening. Also they will be very conscious that this is an individual so I think they are likely to facilitate that.
David: So they are not going to be really nasty to the person but they will be aware that that they are entering somebody's home and ought to have some respect of that. Somebody has asked about the old chestnuts about cars. You know the sales director has gone and put all the files in the cars, where does that fit into all this?
Bernardine: Yes the definition of premises includes land and/or means of transport. Not a lot of people know this but those rules are actually taken from the Italian Black Market rules devised in World War II. It is funny because we discussed this earlier, the commission always make a big, big point of saying we have the power to look at vehicles and they always make a point. Everyone has to trot out to the car park and inspect someone's boot, but it is a common thing. You know people panic and a car boot to sling the files is actually quite a good place to hide stuff so it is not surprising that there that ability.
David: Someone has asked about dawn raids. Normally that happens you talked about on a business day but they can they happen at the weekend?
Sam: I have never heard of that.
Bernardine: I have never heard of that. Also cautiously we have noticed they usually happen on a Tuesday. Monday to get everyone tooled up and prepared, Tuesday to go in. So that is our anchor day as a team, we all work in one place on a Tuesday!
David: This is the last one. I cannot ask all these but there is one I quite enjoyed is somebody said have in-house lawyers been specifically targeted based on past experiences be raided at home. Are they seen by the CMA as a high risk useful person?
Sam: No I have never come across an in-house lawyer being targeted. One of the reasons for that is the whole thing around legal privilege as in-house lawyers and you have particular professional commitments, you have a regulated profession.
Bernardine: Yes I think they would have to have some really good evidence to go into an in-house lawyers' house so much of it would be privileged. In-house lawyers do get privilege.
David: So probably the in-house lawyer's job on the day is running around managing everybody else and will not hopefully will not have to worry about the rest of his team being raided. At least that helps focus. OK I am sorry I have not asked all the questions. There was obviously a lot there. We talked about very, very extensive powers that the CMA has. What are the limits to their powers?
Sam: So the first time wraparound limit is going to be the scope of the warrant for authorisation and that is going to be getting out really what they suspect an infringement is in high level terms and so if the infringement is suspected in respect of product X then any searches questions should really be about around product X it's not a fishing expedition here and need to stay focused in terms of the parameters of the investigation so the premises so if they have delineated in a warrant for authorisation the premises which are not the ones they are at. I am sure that is the wrong place for them and they have not got authorisation to be there, they should not be conducting a dawn raid they should not be engaging on that basis.
Personnel so the warrant will list individuals who are enable to be present on the day from the CMA's perspective. If there are additional people there, if you are not named on there then again they should not be there so again that scope of the warrant for authorisation initially wraps around the framework that the CMA to work to.
Outside of that we have legal privilege so a business can be required to disclose communications which in proceedings in the High Court would benefit from legal professional privilege and if there is a dispute as to whether something attracts LPP then what we would normally seek to do is to just keep those documents separate. They normally would be sealed and put in an envelope or put into a box all taped up and you would put them to one side pending resolution as to whether or not those documents actually are covered by legal professional privilege. I think as a point of good order in any event for businesses keeping your legal privileged documentation clearly separate both the electronic filing and also the physical filing. It is just a good habit to be in. We have done dawn raids, before. We have gone into people's offices and we have found our own legal advice on top of filing cabinets just lying around so it is a just a good idea in any event to have an idea of where your safe place is for your legally privileged documentation.
And the last limit in these circumstances will be self-incrimination so a business cannot be required to answer questions that would admitting infringing with your competition law so the CMA can ask questions of fact as we touched upon, did you attend? Did that person attend the meeting but could not ask questions around did you engage in price fixing at that meeting, did you engage in price fixing at that meeting? Did you engage in market fixing because to answer those question would then move into that frame of admitting and infringing competition law so those are some of the key notes actually there.
David: So I'm just getting my head around that that on the one hand, you cannot be obliged to self-incriminate on the other hand you have to answer questions truthfully and maybe I watch too many US police dramas but is it a bit like 'I am going to plead the fifth not answer questions at all'. Is that how it works?
