Dawn raids in the UK: how will increased investigatory powers affect businesses?

August 2023  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2023 Issue

Competition law enforcement remains a key priority for the UK’s Competition and Markets Authority (CMA), with its recently published annual plan re-emphasising its focus on deterring anti-competitive conduct.

For the CMA, this means taking action against businesses that infringe UK competition law, in order to end such infringements, and to “help deter businesses that might otherwise be tempted to break the law”. This includes by imposing significant financial penalties, seeking the disqualification of directors of businesses involved in infringements, and prosecuting individuals under the criminal ‘cartel offence’.

Deterrence effects are likely to be greater where businesses believe there is a real risk that infringements will be detected. To seek to improve detection, the CMA recently announced an increase to the maximum reward available to those individuals who ‘blow the whistle’ on cartel activity they have witnessed, with the reward for an informant being up to £250,000 (increased from £100,000).

This reward exists in addition to the CMA’s leniency programme, under which businesses and individuals may also inform the authority of their involvement in anti-competitive activities, in order to seek to secure immunity from financial penalties, director disqualifications and criminal prosecutions.

Increased investigatory powers: proposed legislative reform

When the CMA opens an investigation into a suspected infringement of UK competition law, a ‘dawn raid’ will be a vital aspect of many cases, with the CMA relying upon the element of surprise to seek to preserve and secure evidence.

While the CMA is already able to exercise significant investigatory powers, amendments proposed under the Digital Markets, Competition and Consumers Bill (the Bill) would enable the CMA to rely on a wider range of powers. The CMA has welcomed these planned reforms, which include: (i) an increased ability to obtain information stored remotely in electronic form; (ii) the ability to use ‘seize and sift’ powers at domestic premises; and (iii) extended powers to compel individuals to answer questions.

In addition, the Bill notably provides for a wider, general obligation to preserve evidence, which may be expected to have clear implications for businesses.

Obtaining information stored remotely in electronic form

While the CMA is able to conduct dawn raids without a warrant, its powers of investigation in such circumstances are more limited compared to when it has obtained a warrant (e.g., from the Competition Appeal Tribunal (CAT), or the High Court). For example, when acting without a warrant, the CMA can only enter business premises, and has no power of search.

The CMA is therefore able to apply to court (or to the CAT) for a warrant to enable CMA officers to enter and search business or domestic premises, with this power generally used by the CMA when investigating suspected cartel activities. To issue a warrant, among other aspects, the court (or the CAT) currently needs to be satisfied that there are reasonable grounds for suspecting relevant documents are on the business or domestic premises in question.

Under changes proposed by the Bill, a warrant also could be obtained if there were reasonable grounds for suspecting that relevant documents were ‘accessible from’ the premises (e.g., documents stored in electronic form in ‘the cloud’ that could be accessed from the premises, but which were not physically located on the premises).

In addition, the Bill makes provision for the exercise of greater investigatory powers under a warrant, which would permit a CMA officer at either business or domestic premises to: (i) require the production of any information stored in electronic form and accessible from the premises; (ii) operate any equipment on the premises in order to produce any information stored in electronic form and accessible from the premises; (iii) require any person on the premises to provide such assistance as the CMA officer may reasonably require (e.g., by providing passwords or encryption keys to enable access); and (iv) take copies of, or possession of, any information that has been produced which the CMA officer considers to be relevant to the investigation, save that no person would be required to produce (and no CMA officer could produce, take copies of, or possession of) anything that would attract legal professional privilege.

A failure to comply with these requirements without reasonable excuse could result in the CMA imposing financial penalties, and individuals could face criminal prosecution if they intentionally obstruct a CMA officer in the exercise of their powers under a warrant.

The UK government’s intention is for these strengthened powers to “safeguard the CMA’s ability to conduct its investigations effectively given the increasing trend for businesses of all sizes to store documents and other information remotely”.

As drafted, the Bill does not confirm whether the intention is for documents stored in an electronic format outside of the UK to be produced if they are accessible from premises within the UK. However, in view of recent challenges to the CMA’s ability to require non-UK domiciled companies to provide it with requested information, it is possible that the Bill will be amended to address the intended extraterritorial application of these extended powers.

