By Kathleen Wang
What are dawn raids?
Competition dawn raids are surprise investigations on companies carried out by competition authorities to investigate possible infringements of competition law. In the UK, dawn raids may be carried out by the Competition and Mergers Authority (‘CMA’) or by the EU Commission (in which case the relevant law is EU competition law).
It should be noted that, following the Brexit Transition Period (ending on December 31st 2020), the EU Commission will no longer have the power to conduct dawn raids – its powers will be limited to writing requests for information or requesting the CMA to conduct investigations on its behalf.
When can authorities conduct dawn raids?
The CMA may conduct dawn raids at any time and to any company, but most likely whenever it suspects a possible breach of competition law. This may occur where the business is suspected of participating in arrangements (such as cartels) or agreements that restricts, distorts, or prevents competition. In prioritizing which companies to conduct dawn raids on following anti-competition conduct, the CMA may consider factors such as likely consumer impact, strategic significance, and cost of investigation.
If a company is suspected of infringing competition law, the CMA may conduct dawn raids without a warrant and without advance notice. Where the company is not suspected of any infringements, the CMA must give two working days’ notice in writing before a dawn raid. However, it should be noted that where the CMA does not have a warrant, its powers are limited to requesting information (rather than searching the premises).
Dawn raids are typically conducted following investigations into a particular business sector.
Powers available during dawn raids
The CMA has the power to request information and conduct a search of the premises. Specifically, its powers include:
Entering premises – the CMA may enter business premises as well as domestic premises if they are used by the business under investigation or contain documents relating to the business.
Examination of documents – the CMA may access and examine the company's books and other business records and search computers.
Retaining information – the CMA may take copies of, or extracts from, any document, including business records. The CMA can also require information held on a computer to be produced in a form that can be taken away and is readable. However, it is not allowed to withhold legally privileged information.
Process of a dawn raid
A typical dawn raid may be imposed in the following manner:
Arrival of investigators – Despite its name, dawn raids usually start at the beginning of the business day. Officials arriving at the relevant premises will usually produce its mandate and credentials before beginning their search.
Typically, investigators will wait for a short period (no more than an hour) for a company’s external lawyers to arrive, unless there are in-house lawyers present.
During the investigation – Investigators can exercise their broad powers of investigation, including desk and IT searches and oral explanations for any information. During this time, the investigators will typically require the temporary blocking of individual email accounts and disconnection of computers from the network.
End of investigation – following an investigation, officials may retain copies of relevant information for further review/inspection. If there are disputes over whether documents are legally privileged (and consequently not open for inspection), the investigator may retain the documents in a sealed envelope to allow the company to make further submissions.
Consequences for failure to comply
Failure to comply with a dawn raid (including providing requested information, comply with a search of the premises, etc.) are heavily penalized:
EU Commission – the Commission can fine a company up to 1% of its worldwide turnover in the previous year for failure to comply with a dawn raid. It can also impose a fine of up to 5% of the company’s average daily turnover for each day the company refuses to submit to an inspection.
CMA – In contrast, the CMA can fine a company up to £30,000 for failure to comply with a dawn raid, or a daily fine of up to £15,000. The CMA first exercised this authority in 2019 in imposing a £25,000 fine on a company for failing to provide documents during a raid.
In addition, obstructing or misleading investigations or destroying information during an investigation is also punishable by imprisonment for up to 2 years.
Consequences following an investigation
If any infringements of competition law are found following a dawn raid, the CMA may take a number of actions:
Commitments – the infringing company may enter into a commitment with the CMA under which the company makes a number of commitments to resolve competition concerns. These may include implementing changes to its business rules and or how the company conducts businesses with other companies.
Fines – the CMA can also levy heavy fines for competition infringements. For example, in 2016 the CMA imposed fines of £44.9 million for anti-competition arrangements in the pharmaceutical sector and fines of nearly £90 million on two pharmaceutical companies for excessive pricing.
Settlements – under a settlement, the CMA may offer a reduction in fines to companies prepare to admit liability for infringements and waive some of their procedural rights of defence, resulting in a streamlined administrative process.
British Airways and American Airlines enter into commitments with CMA – (May 2020) following an investigation revealing competition concerns over an agreement about airline routes in the UK and US, the two companies have entered into commitments with the CMA to make more slots available at airports for competitors and to support competing services on routes from UK to US.
The EU commission conducts a series of dawn raids on various pharmaceutical companies – (2009) following an investigation into the pharmaceutical sector. The EU commission was concerned that the companies were collaborating to delay generic drugs. The companies in question included Servier, Lundbeck and Nexium.