A new dawn for cartel enforcement? Competition authorities across Europe resume unannounced dawn raid inspections

On 22 June 2021 the European Commission ("Commission") revealed that it had carried out surprise inspections at the German premises of a company active in the clothing sector, suspected of infringing competition rules.  This was the first unannounced inspection, or "dawn raid", conducted by the Commission since the COVID-19 pandemic first struck Europe in March 2020.  Many national competition agencies across Europe have also recently re-commenced dawn raids or else signalled their determination to do so.  Companies should take note that a step-change in enforcement activity is very likely, with a wave of new cartel investigations set to take place across Europe in the months to come. 

Unannounced inspections at company premises, referred to commonly as dawn raids, have long been a vital tool used to detect and prosecute cartels.  By conducting dawn raids it is possible for competition agencies to search company premises, seize key evidence and interview relevant employees.  However, the ability to conduct dawn raids has been severely hampered by the COVID-19 pandemic, with dawn raids effectively suspended over the course of the last 15-months.

It appears that the success of vaccination programmes across Europe and the gradual easing of restrictions have created conditions where dawn raids can be safely resumed.  This is certainly the view expressed by senior officials of the Commission and the German Federal Cartel Office (Bundeskartellamt) who, speaking on 23 June 2021, disclosed that both authorities are planning to carry out multiple dawn raids in the coming months to address a backlog of planned inspections paused due to COVID-19.

The ambitious plans of the Commission and Bundeskartellamt appear to be consistent with those of other competition agencies in Europe, with national authorities in Greece, Spain, Portugal and Norway announcing that they had re-commenced dawn raid inspections in May and June.

We will continue to monitor and report on dawn raids, including in our quarterly newsletter "Cartel Intel" which provides expert analysis of cartel developments across the EMEA.  Previous editions are available here and here.

Dawn raid activities severely curtailed by COVID-19

The COVID-19 pandemic has had a profound impact on the activities of competition authorities around the world.  Officials have been obliged to work mainly from home, meetings are conducted virtually and most submissions are made electronically.

The conduct of dawn raids has been particularly disrupted by COVID-19.  Travel restrictions, social distancing rules and working from home regimes have all made it much more difficult for competition authorities to conduct dawn raids at the premises of suspected cartel participants.  Given these various practical challenges and safety concerns, dawn raid activity has been greatly reduced since March 2020.

A few dawn raids were carried out when there were signs that the COVID-19 situation had begun to improve last autumn.  For example, in September 2020 the Dutch and Spanish authorities conducted dawn raids in the home furnishings and funeral services sectors, respectively.  In October 2020 dawn raids were conducted in Portugal in respect of anti-competitive arrangements in the food retail industry.  Further afield, Japan’s Fair Trade Commission reportedly raided computer suppliers and drug wholesalers in separate bid-rigging investigations in late October.  As the health situation deteriorated in late 2020, with COVID-19 infection levels rising, dawn raid activities were again suspended.

Over the last week, however, we have seen clear signs that dawn raids are set to be resumed, particularly in Europe.

Commission conducts first dawn raid since COVID-19 outbreak

On 22 June 2021, the Commission announced that it had carried out an unannounced inspection in Germany at the premises of a company active in the sector of manufacturing and distribution of garments.  The Commission had concerns that the inspected company may have violated EU antitrust rules prohibiting cartels.  The Commission officials were accompanied by counterparts from the Bundeskartellamt.

This is understood to be the first dawn raid carried out by the Commission since the start of the pandemic.  In its press release, the Commission stressed that the inspections had been conducted in compliance with all coronavirus health and safety protocols to ensure the security of those involved.

More dawn raids are planned

The day after the dawn raid in Germany, senior officials from the both the Commission and the Bundeskartellamt, speaking at different public events, indicated that both authorities are gearing up to conduct multiple dawn raids in the coming months.

Maria Jaspers, the head of the cartel directorate within the Commission, acknowledged publicly that cross-border dawn raids had been "very difficult and complicated to organise in the past 15 months.”  She added, however, that the Commission is starting to tackle its backlog of planned inspections, referring to the inspection underway in Germany and stating that more raids are planned for the autumn.

