CMA’s increased powers in UK competition law investigations

August 2024  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2024 Issue

The UK’s Competition and Markets Authority (CMA) is committed to taking action against anti-competitive conduct, and its ability to do so will be enhanced by the Digital Markets, Competition and Consumers Act (DMCCA).

Once the substantive provisions of the DMCCA enter into force (expected later this year), these will strengthen the CMA’s powers to investigate suspected infringements of UK competition law. The DMCCA will also impose additional compliance obligations upon businesses and individuals in connection with UK competition law investigations, and increase the levels of financial penalties the CMA can impose upon businesses for failing to comply with such investigations.

In addition to the CMA’s increased powers, a recent High Court judgment has clarified the basis upon which the CMA can obtain warrants to enter and search individuals’ homes when conducting competition law investigations.

This article will explore these key developments, and the implications for businesses active in the UK.

Searching individuals’ homes

When the CMA commences an investigation into a suspected infringement of UK competition law, an unannounced inspection – a dawn raid – will be a vital aspect of many cases, as this gives the CMA the element of surprise when seeking to preserve and secure evidence.

The CMA can conduct dawn raids with or without a warrant. If the CMA has not obtained a warrant, its investigatory powers are more limited. For example, CMA officers can only enter business premises, and have no powers of search. The CMA may therefore apply for warrants to enter and search business premises and domestic premises (such as individuals’ homes) and will typically do so when investigating suspected cartel activity.

In 2023, the CMA applied to the Competition Appeal Tribunal (CAT) for a warrant to enable officers to enter and search an individual’s home as part of an investigation into a suspected cartel. The CAT refused to issue the warrant. In so doing, the CAT noted that it was being inferred from the suspected existence of a cartel that the relevant individual would destroy evidence if they were simply asked to provide this by the CMA. The CAT concluded that this inference did not justify issuing a warrant, and that the CMA needed to provide evidence of “something more to suggest a propensity to destroy” when applying for a warrant to enter and search domestic premises.

The CMA challenged the CAT’s judgment before the High Court, with the High Court subsequently confirming that the CMA is not always required to provide evidence of a propensity to destroy, which could prove very difficult to obtain. Instead, depending upon the relevant facts, there may be cases when the individual’s position in the business or the extent of their involvement in the suspected cartel, means that the inference does justify a warrant being issued.

Unsurprisingly, the High Court’s ruling has been welcomed by the CMA, with Sarah Cardell, its chief executive, explaining that “with the increase in remote-working – and electronic communication – it’s essential that [the CMA is] able to search domestic premises to secure evidence of potential breaches of competition law where appropriate to do so”.

DMCCA: strengthening the CMA’s investigatory powers

While the CMA already has a range of investigatory powers, including powers that can be exercised during dawn raids, these will be strengthened by the DMCCA, with key developments outlined below.

Ability to obtain information that is accessible from UK premises. When conducting a dawn raid under a warrant, the CMA will be able to require the production of information that is accessible from business or domestic premises in the UK, even if the information in question is not physically located at those UK premises. This could include electronic information that is stored outside of the UK, but is accessible from premises within the UK, and CMA officers are able to require any person at the UK premises to provide them with such assistance as they may reasonably require to access the information.

Ability to obtain information from outside of the UK, including from third parties that are not subject to an investigation. The CMA will be able to require a natural or legal person located outside of the UK to produce documents or information held outside of the UK where that person’s activities are the subject of a UK competition law investigation, or where that person carries on business in the UK, or is a UK national or an individual who is habitually resident in the UK, or is a body incorporated under the law of any part of the UK.

‘Seize and sift’ powers can be exercised at domestic premises. While ‘seize and sift’ powers can already be exercised by the CMA at business premises, the DMCCA extends the application of these powers to domestic premises. This means that during a dawn raid conducted under a warrant at an individual’s home, the CMA will be able to take possession of any documents that appear to be relevant to the investigation, provided this action appears necessary to preserve the documents, or prevent interference with them, and it is not reasonably practical to take copies of the documents. The CMA will then be able to review these documents at a later date. In addition, the CMA will be able to take any other steps that appear necessary to preserve such documents, or to prevent interference with them. This could include taking possession of an individual’s personal electronic devices, if it is not reasonably practical to take copies of such devices.

Strengthening compulsory interview powers. Pursuant to section 26A of the Competition Act 1998, the CMA is currently able to conduct a compulsory interview with an individual who has a connection to a business under investigation, such as a current or former employee. The DMCCA removes the requirement for such a connection, meaning that the CMA will be able to use section 26A interviews to gather information from a broader range of individuals. Where an individual is subject to a section 26A interview, they are required to respond to the CMA’s questions, and the CMA is able to impose financial penalties if an individual fails to comply without reasonable excuse. An individual may also face criminal prosecution for knowingly or recklessly providing false or misleading information during a section 26A interview.

DMCCA: imposing additional compliance obligations upon businesses and individuals

Notably, the DMCCA provides that if a person knows or suspects that a UK competition law investigation is being carried out, or is likely to be carried out, that person must not: (i) falsify, conceal, destroy or otherwise dispose of any document (meaning information recorded in any form) that they know is, or suspect would be, relevant to the investigation; or (ii) permit such a document to be falsified, concealed, destroyed or disposed of.

The explanatory notes to the DMCCA provide that, in practice, these obligations could arise in circumstances including where a business is informed by the CMA that it is under investigation, or where an individual working for a business becomes aware that a customer has reported suspicions of anti-competitive conduct to the CMA and has been interviewed by CMA officers or where participants in an anti-competitive arrangement are ‘tipped off’ that someone has informed the CMA of the arrangement.

Therefore, it appears that the UK government’s intention is to place the onus upon businesses and individuals to be aware of the CMA’s current and prospective competition law investigations, and to identify and retain documents that they know or suspect to be relevant to such investigations.

Given the range of challenges that may be expected to arise in this context, it would be extremely helpful for the CMA to issue specific guidance in due course explaining how it expects businesses and individuals to comply with these obligations.

DMCCA: increasing penalties for non-compliance

In an effort to incentivise procedural compliance, the DMCCA increases the financial penalties the CMA can impose upon businesses for failing to comply with obligations in connection with a UK competition law investigation.

The DMCCA will enable the CMA to impose upon a business a fixed penalty of up to 1 percent of its group annual worldwide turnover, increased from the current fixed penalty maximum of £30,000, and/or a daily penalty of up to 5 percent of its group daily worldwide turnover, up from the current daily penalty maximum of £15,000.

In relation to individuals, the CMA can impose a fixed penalty of up to £30,000 and/or a daily penalty of up to £15,000. A penalty may be imposed where an individual fails to comply with a requirement, for instance by failing without reasonable excuse to answer questions during a Section 26A interview.

Preparing for the worst: updating policies and procedures in view of the DMCCA

Given the extent of the changes introduced by the DMCCA, businesses should ensure that these amendments are understood and appropriately addressed within their competition law compliance policies and dawn raid procedures.

Given the focus upon domestic premises, business should also proactively take steps to ensure that all relevant individuals understand that the CMA can conduct dawn raids at their homes. The individuals should also be made aware of the extent of the CMA’s investigatory powers in this context, including in relation to ‘seize and sift’, and know how to respond – and just as importantly, what not to do – in such circumstances.

 

Samuel Beighton is a partner at Gowling WLG (UK) LLP. He can be contacted on +44 (0)7841 899 301 or by email: samuel.beighton@gowlingwlg.com.

© Financier Worldwide

BY

Samuel Beighton

Gowling WLG (UK) LLP

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