NSIGHT: Responding to Dawn Raids—Advice for Foreign Companies Operating in the U.S.

Sept. 5, 2019, 4:00 PM

Surprise visits from law enforcement authorities are alarming under the best of circumstances. Kobre & Kim’s Scott
Hulsey explains how foreign companies can best protect themselves when U.S. authorities come knocking at the
door of their U.S. offices.
Any business operating within the United States, including the U.S.-based office of a foreign company, is
potentially at risk of being raided by law enforcement investigating crimes ranging from antitrust to immigration
violations.
Unannounced visits by authorities to seize information and interview employees—known as “dawn raids”—can be
unsettling under the best of circumstances, and especially intimidating to employees of foreign companies
unaccustomed to the U.S. legal system.
Therefore, planning ahead is critical to protecting the rights afforded to these companies and their employees
under U.S. law and minimizing the disclosure of information not otherwise required to be turned over.
Dealing With Authorities
As an initial matter, employees—particularly those at entry points where authorities are likely to arrive—should be
instructed to confirm the identity of the officers and gather information about the purpose and scope of the
search. This step can be accomplished by noting the lead officer’s name and badge number, and requesting a copy
of the warrant. The reason for doing so is to ensure that the law enforcement officials who have entered the
premises are, in fact, who they claim to be, and that the search is authorized.
Further, as law enforcement are limited by the scope of the warrant, it is important for company employees to
understand what the issuing court has permitted investigators to search.
Rather than leaving the investigators to navigate a workplace themselves, counsel or supervisory personnel
designated by the company in advance, should provide guidance to officials conducting the search by pointing
them toward requested information and other resources.
As important, officials conducting the search should be specifically advised as to what information is not
responsive to the warrant or subpoena, or else contains privileged information (see below). Doing so will limit the
disclosure of information beyond the reach of the warrant or subpoena and safeguard communications protected
by law.
While the concept of questioning and otherwise interacting with law enforcement officials may strike foreign
employees as unusual, this conduct, in fact, is perfectly acceptable—and likely will be welcomed by authorities
conducting the search, provided that it is done in a calm and courteous manner.
Under no circumstances, however, should employees attempt to argue with law enforcement or, worse yet, seek
to limit them in their activities—even if seemingly outside the scope of what the court has authorized. To do so
may constitute obstruction of justice and result in arrest, among other things. Instead, employees dealing with
officers should reasonably make known any concerns and note the same, knowing there will be an opportunity
later in court to challenge improper actions by law enforcement.
Privileged Materials
Employees should be instructed to alert authorities conducting the search to any documents that are protected by
the attorney-client privilege. The attorney-client privilege, of course, is one of the most sacrosanct and powerful
privileges under U.S. law. It is, therefore, important to identify for authorities any potentially privileged materials
so that they can ensure their proper handling and not violate the privilege.
Foreign companies may be surprised to learn that certain documents that would not be deemed privileged outside
the U.S. have, in fact, privileged status here. A key example is communications with in-house counsel. In the U.S.,
communications with in-house counsel about legal matters are generally privileged, whereas in many European
jurisdictions, for example, this is not the case.
As noted above, companies would be well-advised in advance to identify counsel or designate a supervisor for
employees to contact as soon as possible after the commencement of a dawn raid, especially to deal with issues
like privilege. It is acceptable to ask authorities to delay their search until counsel arrives but, again, no effort
should be made to thwart them if they insist on conducting their search before counsel arrives.
Computer Data
Foreign companies should expect authorities conducting dawn raids to seize desktop computers and hard drives
that are kept on site—including that data contained on them. Through these devices, U.S. authorities may be able
to access critical company documents that may otherwise be difficult to obtain.
Normally, when seeking evidence located out of country, U.S. officials must seek assistance from law enforcement
officials in that foreign jurisdiction. This can be a difficult and time-consuming process, which becomes even more
onerous—or even impossible—if the country from which information is sought does not have an operative treaty
with the U.S. allowing for information-sharing.
The U.S. has recently enacted the CLOUD Act, which in some instances makes this process easier. A foreign
company, however, that permits sensitive information to be stored on site within the U.S. does so at its own peril,
potentially allowing U.S. authorities access to data that otherwise would be out of reach, or at least difficult to
obtain.
While the same could be said of any data maintained at U.S. offices, the fact is that computers can provide U.S.
authorities a window into all of the company’s data to the extent that such data is not properly managed. As such,
foreign companies would be well-advised to take these concerns into consideration in setting up their computer
and data management systems.
Interviews
Authorities conducting dawn raids in many instances will seek to interview employees about matters relating to
the investigation. Statements by employees have the potential to bind the company being investigated and
increase its criminal exposure. In the U.S., of course, employees are not required to speak with law enforcement,
although they may choose to do so. These same rights are available to employees operating in the U.S. who are
not citizens.
Providing guidance on this issue in advance of any raid is especially important for employees hailing from other
countries, where refusing to speak with law enforcement may be anathema. Having company counsel present can
be particularly useful in managing on-scene interview requests.
Conclusion
While the rights afforded to foreign companies and employees operating on U.S. soil are the same as those for
their U.S. counterparts, these rights nevertheless may not be well understood by those from countries with
different legal regimes. Proper attention to the above steps ultimately can mitigate against unnecessary criminal
exposure.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Author Information
Scott Hulsey is a former high-ranking Department of Justice official and corporate chief compliance officer who
serves as counsel in white-collar criminal and regulatory enforcement matters. He represents individuals and
institutions in complex international government investigations and trials, particularly those involving Asia and the
EMEA regions.