Sam: It is really good question and it is quite I think from our perspective it is quite interesting in terms of how this actually unfolds in practice because we talked earlier about these compulsory interviews and it has mentioned what these enable an officer to do is provide they have given formal notice, they can compare an individual with connection with the business and investigation to answer certain questions and going to your point David can you do I am thinking about the bit in terms of no comment. There is no right to remain silent in these circumstances so you can be compelled to answer questions. In terms of who can be compelled to answer questions, this notion of connection with? Essentially it means an individual who is or was concerned in management control of the investigation or employed or otherwise working for the business. Now obviously that would include things like current directors, former employees. The guidance they also extend that to professional advisors so you could find that this would not perhaps happen in the context that you are raiding your premises but you could find that your professional advisors are also being asked questions under these powers and being compelled to answer questions.
In terms of what you can do in this context once you have received the formal notice this is going to set out for you what the investigation subject matter is, where and when the questions will be asked and in theory that notices could say they will be asked immediately after your receive this notice. It will also set out the fines that can be imposed. These are fines that can be imposed to a company and an individual if they fail to answer questions under the notice and what the notice will so it will make clear that there are limits by use of answers given by the individual in criminal prosecutions. What cannot happen in the context of a section 26a interview is you cannot have a situation where you are being compelled to disclose communications and trap legal privilege, so that is one thing that cannot happen in terms of questioning. Individuals in these circumstances they can ask to have a look at their questions and may be represented by a lawyer who is also representing the business and you could have a situation if everyone can square the conflicts away that the legal team representing the business may also act for an individual is being questioned under these powers. What the CMA is really reluctant to have happen is that for lawyers representing only the business get to sit in on these compulsory meetings because their concern there is if you as an individual, you have got effectively your employers lawyers sat in the room that may make you more reluctant to answer the questions as fully as you would otherwise and thinking about self-incrimination this is an area which I think there is room for a discussion in going forwards in this. But what we have ween do far is as I mentioned, the notice sets out clear limits on how answers an individual may give, how they may be used against them in criminal prosecutions and from the CMA perspective we have a couple of procedural officer decisions which set out what appears to be the CMA's approach to this which is that if you are being questioned and you are giving answers it is you as an individual answering questions. You do not have a right in terms of privilege self-incrimination because the answers you are giving they cannot really be used against you in criminal prosecutions. You are not under a cartel offence interview here and the fact that these answers could be used against you in director disqualification proceedings that is different CMA perspective. Actually they well actually that is not criminal prosecution law so self-incrimination does not apply in these circumstances. You do have to answer questions and you are protected from self-incrimination by virtue of the limited use in criminal prosecutions directors' disqualification, they are not criminal and therefore answers you give can be used in that context against using individual and director disqualification. So we have not really seen this tested thoroughly but to my summing which I think there is a natural tension there in terms of how this information can impact individuals when director disqualification has its impact by individuals so to my mind this is not perhaps a debate that may evolve as time goes on.
David: Sam is the compulsory interview is that likely to happen on the day of the dawn raid or is the dawn raid a sort of document and information gathering moment, followed by the interviews.
Sam: That is a really good question David. So we have not seen ourselves compulsory interviews taken place during dawn raids. I am not aware from everything that has been made public by the CMA that they have happened. It is a power that is on the statute books. We have had instances after the dawn raid where the investigating authority has dug deeper into the documentation as set at the compulsory interview to compel answers to certain questions. Assuming that this does exist as a power what we would suggest is that if you had an officer who was looking to conduct a compulsory interview during the dawn raid what you try and do is to agree this takes place at a later date. I think key facts is making sure that the individual can access appropriate legal representation and also given evidential questions about how the quality of evidence, how good will that be, how robust will that be if someone is actually in a state of shock and panic and extreme stress during a dawn raid which is just unfolding in front of them, what the quality answers will be. I think it is also just worth mentioning at this point that the Government is currently considering broadening compulsory interview powers so as I mentioned before I do the connection with. That was quite limited just focusing up on the business under investigation. The Government is thinking about broadening these powers out so as to cover things like customers, suppliers so people with a wider relationship with the business those individuals could also be required to submit compulsory interview so to my mind this is now we will see more activity which may prompt more questions about how this should be applied and whether there should be any additional safeguards from individuals in these circumstances.
David: OK. Obviously there is always somebody isn't there the dawn raid happens and they are quickly running off the files, burning them in their cars, the classic naughty person goes and hides them. What happens?
