In our increasingly integrated world, companies must coordinate their compliance efforts throughout many European jurisdictions at once. This is made easier when they can view the bigger picture across Europe. In relation to this, our European competition team have prepared an overview of recent trends in antitrust dawn raids.
According to available data, on average, each competition authority in Europe conducts about 10 dawn raids a year, with numbers ranging from five in France and Belgium to 23 in the Czech Republic. The one country where the number of raids is completely off the charts is Russia, which in 2018 had 476 dawn raids in business premises. The least active European competition authority may be the European Commission, which, according to unofficial statistics, conducted only four dawn raids in 2018. On the other hand, this does not include inspections the Commission delegated to national authorities. Notably, one raid can cover multiple business premises, so the number of undertakings actually affected is usually much higher. For example, Germany saw only seven dawn raids as such in 2018, but a total of 51 companies or associations and five private premises were searched.
The number of raids is generally stable, but one notable exception is Poland. While in 2013 – 2016 on average Poland had fewer than three inspections a year, in 2018 the number peaked at 15. The main factor behind this increase is the Polish agency's new whistleblower program and, more generally, complaints – especially from customers and distributors. We can only speculate as to the reasons for the latter phenomenon. One explanation could be that the looming rise of private antitrust enforcement inspires would-be plaintiffs to ensure that they can rely on future litigation. Alternatively, perhaps online sales rates are growing in tandem with more vertical restraints in distribution agreements and consequently more grumbling by distributors.
Raids that last
Dawn raids can be a huge administrative burden, and the longer they last, the bigger this burden tends to be. Fortunately, most competition authorities are rather quick, with an average antitrust raid in Europe only taking a day or two (the timescale is roughly from one day in Italy, Germany, and France, to up to three days in the United Kingdom). One outlier takes a bigger toll on business patience: in Poland, the inspectors may be present on site for one or even two weeks.
This is due to a ruling of the Polish Court of Competition and Consumer Protection of 2017, which forced the Polish competition agency (UOKiK) to change its dawn raid practices. Previously, the authority used to make forensic copies of entire hard drives, which meant that documents outside the scope of the inspection were seized, too. UOKiK then selected the relevant data, undisturbed, at its premises. The court ruled that document reviews must take place in the presence of a company representative. However, currently, Polish competition law does not allow for such document reviews to be conducted in the authority's offices, so everything happens on site, resulting in exponential increases in the duration of dawn raids.
New craze: gun-jumping dawn raids
Implementing an M&A transaction before securing a merger clearance, a.k.a. gun-jumping, is increasingly on the radar of competition authorities. Only recently, there were three notable gun-jumping cases at the EU level:
- The Commission's decision to fine Cannon €28 million for using a so-called warehousing structure when acquiring Toshiba Medical Systems Corporation (June 27, 2019, Case M.8179);
- The judgment of the European Court of Justice in the EY v. KPMG case (May 31, 2018, C-633 / 16);
- The Commission's decision to fine Altice €125 million for gun-jumping in the Altice v. PT Portugal deal (April 24, 2018, Case M.7993).
It is no wonder then that we are facing a new phenomenon, of dawn raids in gun-jumping cases. In the last three years, there were four such raids in Romania, one in Germany, and one in France.
Dawn raid triggers: the usual suspects
Despite attempts by competition authorities to develop econometric market screening methods, in almost all jurisdictions the vast majority of dawn raids are triggered by a formal complaint (from a client, distributor, etc.), anonymous tip-off, or a leniency application. The only exception is Romania, where 75% of the investigations triggered in 2018 were, according to the Romanian authority's claims, based on the authority's own market research.
Traditionally, many dawn raids were triggered by leniency applications. In the process of enacting the EU Antitrust Damages Directive, the biggest fear was that it would discourage potential leniency applicants, because leniency can only protect against administrative fines (and not follow-up private damages claims). In some jurisdictions, it clearly did, especially in Germany and at EU level, where the number of leniency applications recently fell to about 20 a year. However, in jurisdictions where the number of leniency applications was traditionally lower, - such as in France, Italy, and Poland - the number of applications in recent years has actually increased (although it is still under 10). The most often quoted reasons for these increases are the rising awareness of competition law and active promotion of leniency programs by competition authorities. In Poland, an additional reason is the fact that leniency is available also for vertical agreements.
As regards the total number of leniency applications, the clear winner is, again, Russia, where in 2018 we saw 97 such cases. One of the reasons for this is that some market players use the leniency program to resolve purely commercial issues. Indeed, when you do not like your contract (or some clauses in it), and you think it may be anti-competitive, you may try to escape both the contract and potential fines by filing a leniency application. This phenomenon applies mostly to vertical agreements (especially distribution contracts) and hence is not uncommon in countries that offer leniency also for vertical restraints in agreements (including, for example, Poland).
Apart from leniency, some authorities (including German, British, Polish, Romanian, Slovak, Hungarian, and the European Commission) also operate separate programs for whistleblowers. These usually comprise a hotline, an e-mail address, or a dedicated online tool for anonymous tipping-off. However, British, Hungarian, and Slovak authorities go as far as offering a reward for information about cartel activity (of up to £100,000 in the UK, up to about €150,000 in Hungary, and up to €100,000 in Slovakia). The Polish competition agency claims that its whistleblowing program has proved very successful. This sets the stage for the upcoming implementation of the EU Whistleblowing Directive.
Inspected firms strike back: challenging a warrant
Another interesting development is that many jurisdictions are currently in the process of shaping their legal framework for judicial supervision of an antitrust dawn raid's legitimacy and scope. In April 2018, the Belgian Court of Cassation confirmed that dawn raids require a prior court warrant to be lawful. Meanwhile in the Czech Republic and Poland competition law was recently changed to allow for an appeal against a dawn raid warrant.
Interestingly, the British competition agency received its first ever challenge to a dawn raid warrant only in 2017. The company concerned challenged the legitimacy of the warrant, arguing that the information could have been obtained via a request for information and there were no reasonable grounds for suspecting that any documents would be destroyed or concealed (as the company had already been cooperating with the authority on other requests for information). However, thus far the challenge has been largely unsuccessful.
In any case, challenging a dawn raid's legitimacy and scope seems to be an emerging trend – and rightly so, because a successful appeal can often prevent the authority from using evidence gathered during the inspection.
What's next: be prepared, be very, very prepared
The number of dawn raids conducted by European competition authorities is expected to rise following the enactment of the ECN+ Directive. Currently, enforcement powers vary between authorities (e.g., not all can raid private premises or question employees on-site). After the Directive is implemented, European authorities will have a uniform (and often more extensive) enforcement toolbox. The Directive will also require national authorities to impose "effective, proportionate and dissuasive fines" for hindering an inspection – and "hindrance" is interpreted broadly. It can be triggered by making inspectors wait too long or by accessing an e-mail account that the authority had asked to be blocked.
The best way to minimize dawn-raid-related risks and costs is to prep for them. Time-tested preparatory measures include: appointing a shadow team, having appropriate guidelines and personnel training. Not only do they cut antitrust risk, they also smooth out the course of an inspection and may shorten its duration. These measures cannot be implemented after the company comes under the competition agency's microscope, because the arrival of an inspection team is usually the first time the company knows it has a problem. Therefore, every well-run firm should take these steps as soon as possible, if it has not already done so.
With thanks to Dentons competition law teams from all over Europe for their invaluable contribution to this article.
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