https://news.bloomberglaw.com/white-collar-and-criminal-law/insight-responding-to-dawn-raids-advice-for-
foreign-companies-operating-in-the-u-s
In our increasingly integrated world, companies must coordinate their compliance efforts throughout many

European jurisdictions at once. This is made easier when they can view the bigger picture across Europe. In relation

to this, our European competition team have prepared an overview of recent trends in antitrust dawn raids.
Statistics

According to available data, on average, each competition authority in Europe conducts about 10 dawn raids a

year, with numbers ranging from five in France and Belgium to 23 in the Czech Republic. The one country where

the number of raids is completely off the charts is Russia, which in 2018 had 476 dawn raids in business premises.

The least active European competition authority may be the European Commission, which, according to unofficial

statistics, conducted only four dawn raids in 2018. On the other hand, this does not include inspections the

Commission delegated to national authorities. Notably, one raid can cover multiple business premises, so the

number of undertakings actually affected is usually much higher. For example, Germany saw only seven dawn raids

as such in 2018, but a total of 51 companies or associations and five private premises were searched.

The number of raids is generally stable, but one notable exception is Poland. While in 2013 – 2016 on average

Poland had fewer than three inspections a year, in 2018 the number peaked at 15. The main factor behind this

increase is the Polish agency’s new whistleblower program and, more generally, complaints – especially from

customers and distributors. We can only speculate as to the reasons for the latter phenomenon. One explanation

could be that the looming rise of private antitrust enforcement inspires would-be plaintiffs to ensure that they can

rely on future litigation. Alternatively, perhaps online sales rates are growing in tandem with more vertical

restraints in distribution agreements and consequently more grumbling by distributors.

Raids that last

Dawn raids can be a huge administrative burden, and the longer they last, the bigger this burden tends to be.

Fortunately, most competition authorities are rather quick, with an average antitrust raid in Europe only taking a

day or two (the timescale is roughly from one day in Italy, Germany, and France, to up to three days in the United
 Kingdom). One outlier takes a bigger toll on business patience: in Poland, the inspectors may be present on site for

one or even two weeks.

This is due to a ruling of the Polish Court of Competition and Consumer Protection of 2017, which forced the Polish

competition agency (UOKiK) to change its dawn raid practices. Previously, the authority used to make forensic

copies of entire hard drives, which meant that documents outside the scope of the inspection were seized, too.

UOKiK then selected the relevant data, undisturbed, at its premises. The court ruled that document reviews must

take place in the presence of a company representative. However, currently, Polish competition law does not allow

for such document reviews to be conducted in the authority’s offices, so everything happens on site, resulting in

exponential increases in the duration of dawn raids.

New craze: gun-jumping dawn raids

Implementing an M&A transaction before securing a merger clearance, a.k.a. gun-jumping, is increasingly on the

radar of competition authorities. Only recently, there were three notable gun-jumping cases at the EU level:

 The Commission’s decision to fine Cannon €28 million for using a so-called warehousing structure when acquiring

Toshiba Medical Systems Corporation (June 27, 2019, Case M.8179);

 The judgment of the European Court of Justice in the EY v. KPMG case (May 31, 2018, C-633 / 16);

 The Commission’s decision to fine Altice €125 million for gun-jumping in the Altice v. PT Portugal deal (April 24,

2018, Case M.7993).