Bernardine: You are absolutely right David. It is certainly our experience and it is borne out by the decision of practice. Invariably somebody panics and does something silly with evidence. So practically speaking presume somebody is going to conceal or destroy evidence so the role of in-house counsel is to make sure that does not happen because what happens if that does happen so in principle it is criminal offence for an individual to destroy, conceal, hide a document or ask someone else to do it or a obstruct an officer in the exercise of their powers or be economical with the truth so to speak. Also that is from an individual perspective also in principle, an individual could be fined up to £30,000 or £15,000 a day for every day they are in default producing documentation. And then from a business perspective the CMA can also fine a business for failing to disgorge information or destroying information and we saw a case Fender, Fender case which is those of you with teenagers at home concerned guitars, or people with teenage mind sets perhaps so under the section 27 authorisation the company was required to give over certain documentation. Day 2 an officer reminded Fender they'd asked for notebooks of this individual, so some notebooks were given over. A senior individual said, 'well, here's my diary and a notebook but I always destroy my old notebooks and I just carry over what's of interest, so nothing to see there.' And that was the CMA's understanding, that those notebooks had been destroyed. Three weeks later ten additional notebooks were given to the CMA and this came out of the ether, so the CMA… sorry, the company heard through a casual remark that there were these extra notebooks. The senior individual had asked a junior 'please can you hide these', and they'd taken them home and it was only because of a passing remark that the business became aware of these documents and of course the business quite properly gave it their lawyers and then gave it to the CMA.
So Fender was fined £25,000, notwithstanding said, 'well, hang on, this was a rogue employee. This was completely… we were co-operating, the business was co-operating. This was completely out with what we wanted that employee to do. We the company should not be on the hook for that.' And the CMA was having none of it. They said, 'no, you're on the hook for this because that was your employee, you're responsible for everything they do and that will include the wilful destruction of evidence.' And you know arguably in the face of instructions to the contrary. And so you could say, well, £25,000, that's not so bad. That's true because, as I say there's a flat rate for companies of £30 a day… sorry, £15 a day plus a flat rate of £30,000 compared to the millions of a cartel ultimate fine. And so the government is aware of this that they're out of sync with the rest of other regulators throughout the world, so the CMA wishes to up the ante of that. So whereby you have one per cent of turnover, global turnover per… of a fixed fine then five per cent per day etc, etc, so give it some real, real teeth.
So what we're observing here is… and some might find this quite extraordinary, sometimes there are quite egregious in terms of destruction of evidence by an individual and we saw… and this is on the public record in the Galvanised Steel jury trial, an individual said 'yes, in my diary I knew there was a cartel meeting the next day, I always noted the instructions I was going to give to the MD in terms of what was happening.' That would have been the most beautiful piece of evidence or a piece for the business to give to the CMA and he's now destroyed it. That… no repercussions for that individual. So ironically in principle it's a criminal act but what we see happening in reality it's the companies that are on the hook for this.
So query, what should the company do? So absolutely this is what you should always do as a matter of best practice is immediately send out a pre-prepared email to all staff - please have one ready on your desktop to send - making it very, very clear in simple terms, it's a highly confidential investigation, please don't take social media. Inform nobody outside of the business that an investigation is taking place. You must give accurate and correct information to officers and absolutely do not destroy any documents including phone messages, electronic documents etc, etc, and make it clear that this is a criminal act and also if anyone's got any concerns discuss it with the individual in the case. So if you haven't got a prepared email, your external Counsel will have a prepared email so make sure absolutely one goes through. But to my view that is never quite enough, so when you're involved in a… you know, certain individuals will have been identified, you must eyeball them. Make it clear, make a note of that, have several witnesses to say 'we told them, we made it very clear', and the consequences for them is this is a criminal act, although I have to say in reality we are not seeing individuals being prosecuted, we're seeing the companies on the hook for… at the moment they're quite low fines but we anticipate that they will get higher and higher and also there's a reputational aspect. And the other aspect to mention in terms of destruction and tampering with evidence are seals. It's so important that you communicate to staff that seals must not be broken. In the EU Aeon was fined £38 million for allegedly breaking a seal, so you must make it very, very clear to individuals that seals cannot be broken. And I would actually say if overnight there's a seal there we always suggest to the companies you should have a security guard standing there because you can't always be sure. So absolutely I would say have a security guard stand there all night, it's not a risk that is worth taking in the circumstances.
