Business & Economy

Tuesday, 16 October 2018 14:39

Dawn raids by regulators at your business?

Written by 

By Elisha Bhugwandeen, Professional Support Lawyer in Webber Wentzel’s competition team

In a climate of increased competition law enforcement, having the right tools at your disposal is imperative.

The South African Competition Commission has established a reputation for relentlessly pursuing its cartel enforcement objectives. Over the past three years, the Commission has raided over 70 companies and conducted hundreds of cartel investigations. It is imperative for businesses to ensure that they are prepared for a dawn raid.

An informed, co-ordinated, internally aligned and proactive response is required to protect commercial interests and mitigate significant financial, reputational and other risks. There is no guarantee that a particular industry is safe - in fact, it is difficult to pinpoint an industry in which companies have not been scrutinised for cartel conduct.

Search and seizures, commonly known as "a dawn raid", are one of the Commission's most effective investigation methods and companies across a wide range of industries such as advertising, furniture removal, automotive glass, liquid petroleum gas, packaging, shipping, edible oils and fresh produce, have been raided.

A company may face a penalty of up to 10% of its annual turnover if it is found to have engaged in cartel conduct and in recent times, sanctions have reached staggering amounts. The net is also widening.  Authorities have gone as far as prosecuting passive participants for cartel behaviour. Parties seen to be facilitating a cartel may also be scrutinised, and liability for the anti-competitive behaviour of a company may potentially extend to the entire group to which it belongs.

Over the 2017/18 financial year, the Commission handled 146 cartel cases and imposed penalties in the region of ZAR 350 million. One firm faced a penalty of ZAR 69 million, while another was found liable for ZAR 23 million. In 2016, the Commission imposed a penalty of over ZAR 1 billion - the highest fine on a single firm for anti-competitive behaviour in South Africa's history.

Besides the financial consequences, there is also the possibility of extensive behavioural remedies being built into the sanctions imposed. Companies may have to contribute substantial amounts to development funds, construct new facilities, commit to procurement strategies or even alter operational structures. In addition, directors and managers face the possibility of time behind bars of up to ten years for participation in a cartel.

Over the 2017/18 financial year alone, three industries were targeted by the Commission and a total of 37 companies were raided - seven beef producers, 17 automatic fire sprinkler installers and 13 set top box and accessories suppliers. Over the 2015/16 and 2016/17 financial years, over 40 companies were raided. Alarmingly, it is very common for the Commission to raid multiple premises of the same company simultaneously. Competing firms - or firms considered to be engaged in collusive activity together - as well as trade associations are also being pursued.

Looking at the landscape, all businesses are operating in a risky environment, facing a real possibility of a dawn raid.

A disorganised response to a dawn raid can have a significant impact on a business. In our experience, substantial errors are often made where companies are not prepared. Employees may allow the authority to access legally privileged information, unlawfully obstruct the raid, or answer self-incriminating questions. The firm may also not be aware of the option to claim corporate leniency during the frenzy of the raid - missing the opportunity to possibly escape the financial penalty. Importantly, in order to be granted leniency, a party must be first to apply and must assist the Commission in making its case against the other parties. Given the requirement to be first, timing is critical.

As part of a growing focus on innovative risk-management solutions, Webber Wentzel has launched “Webber Wentzel Alert”, an online tool designed to launch a co-ordinated legal emergency response at the click of a button in the event of a dawn raid. Webber Wentzel Alert enables organisations to notify a pre-identified group of key individuals within their businesses and their pre-selected legal team at our firm that a dawn raid is in progress. Apart from saving valuable time, it also provides easy online access to best practice guidance on their rights and obligations during the raid. Webber Wentzel Alert offers a crucial link between dawn raid preparedness and dawn raid response.

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