Using ‘seize and sift’ powers at domestic premises

In the context of dawn raids conducted at domestic premises (i.e., under a warrant), the Bill seeks to provide the CMA with powers to ‘seize and sift’ documents. This would align the position with the ‘seize and sift’ powers that the CMA can currently exercise at business premises when acting under a warrant.

Under these amendments, CMA officers would be able to remove from domestic premises anything they find where they have reasonable grounds to believe this may be or may contain  something for which they are authorised to search, and it is not reasonably practicable to determine this on the premises.

CMA officers would be able to examine removed items at a later date, in order to determine whether they are or they contain material within the scope of the warrant (with this process being subject to certain safeguards, including the protection of items that attract legal professional privilege).

Compelling individuals to ask questions

The CMA is currently able to give notice to require a person with a direct connection to a business under investigation (e.g., a current or former employee) to answer questions with respect to any matter relevant to the investigation.

Under the Bill as drafted, this power would be considerably expanded, with the CMA able to give notice to require any person to answer questions with respect to any matter relevant to an investigation (i.e., removing the requirement for a direct connection to a business under investigation).

For example, when gathering evidence of a suspected infringement, this wider power would enable the CMA to compel current and former employees of third parties that are not under investigation (e.g., customers, suppliers or competitors) to answer questions in the context of the investigation.

Requiring evidence to be preserved

In addition to these strengthened investigatory powers, the Bill also envisages a new requirement to preserve evidence, which would apply where a person “knows or suspects” that the CMA is investigating, or is likely to be investigating, a suspected infringement of UK competition law.

As currently positioned within the Bill, among other aspects, this would require a relevant person not to falsify, conceal, destroy or otherwise dispose of, any document that the person “knows or suspects is or would be relevant to the investigation”. The CMA would be able to impose financial penalties (and individuals could potentially face criminal prosecution) if this obligation was to be breached.

While this requirement would clearly apply once the CMA has informed a business that it is under investigation, the explanatory notes to the Bill envisage the requirement arising in other circumstances including, for example: (i) where a business becomes aware that a customer has reported suspicions to the CMA and been interviewed subsequently; and (ii) where a business is ‘tipped off’ that a competitor has applied to the CMA for leniency in relation to a suspected infringement.

By way of background, the UK government has previously expressed concerns that “there is currently no explicit statutory obligation not to destroy evidence which a person knows is relevant to [an investigation], but where the CMA happens not to have asked for it yet”. In this regard, the changes proposed by the Bill seek to close this gap, placing the onus on businesses to preserve evidence by identifying and retaining relevant documents.

However, given that the relevance of documents to an investigation may not be immediately apparent or obvious (particularly if the business has not been informed of the scope of the investigation by the CMA), the breadth of this requirement as currently drafted would present businesses with a range of legal and practical challenges and associated costs. With this in mind, a narrower and more clearly defined requirement would be preferable, as this may be expected to provide businesses with greater certainty regarding the extent of their duty to preserve evidence.

Keeping a watching brief

Dawn raids continue to be a key means by which the CMA will seek to preserve and secure evidence in the context of investigations into suspected infringements of UK competition law.

Businesses should carefully consider the extent of the reforms to the investigatory regime that are ultimately implemented, and ensure that these are appropriately addressed within their competition law compliance procedures.

In particular, given the apparent focus within the Bill on investigations being conducted at domestic premises, it would be prudent for businesses to ensure that all relevant individuals: (i) understand that the CMA is already able to conduct dawn raids at domestic premises (with the CMA due to receive greater investigatory powers in due course; and (iii) are aware of what to do (and what not to do) if CMA officers arrive at their home address when investigating a suspected infringement.

 

Samuel R. Beighton is a partner at Gowling WLG. He can be contacted on +44 (0)20 3636 7972 or by email: samuel.beighton@gowlingwlg.com.

© Financier Worldwide

BY

Samuel R. Beighton

Gowling WLG

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