Also on 23 June, at a press conference to launch the 2020/21 Annual Report of the Bundeskartellamt, the agency's president, Andreas Mundt, stated that the German authority is likely to re-start unannounced inspections this summer.  The annual report itself notes that the Bundeskartellamt will resume dawn raids following the implementation of a comprehensive safety plan.  Andreas Mundt specifically confirmed that "cartel prosecution … remains a key focus of the Bundeskartellamt's work".

It seems that other national competition authorities around Europe are either poised to resume or have indeed restarted dawn raid activities.

For example, the Spanish and Portuguese national competition authorities issued a joint statement on 21 June 2021 indicating they had together raided multiple companies providing "commercial and financial information services", investigating allegations of market sharing and price-fixing.  On 23 June, the Norwegian Competition Authority announced that earlier in May it had raided the premises of companies active in a “health-related market” over concerns around improper exchanges of competitively sensitive data.  On 24 June, the Hellenic Competition Authority revealed that it had carried out dawn raids in Greece at the premises of undertakings active in the import, wholesale and retail markets for power tools and garden tools.

Speaking at a public symposium on 25 June, Andrea Coscelli, the Chief Executive of the UK Competition and Markets Authority ("CMA"), suggested a pattern of persistent under-enforcement by the agency in relation to antitrust, noting that the CMA did not presently have enough antitrust cases under investigation.  This too could signal an intention to increase dawn raid activities and commence new cartel investigations, with Coscelli specifically noting the scope for increased enforcement in respect of practices affecting local and regional markets in the UK.

A new type of dawn raid?

While there seems to be a consensus emerging among competition authorities that dawn raids will be re-launched in the months to come, it is less clear precisely what form these dawn raids will take.  Future inspections will need to be adapted to deal with the practical challenges that COVID-19 continues to raise.  Companies responding to dawn raids will also need to grapple with a variety of novel practical problems.  In this context, companies will need to consider whether compliance procedures that pre-date COVID-19 are still fit for purpose.

One factor that will inform the future conduct of dawn raids is the continuation of flexible working programs, even following the relaxation of remote working rules imposed by individual national governments.  With fewer employees likely to be working from a company's premises at any given time, companies subject to dawn raids will need to find means to respond effectively to dawn raids and cooperate as required with officials in circumstances where key employees, including in-house legal staff, may not be present at the company's premises.

As the distinction between the work and home environments has become increasingly blurred, competition authorities may make greater use of their powers to inspect the homes of employees.  In the UK, for example, this is permitted if the CMA first obtains a warrant from the High Court or the Competition Appeal Tribunal.

Another consequence may be an increased use of video calls by competition authorities in order to interview employees remotely, including at their homes.  For example, inspectors conducting a raid at a business premises may insist on speaking to absent employees via video calls from the raided premises, for instance asking for explanations of particular documents or emails retrieved through searches at the business premises.  Employees may also be called upon to provide access to data remotely from their laptops or other devices at home.

Given changed working habits, access by competition authorities to company IT servers and employees' electronic devices, including personal devices, will be more critical than ever.

The EU Court of Justice confirmed in the Nexans¹  case last year that Commission inspectors may make copies of entire hard-drives or sets of emails during a dawn raid, without first examining them on-the-spot, with officials entitled to then review such evidence on their return to Brussels.  From a practical perspective, the Nexans ruling will likely encourage the Commission to conduct shorter, more targeted dawn raids at company premises while residual safety concerns around COVID-19 persist.  This change in practice will require companies to consider carefully their own dawn raid procedures – e.g., in-house lawyers, in conjunction with external counsel, will need to consider new ways to "shadow" officials to verify the relevance of documents being seized during dawn raids and to also ensure adequate safeguards are adopted by officials to protect legally privileged documents and personal data.

Faced with likely changes in the way dawn raids are conducted, this is an opportune moment for companies to re-visit their dawn raid compliance manuals and training to ensure that employees know what to expect and how to respond to reformed dawn raid procedures.

For detailed coverage of recent developments in cartel enforcement, look out for the July edition of our newsletter Cartel Intel.  Previous editions are available here.

¹ Case C-606/18 P Nexans SA v European Commission, judgment of the Court of Justice of the European Union, 16 July 2020.