David: Great, so a huge amount of information coming over there but let's split them… I mean, the trigger for this was talking about coming out of Covid, what should businesses be doing? So with that in mind, Sam and Bernadine, what should businesses do? What should in-house lawyers do actually now we've sort of come out of the hibernation of Covid?
Sam: Yeah, embracing the new normal post lockdown. So in terms of business premises, you know, what we know from time in the trenches is that managing a dawn raid requires teamwork across the business. Now in the olden days as I'll call them that was really quite easy because everyone by and large was in the premises and the people who weren't there most of the time you knew kind of where they were. So you had a team there and you could work with them, business could use that to engage with the CMA. What we now find is obviously everyone's embracing hybrid working patterns and there are situations where people perhaps would normally be in an office in the olden days, now perhaps come in once a week, maybe, you know, twice a week, maybe not on a Tuesday, maybe they're coming in sort of towards the back end of a week to fit with their own commitments. Who's available to provide IT support? Is that someone on site who in the olden days was always there, now comes in on a temporary basis? If that is the case, can they give IT support remotely? So if the CMA were wanting to access certain things, is there someone who can enable that to happen?
We've obviously got a wealth of pre-Covid policies and procedures with companies at the moment. I think the key question here is looking at those and thinking about, you know, teams, teamwork, who's going to form that core team with the various roles delegated. Someone mentioned shadows in a question - you know, will you have enough shadows on a given day? When you're looking at these policies and procedures, how do they need to be tweaked and refreshed just to reflect these new staff working patterns under the new normal? And if you have new joiners, if there've been internal promotions, departures, you know, when did you update your contact lists, because obviously contact lists are only as good as the numbers that are in there and if those people perhaps aren't there anymore those numbers become redundant very quickly and the contact list soon loses the function that it should have which is when it is a state of extremis you have a ready-to-hand list you can quickly work through to select information. So are those things up to speed? And, you know, this is all kind of quick wins if you think about it but it's just the practical aspects I think need to be just touched on and refreshed. And also external Counsel contact lists - have people moved around in the pandemic, have people moved offices, what are their homeworking arrangements? That may be a question that's worth having in terms of can they still provide the support that you expect them to on a given day? So those are things… just tweaks around aspects there. Like another really good question, putting the documents to one side is whether it's appropriate now to have refresher training about, you know, what to do, what not to do and who to contact.
So we've emphasised not hiding or destroying documentation. If that's in the policies and procedures and people haven't looked at those in perhaps a couple of years, that may not be front and centre of their mind, whereas if you're able to give them an in-house session just to recap some of these key points, that then should bring it back to life for them in terms of taking this opportunity with the new normal to sort of reinstate, to refresh compliance culture within the business. And then thinking about domestic premises, and we have touched upon this in terms of key individuals and we have emphasised that they need careful messaging around this, but are key individuals aware of the possibility of dawn raids at home? Is this addressed in policies and procedures? Would it be worth giving some refresher training again for that perhaps small group of key individuals to think about if this did happen in your home, you know, here are some hints, here are some tips, here are some strategies, because I think what we find in practice is you can give people documentation and some people are truly diligent and they will read that and think about, other people perhaps will just put it to one side and think, 'I'll turn to that when I need to', and the problem with these sorts of scenarios is when you need it, you usually don't have the time if you're reading it for the first time to engage with that document. So that refresher training, the background, just to give people a baseline which can be topped up with a one-pager that people can have in their home offices setting out perhaps some key do's and don'ts around a dawn raid and also contact details so they have up-to-date contact details for people in the office, for external Counsel, just so they have that, again preparing for the worst - not expecting the worst - but just preparing for that so if something did happen they would be in a position where they were able to confidently, you know, assert what they had to do in the circumstances.
David: So Sam, one thing that's occurring to me as an in-house lawyer let's imaging you're well organised, you've got your dawn raid policies, you don't need training, you done all of that, and actually listening to this, if I was an in-house lawyer, I think I'd want to have some of my own… what do… what do I do in the first two hours? Because when panic and I can't think straight. If I've already thought about that in a calm place and got it all set out…
Sam: Absolutely right.
David: … then that will help you be calm at the time because you can go 'oh, my God, the worst thing ever is happening', pull out this document - what to do? First step 1, step 2. That would be I think a really good practical tip, wouldn't it?
