Dawn raiders who enforce Union’s competition laws

Date: 21/11/1996

CARTEL busting is one of the few responsibilities of the European Commission that has true 'sex appeal'.

It is the one time when civil servants are allowed to play cops and robbers and are paid a salary to do so.

Armed with powers their colleagues in the Commission's agricultural and structural funds departments can only envy, officers of the Directorate-General for competition (DGIV) can carry out 'dawn raids' on companies anywhere in the EU to find evidence of collusion to frustrate the free market.

Nobody - however big - is beyond the law.

Over the past 12 months, DGIV investigators have raided the offices of giant chemical combines such as BASF, Royal Dutch/Shell and Hoechst, as well as Digital Equipment and film distributor UIP.

The most impressive operations are the coordinated raids, sometimes involving more than 50 officers of the Commission and local law-enforcement agencies.

When the news comes out, images are conjured up in the public mind of doors slamming open, papers frantically being fed into shredders and a Euro-version of Elliot Ness and his team of US Treasury Untouchables swinging into action.

Sadly, as is the case with most romantic visions, the reality is more prosaic.

To begin with, few dawn raids take place at dawn. There would be little point, since only in Germany can people be found at their desks in the wee small hours of the morning.

Raiding most European firms as the light comes up would only force Commission investigators to kick their heels for an hour or two. And besides, information from caretakers will not stand up in court.

In fact, the term 'dawn raids' was dreamed up by the press to add spice to copy otherwise dominated by information about price-fixing allegations in the polyethylene or cement markets.

The word 'raid' is also a little strong; 'on-site investigation' would be more accurate.

Commission officers cannot simply burst into a company's premises, rummage through files and interrogate senior executives on the basis of a warrant issued by a judge.

DGIV's powers may be the envy of other directorates-general, but they are not limitless. Unlike the police who can force entry against the will of the occupier, the Commission cannot.

Its authority is based on a rule established back in 1962 and known as Regulation 17, giving the Commission on-the-spot investigative powers to examine an enterprise's books and business records, question staff, enter premises and remove documents or copies of files.

The investigators act under one of two types of authority - which one will be clear from the documents they present to the company on their arrival.

The first type of raid can be carried out under the simple authorisation of the director-general for competition - currently Alexander Schaub - but the business under investigation is not obliged to comply with its demands. If executives seek to hide documents, however, they can be fined.

The stronger authorisation is a decision by the Commission ordering the firm to allow an inquiry to go ahead. Refusal to submit to the investigators' scrutiny can be punished with a fine, although large and powerful companies are unlikely to quake at the prospect of writing a cheque for 5,000 ecu, or even 1,000 ecu for every successive day of non-compliance.

Since its enforcement powers are so weak, the Commission often chooses to go to the national authorities in the member state concerned to win the right to enter business premises.

This will usually take the form of a court order or back-up authority from the local police, and the team of at least two Commission officials will bring in someone from the national competition authority to assist it.

The investigators will frequently telephone the enterprise to inform it that they are on their way, unless they fear that key documents will be destroyed or spirited away.

One of the English Football Association's major gripes about the raid in March (see story opposite) was that they received no tip-off.

“What did they expect?” asked a Commission official. “A request for an appointment two weeks in advance?”

On arrival at a company's premises, the Commission investigators will produce their authorisation to conduct a search, along with notes outlining their powers and their staff identity cards.

The company is given a 'reasonable' time to contact its lawyers, although this will not usually stretch beyond two hours.

Once they are in, the investigators go through any files they choose. Since what they are looking for, by its very nature, is not to be found in the official records of a company, the officers will go through memos, files, hand-written notes, travel tickets, diaries and expenses claims.

The computer-literate need not think they are safe, since many teams will include a 'nerd'.

“Some people think they can hide things away on their electronic mail,” said an executive at a leading US information technology firm. “I hear now that the e-mail is the first thing these guys go for.”

While they have had to keep up with the times, DGIV detectives are often struck by how careless people can be with pieces of paper. Hiding a cartel, it seems, is not that easy. Employees photocopy too much and often leave documents marked 'destroy immediately' lying around in their drawers.

In one case, all the incriminating evidence was found in notes left on a window-sill by an executive taking a well-earned holiday.

The raid may end with investigators leaving the premises carrying box-loads of files or just a handful of papers.

And while young Euro civil servants might be glowing with the thrill of the chase after their first raid, and ready to tell the tale to their friends, this is just the beginning of an incredibly long and frequently agonising process.

Having obtained the evidence, the investigators have to piece it together and sift out the relevant from the irrelevant. Once a case has been marshalled, the Commission has an obligation to tell the accused exactly what it is charged with - sending the company concerned a formal 'statement of objections'.

At this point, the firm's lawyers come on to the scene.

Even an open-and-shut case will take at least two years from the tip-off to a decision to impose a fine. Some companies involved in international cartels uncovered in the early Eighties have not yet paid their fines as they are still working through the EU's drawn-out appeal procedures.

Last year, Competition Commissioner Karel van Miert tried to make life a little easier for his staff by proposing that companies be granted immunity for blowing the whistle on illegal practices.

The increased sophistication of cartels and other deliberately anti-competitive behaviour mean that DGIV is depending more and more on disgruntled former cartel members to spill the beans. Van Miert's move was motivated, at least in part, by the success of a similar law passed in the US seven years ago.

The problem for him is that cartel-style activities are considered to be a white-collar crime in the US and can be punished by jail terms - offering executives immunity from a prison sentence is more likely to concentrate the mind than promising a major company it will escape a multi-million-ecu fine.

As the single market seeps into previously safeguarded parts of the European economy, the incentive for companies to protect their market share will continue to grow.

The files of DGIV are bulging with allegations of companies abusing their dominant positions in an attempt to hang on to ebbing market segments. The temptation for incumbent enterprises to go even further into illegal price-fixing and market-sharing activities can be irresistible.

If they do choose this path, however, they should tuck away those memos and warn the early-morning janitor.