A dawn raid by regulatory authorities may seem like something that would never happen to your business, but it could. Being prepared for this eventuality is crucial for all businesses – particularly as there will be no prior warning and the sanctions for noncompliance can be severe. Do you have an up-to-date dawn raids policy and would you know what to do in the event of a dawn raid?
So what is a dawn raid?
A “dawn raid” is a surprise inspection carried out by the officials of a regulatory body or authority (whether UK or EU based) at the premises of a business under suspicion or investigation, in order to obtain incriminating evidence as a precursor to regulatory proceedings.
Often the dawn raid actually taking place is the first time you will know about the suspicions or investigation. Regulatory authorities which might carry out dawn raids include the European Commission, national Competition Authorities, the Competition & Markets Authority, the Financial Conduct Authority and HM Revenue & Customs, as well the Serious Fraud Office in extreme cases.
Who could be affected?
Any company which could face regulatory or competition issues is a potential target for dawn raids – regardless of size. As the dawn raid is often the first step in an investigation, even allegations which ultimately prove to be unfounded could still potentially give rise to a dawn raid.
Examples of the types of issues which could arise include allegations of abusing a dominant position and other anti-competitive practices (ie price-fixing, cartels etc) or allegations of fraud, market abuse, insider dealing, bribery or corruption. Issues could also arise in respect of the administration of tax and duties or in relation to imports and exports.
The types of companies which might be particularly at risk include:
• Companies in regulated industries, such as the financial services sector, which may be investigated by the FCA
• Companies which occupy a large market sector, and arguably hold a dominant position, could be investigated by competition authorities for anti-competitive practices
• Companies which import and export goods could face investigation by tax authorities
• Companies involved in competitive tendering, especially if there is a risk that collaborative tendering (ie tendering that involves the partnering of one or more businesses) could actually be collusive tendering
• Retail companies, including manufacturers of retail goods, could face allegations of price fixing or cartel membership
- Companies doing business overseas could face allegations of bribery or corruption
Why is it an important issue?
It is important to be prepared and to ensure that your staff are fully briefed, because there will be no prior warning of a dawn raid. By preparing in advance, you can think about how best to handle any negative consequences of the dawn raid (both internally and externally).
There are very heavy fines for noncompliance on the day of the dawn raid. Companies have in the past been fined millions for delaying the start of an investigation by less than an hour, whilst Eon was fined €38m for breaking a seal fixed by Commission officials during a raid in May 2006.
Dealing with the dawn raid in the correct manner can also have an impact on any subsequent proceedings brought by the regulator. For example, you should ensure that you maintain any available privilege in documents which could be detrimental to your case by lawfully preventing their inspection by dawn raid officials on the day.
Preparing for a dawn raid
There are various ways you can prepare in advance of a dawn raid so that you have everything you need to hand in the event of a raid and are not caught unprepared.
Here are some of the key pointers:
• draft a comprehensive dawn raids policy in advance, setting out procedures for how to deal with a dawn raid on the day of the raid itself
• prepare associated documents to be available for use on the day such as crib sheets, emergency contact lists and template internal/external statements so you can communicate promptly with staff and even the press
• train your staff on your dawn raids policy and what to do in the event of a raid
• train those individuals in critical roles; for example, instructions can be given to reception staff as the first point of contact and your IT department can be given guidance on the kind of requests that might be made by officers
• consider conducting mock dawn raids as part and parcel of the training and preparation of your staff
• enter into an agreement for dedicated “oncall” lawyers who you can call immediately upon the officials arriving at your premises in the event of a dawn raid
• put procedures in place to make sure that you keep a good record of the documents and information taken by the officers during the raid for subsequent review of your position. This will help you and your lawyers to evaluate the merits of any case against you and to devise an appropriate strategy going forwards.
A dawn raid will probably signal the start of a lengthy investigation, so there will be time afterwards to examine the grounds for the investigation and consider your position.
By handling the dawn raid correctly at the outset you will see tangible benefits and this will enable you to avoid penalties for noncompliance. The key to dealing with dawn raids appropriately and effectively is to have an up to date policy as part of advance preparation and ensuring that you have good legal support available – both on the day and afterwards. At RB, we offer a specialist dawn raids service, based on our experience of helping clients in this area, and we provide a dedicated on-call service for emergency support if required on the day and in the weeks that follow.
For further information, please contact Clive Lee or Liane Simmonds in RB’s Commercial Disputes Team.