Sam: I agree, David. Honestly if you're doing it in that calm space, you don't have the opportunity to think, 'oh, I've got a question about that', and then you can, you know, go and fetch Counsel and maybe just check 'my understanding is this, is that right, or should we be doing this slightly differently?' That calm space gives you the chance to almost kind of visualise and think about how you can engage with it and I think that that does take some of the panic some of the panic away from what is otherwise a very, very stressful situation.
David: And all eyes are going to be on you if you're the senior in-house lawyer, I bet all eyes turn, don't they? And if you can do that in a really… reassure people and manage it then you're going to come out well, but if it's flapping around in panic that's not going to reflect that well, is it?
Bernadine: I think people also sometimes focus too much on what they're looking at, what they're looking for, what are the buzzwords? Relax on that front because at the end of the day or at the end of the raid, they will sit down with you and say 'right, this is what we're taking.' So you will get transparency with respect to that. What you really should be focusing on is, as Sam said, is actually the pastoral care issue, calming everybody down, focussing on individuals and also where is being raided? So make sure there isn't some offshoot, some small subsidiary that is being raided and not getting adequate oversight, and also it's imperative, it's when it's not the crime, it's the cover-up, that you are making sure evidence is secure because that really is I think the most important role you can play as an individual, as an internal Counsel, is secure the scene and afterwards as well secure the scene.
David: Now there's a couple of questions about keeping this in proportion effectively, so are dawn raids… is this something irrelevant to big companies in markets where they've got turnovers and market shares?
Bernadine: No, absolutely not. This is something the CMA call the 'balanced portfolio'. They make a point of going after smaller companies as well. They really want the world to know they don't just simply focus on large companies, it is all small… also smaller companies and there have been a number of investigations where the market, the whole of the UK market was £10 million turnover a year for that whole market, so absolutely not. I mean, the numbers of times we've heard 'we're too small, it's a victimless crime' etc, etc. No way, it is absolutely no defence to say we're a small company, it's a small market, who cares? The CMA will care.
David: I don't know if you already know the answer to this question, somebody asked it, roughly how many dawn raids a year do the CMA carry out?
Bernadine: Not that many actually. It's a bit like lightning, when it strikes, it's horrific. I hesitate to say - would it be three, Sam?
Sam: I think it depends because if you have certain investigations, when you look at the investigations, so with the investigations in the musical instruments sector, there were a number of cases that came out of that but that was at the time simultaneously organised dawn raids. I think there was perhaps some suspicion this could be an arrangement between competitors rather than individual actors undertaking their own activities, so that was co-ordinated as a raid. There have been other cases where the case is just one case but actually a number of raids in the context of that case was maybe six, seven, eight. So think it really depends, I think it's hard to say in a given year. I think the CMA previously has indicated aspirations to open a certain number of investigations in a given year. I think they've now kind of moved back away from that but they are still focussed upon, you know, seeking infringements, having information on infringements. So this remains a live issue in that context.
Bernadine: Yes, also don't forget, those of you in regulated sectors, the current regulators also have concurrent powers, so Ofgem for example has used its powers, so you know, damned if you do, damned if you don't, so be aware also of those parallel dawn raids as well.
Sam: So it's not, it's not like there's a dawn raid every day.
Bernadine: No, no.
Sam: So they're not… they're not that frequent but they're unpredictable and you certainly won't know if your company or your sector is going to be raided tomorrow and you have got no… you've not… there's not going to be any warning signs, are there?
Bernadine: No.
Sam: And so therefore you need to be prepared. It's like none of us expect our buildings burn down but we still have fire extinguishers and fire exits because if it does happen it's really bad news.
Bernadine: And also it's a useful tool to have, actually to train people around dawn raids because it just focusses their minds on day-to-day compliance because they also want to make sure individuals 'we don't want this to happen', they realise the seriousness of a dawn raid and investigation therefore please comply with the rules in the first place whereby there isn't a danger of having a dawn raid.
David: Great. I'm going to draw it to a close but I know we haven't answered all of your questions. We've had, I don' know, about 15 questions - I'm thinking we've answered about half of them, I think about ten of them, so we will review the questions we haven't answered we will be in touch with people on that. But as I said we will be sending round the slides, there will be the recording as well which you can review and share as well and hopefully that has been a useful refresher for all of you. Thank you very much.
Sam: Thank you.
Bernadine: Thank you.