Sur­prise dawn raids are be­ing stepped up

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Natalia Lopes & Betty Mkatshwa

THE Com­pe­ti­tion Com­mis­sion re­cently pub­lished its 2015-16 an­nual per­for­mance plan, which was de­vel­oped in line with its strate­gic plan for 2015-20 and in terms of which it set a five-year plan with per­for­mance tar­gets to en­sure that it achieves its strate­gic goals.

One of the com­mis­sion’s strate­gic goals is ef­fec­tive com­pe­ti­tion en­force­ment, and it expects to see the num­ber of ini­ti­ated car­tels rise from 10 cases for 2015-16 to about 18 cases for 2019-20.

A dawn raid is one of the most pow­er­ful tools in the com­mis­sion’s arse­nal for ful­fill­ing its in­ves­tiga­tive func­tion.

As the name sug­gests, such a raid oc­curs when the com­mis­sion ar­rives in the morn­ing at the premises of a firm with­out prior warn­ing and with a war­rant au­tho­ris­ing it to search for and seize in­for­ma­tion rel­e­vant to an on­go­ing com­pe­ti­tion law in­ves­ti­ga­tion.

The­o­ret­i­cally, by ex­ploit­ing the el­e­ment of sur­prise, a dawn raid en­ables the com­mis­sion to un­cover ev­i­dence of con­tra­ven­tions of the Com­pe­ti­tion Act, 1998 and/or pro­cure in­for­ma­tion rel­e­vant to an in­ves­ti­ga­tion, which would pre­sum­ably oth­er­wise be im­pos­si­ble to ob­tain.

Dawn raids can be trau­matic for firms as the com­mis­sion will of­ten bring in 20 or more in­ves­ti­ga­tors and a foren­sic in­for­ma­tion tech­nol­ogy team to search a firm’s doc­u­ments for com­pet­i­tive trans­gres­sions.

The com­mis­sion will also in­volve the po­lice if re­sis­tance is ex­pected.

A CEO can­not help but be ap­pre­hen­sive when faced with this daunt­ing sce­nario, and there­fore it is im­por­tant for firms to be pre­pared and to un­der­stand their rights and obli­ga­tions re­lat­ing to dawn raids.

The com­mis­sion has his­tor­i­cally utilised dawn raids spar­ingly, with about eight such raids be­ing con­ducted be­tween 2000 and last year.

The first con­ducted by the com­mis­sion was in 2000 as part of its in­ves­ti­ga­tion into the ce­ment industry. How­ever, the Com­pe­ti­tion Ap­peal Court set aside the dawn raid on ac­count of pro­ce­dural ir­reg­u­lar­i­ties.

Pur­suant to its first and un­suc­cess­ful dawn raid in 2000, the com­mis­sion re­frained from us­ing its search-and-seizure pow­ers un­til 2007.

The com­mit­ment to en­sure ef­fec­tive com­pe­ti­tion en­force­ment has led to an un­prece­dented num­ber of dawn raids be­ing con­ducted by the com­mis­sion.

This year alone, it has con­ducted four dawn raids in dif­fer­ent mar­kets: the mar­ket for the sup­ply of liq­ue­fied petroleum gas, the mar­ket for the pro­vi­sion of re­cruit­ment ad­ver­tis­ing ser­vices, the mar­ket for the pro­vi­sion of fur­ni­ture re­moval ser­vices and the mar­ket for the pro­vi­sion of fire con­trol and pro­tec­tion sys­tems. About 19 firms have been raided. The com­mis­sion has not only made com­mit­ments to ini­ti­ate more car­tel cases, it has also set tar­gets for the suc­cess rate of car­tel pros­e­cu­tions. More specif­i­cally, it seeks a suc­cess­ful pros­e­cu­tion rate of 70% of car­tel cases for 2015-16 and a 90% suc­cess­ful pros­e­cu­tion rate for 2019-20.

The pro­vi­sions of the Com­pe­ti­tion Act be­stow ex­ten­sive pow­ers on the com­mis­sion in the con­text of dawn raids.

Per­haps the most in­va­sive of th­ese pow­ers is the right to mir­ror im­age the firm’s server. This gives the com­mis­sion ac­cess to elec­tronic doc­u­ments de­tail­ing a firm’s ev­ery ac­tion, po­ten­tially span­ning decades.

The com­mis­sion runs key­words searches on the mir­ror im­age in or­der to sift out doc­u­ments and cor­re­spon­dence which may pro­vide ev­i­dence of car­tel con­duct.

De­spite the sheer vol­ume of in­for­ma­tion stored on a server, if a firm’s em­ploy­ees are en­gaged in anti-com­pet­i­tive con­duct, the com­mis­sion is likely to find ev­i­dence of this con­duct in this man­ner.

More­over, it may also come across other con­tra­ven­tions which are un­re­lated to the sub­ject mat­ter of an in­ves­ti­ga­tion.

This power can serve as a spring­board for the initiation of fur­ther com­plaints and in­ves­ti­ga­tions.

With the in­creas­ing num­ber of dawn raids be­ing con­ducted, firms in all in­dus­tries would do well to iden­tify and root out any car­tel con­duct. This is es­pe­cially the case for firms that are al­ready on the com­mis­sion’s radar for pre­vi­ous con­tra­ven­tions.

Firms need to en­sure that they are ap­prised of their rights and re­spon­si­bil­i­ties in the event of a dawn raid, as this will en­able them to re­sist an in­valid raid, or to man­age the process and iden­tify pos­si­ble risks of con­tra­ven­tion (and steps in mit­i­ga­tion thereof).

Based on the com­mis­sion’s strate­gic plans, firms may ex­pect dawn raids to con­tinue to take place reg­u­larly for the fore­see­able fu­ture. Those that are not pre­pared for them face po­ten­tially calami­tous con­se­quences.

The Com­pe­ti­tion Com­mis­sion has set its sights on ini­ti­at­ing more car­tel pros­e­cu­tions

Natalia Lopes is a di­rec­tor, and Betty Mkatshwa is a can­di­date at­tor­ney in ENSafrica’s com­pe­ti­tion depart­ment.

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