Shawn van der Meulen
Dawn raids in South Africa and Sub-Saharan Africa are expected to increase in a bid by competition authorities to investigate potentially anti-competitive activities by companies, according to Webber Wentzel, one of South Africa’s leading law firms.
Speaking at a competition law seminar for Sub-Saharan Africa today hosted by Webber Wentzel, partner in the competition practice Shawn van der Meulen said, “We are seeing a big increase in the number of dawn raids carried out by competition authorities in Africa. In South Africa, we have already seen six this year across a number of sectors.”
The purposes of these dawn raids is to enable competition authorities to uncover evidence of anti-competitive practices, and in particular collusion (price-fixing, market allocation and bid-rigging), which is the most egregious form of anti-competitive activity. “In such operations, the competition authorities can copy and save all electronic documents from a company’s servers to use in the investigation, which includes very sensitive company information,” he added.
Interestingly, the dawn raid risk is a growing concern for businesses in Africa with recent momentum gaining in many other sub-Saharan African jurisdictions, including Botswana, Malawi and Zambia.
Van der Meulen noted that “Cross-border dawn raids could potentially be conducted where multi-jurisdictional cartels are investigated, but this requires a coordinated approach from the competition authorities in different countries.” For example, the South African Competition Commission might carry out a dawn raid on a South African-based company, but the incriminating evidence could be held at its offices in Zambia and potentially be destroyed before being uncovered. “Collaboration is thus critical for the authorities in order for multi-jurisdictional dawn raids to be fruitful,” he added.
Also speaking at the seminar, Luyamba Mpamba, director of the mergers and monopolies division at the Zambian Competition and Consumer Protection Commission, gave an indication of the level of dawn raids in Zambia. Mpamba says, “Since the competition law pertaining to Zambia was revised in 2010, five dawn raids were carried out across various sectors including banking and fertilizers. We are also currently looking at five cartel investigations. We have found that dawn raids prove useful in investigating companies and we will be pushing for a leniency program to allow for better incentives so that members of cartels can come forward.”
In Zambia specifically, there are quite clear restrictions on which offices and documents can be seized, based on what is stipulated in the search warrant. The Zambian authority also considers it important to try to limit the impact of a dawn raid on the operations of the business while the raid is being executed. There is however a need for further co-operation and co-ordination by the competition authorities in relation to uncovering multi-jurisdictional cartels.
In relation to South Africa, representative from the cartels division of the South African Competition Commission, Mfundo Ngobese, pointed out that dawn raids are likely to increase as the Commission gains further expertise and grows in terms of its resources.
Since the commencement of the Competition Act in 1999, the South African Commission has conducted dawn raids at approximately 20 different business premises across a broad spectrum of sectors. Although the Commission’s early days focused on merger control, it has shown an increasing ability year on year to uncover other anti-competitive activities, particularly focused on collusion.
Ngobese said, “The rise of dawn raids is in line with the Commission’s growth over the last few years in terms of resources and people. The Commission’s expertise is also growing as we have conducted raids in a number of sectors including tyres, scrap metal, cables, airlines, furniture removals, panel beaters, fertilizers and cement.”
Dawn raids ‘flush out’ collusion particularly effectively when they are conducted at the same time at the premises of competing companies thought to be engaged in collusion. Competitor companies are forced to quickly consider the Competition Commission’s Corporate Leniency Policy (CLP), which outlines a process through which a self-confessing cartel member, who is first to approach the Commission, may receive immunity or indemnity for its participation in collusive activities upon fulfilling specific requirements and conditions. Under the CLP, the whistle-blowing cartelist may escape paying an administrative penalty (of up to 10% of turnover) where it confesses to having engaged in cartel conduct.
“Therein lies a whistle-blower’s carrot,” says van der Meulen. “It is not uncommon for a firm that has been the subject of a dawn raid to discover cartel conduct in its operations, and so have to quickly apply to the Commission for leniency under the CLP, given that the leniency applicant may be scurrying against its competitors to be ‘the first cartelist through the door’ for immunity.”
Steps to be taken by firms during a dawn raid
Firms are best advised, and in fact obliged, to co-operate with the Commission during a dawn raid there are some basic steps to follow which may serve to ensure that the legal rights firms and individuals have in a dawn raid are protected. The following guideline provides some basic steps to follow in a dawn raid and sets out some key “do’s” and “don’ts”.
Arrival of the inspectors
Step 1: Ask the inspectors to provide their identification and to explain by which authority the search is being executed. In most instances the search is conducted with a warrant – ask to see the warrant and make copies of it. Note the names of each individual present. Each person must be an appointed inspector and produce a certificate of appointment.
Step 2: Examine the warrant and ensure that it:
- is issued by a judge of the high court, a regional magistrate or magistrate with jurisdiction over the area in which the premises are located;
- clearly identifies the premises which must be entered and searched – ensure that the warrant refers to your premises; and
- has not been issued more than one month prior to the date on which it is executed.
Step 3: Ensure you understand the extent of the search powers (scope) and the degree of access granted to the inspectors.
Step 4: Ask the inspectors to wait at reception until you have had an opportunity to phone your in-house legal advisor/s and /or external attorney/s. Ideally, the search should only start once your legal representative is present, but the inspectors are not obligated to wait for legal representatives to arrive.
Step 5: Take the inspectors to a meeting room to use as their base and request that they wait there until your legal representative has arrived. Be calm at all times and do not resist any actions by the use of force. Make it clear that the company intends to comply with the lawful conduct of the search.
During the dawn raid
- Shadow the inspectors, closely allocating at least one employee to each inspector. The shadows must take notes of all of the inspector’s activities, carefully noting all their requests and everything that they do. Shadows should be co-operative and explain where things are and how documents are filed (to the extent that they can). An information technology (IT) specialist from the company should be allocated to the IT inspector representative.
- Shadows must ensure that they have a duplicate copy of all documents copied by the inspectors.
- Shadows must not allow the inspectors to review privileged documents – “privileged information” refers to any document which has been prepared for purposes of contemplated litigation or any legal advice. Privileged information need not be marked “privileged”.
- Do not answer any material questions in relation to the dawn raid or any documents reviewed by the inspectors until your legal representative has arrived.
- Do not obstruct the officials in exercising their power and do not destroy, falsify or conceal documents.