It is no wonder then that we are facing a new phenomenon, of dawn raids in gun-jumping cases. In the last three

years, there were four such raids in Romania, one in Germany, and one in France.
Dawn raid triggers: the usual suspects

Despite attempts by competition authorities to develop econometric market screening methods, in almost all

jurisdictions the vast majority of dawn raids are triggered by a formal complaint (from a client, distributor, etc.),

anonymous tip-off, or a leniency application. The only exception is Romania, where 75% of the investigations
triggered in 2018 were, according to the Romanian authority’s claims, based on the authority’s own market

research.

Traditionally, many dawn raids were triggered by leniency applications. In the process of enacting the EU Antitrust

Damages Directive, the biggest fear was that it would discourage potential leniency applicants, because leniency

can only protect against administrative fines (and not follow-up private damages claims). In some jurisdictions, it

clearly did, especially in Germany and at EU level, where the number of leniency applications recently fell to about

20 a year. However, in jurisdictions where the number of leniency applications was traditionally lower, - such as in

France, Italy, and Poland - the number of applications in recent years has actually increased (although it is still

under 10). The most often quoted reasons for these increases are the rising awareness of competition law and

active promotion of leniency programs by competition authorities. In Poland, an additional reason is the fact that

leniency is available also for vertical agreements.

As regards the total number of leniency applications, the clear winner is, again, Russia, where in 2018 we saw 97

such cases. One of the reasons for this is that some market players use the leniency program to resolve purely

commercial issues. Indeed, when you do not like your contract (or some clauses in it), and you think it may be anti-

competitive, you may try to escape both the contract and potential fines by filing a leniency application. This

phenomenon applies mostly to vertical agreements (especially distribution contracts) and hence is not uncommon

in countries that offer leniency also for vertical restraints in agreements (including, for example, Poland).

Apart from leniency, some authorities (including German, British, Polish, Romanian, Slovak, Hungarian, and the

European Commission) also operate separate programs for whistleblowers. These usually comprise a hotline, an e-

mail address, or a dedicated online tool for anonymous tipping-off. However, British, Hungarian, and Slovak

authorities go as far as offering a reward for information about cartel activity (of up to £100,000 in the UK, up to

about €150,000 in Hungary, and up to €100,000 in Slovakia). The Polish competition agency claims that its
whistleblowing program has proved very successful. This sets the stage for the upcoming implementation of

the EU Whistleblowing Directive.

Inspected firms strike back: challenging a warrant

Another interesting development is that many jurisdictions are currently in the process of shaping their legal

framework for judicial supervision of an antitrust dawn raid’s legitimacy and scope. In April 2018, the Belgian Court

of Cassation confirmed that dawn raids require a prior court warrant to be lawful. Meanwhile in the Czech

Republic and Poland competition law was recently changed to allow for an appeal against a dawn raid warrant.

Interestingly, the British competition agency received its first ever challenge to a dawn raid warrant only in 2017.

The company concerned challenged the legitimacy of the warrant, arguing that the information could have been

obtained via a request for information and there were no reasonable grounds for suspecting that any documents

would be destroyed or concealed (as the company had already been cooperating with the authority on other

requests for information). However, thus far the challenge has been largely unsuccessful.

In any case, challenging a dawn raid’s legitimacy and scope seems to be an emerging trend – and rightly so,

because a successful appeal can often prevent the authority from using evidence gathered during the inspection.
What’s next: be prepared, be very, very prepared

The number of dawn raids conducted by European competition authorities is expected to rise following the

enactment of the ECN+ Directive. Currently, enforcement powers vary between authorities (e.g., not all can raid

private premises or question employees on-site). After the Directive is implemented, European authorities will

have a uniform (and often more extensive) enforcement toolbox. The Directive will also require national

authorities to impose “effective, proportionate and dissuasive fines” for hindering an inspection – and “hindrance”

is interpreted broadly. It can be triggered by making inspectors wait too long or by accessing an e-mail account

that the authority had asked to be blocked.

The best way to minimize dawn-raid-related risks and costs is to prep for them. Time-tested preparatory measures

include: appointing a shadow team, having appropriate guidelines and personnel training. Not only do they cut

antitrust risk, they also smooth out the course of an inspection and may shorten its duration. These measures

cannot be implemented after the company comes under the competition agency’s microscope, because the arrival

of an inspection team is usually the first time the company knows it has a problem. Therefore, every well-run firm

should take these steps as soon as possible, if it has not already done so.

With thanks to Dentons competition law teams from all over Europe for their invaluable contribution to this

article.

https://www.scribd.com/document/400466605/Dawn-Raids.

https://www.diva-portal.org/smash/get/diva2:1051228/FULLTEXT01.pdf