It’s safe to say that modern organisations are increasingly used to planning for unusual events. Fire drills, combating full scale IT meltdown, and sometimes major incident response mechanisms are tested over and over, but there’s a new drill being added to the rota in many organisations. And it’s more relevant now than ever, given the financially challenging times in which we find ourselves.
Dawn raids come in many shapes and sizes and are conducted by a number of authorities: the Financial Services Authority enforcing financial regulation, HM Revenue & Customs seeking to uncover breaches of tax legislation, the Office of Fair Trading and the European Commission investigating breaches of competition law; the Information Commissioner probing breaches of data protection legislation, or the Health and Safety Executive reviewing compliance with health and safety legislation. Some authorities have criminal investigation powers that they can exercise themselves or together with the Police or the Serious Fraud Office.
The regulators (financial and others) have been increasingly active in the investigation of unlawful activities – and dawn raids are on the up. All raids are different, depending on the location, the investigating authority and the nature of the investigation. They often occur in the mornings, though rarely at dawn, and sometimes at lunchtime or even just before the end of the working day.
Over the past year the competition authorities have raided banks, supermarkets, dairies and high voltage cable manufacturers. Moreover, these raids are not limited to large national or multinational chains. They can be very local, such as the OFT's raids of demolition firms in Glasgow some years ago, or its raid of 22 construction firms (and investigation of 90 others) under suspicion of bid-rigging. Those powers can be used even in cases where the companies in question are not suspected of having committed breaches of the law (e.g. in an investigation of an entire business sector).
The key features of any dawn raid, however, are that (i) they are unannounced and therefore involve a measure of surprise and disruption; (ii) by and large the investigators' powers are such that they can investigate with or without your co-operation; and (iii) an absence of appropriate co-operation can expose the business to increased fines. All raids, even if the company has done nothing wrong, bring significant disruption to the business and require a large amount of dedicated management time.
The silver lining is that preparation, by way of regular drills, can significantly mitigate that disruption and the potential business exposure. The first hour of the investigation tends to be the most critical part and having in place clear and well-understood processes is key in dealing successfully with investigators. This starts with the arrival of the investigators at reception, by ensuring that staff understand the importance of the investigation and having key contacts that they can call upon to take matters forward.
The second stage usually involves a number of specially trained managers that can deal with the investigators and who can assess the requirement for (i) manpower (ii) management involvement and (iii) legal representation. Larger organisations may need to think about escalation paths and processes to ensure that particular logistical or security hurdles can be overcome (e.g. access to IP, safes and lockers as well as senior managers' files and diaries).
Think also about how quickly external lawyers can arrive on site to ensure that the investigators do not exceed their powers, and equally that employees who are keen to protect the business do not make matters worse by obstructing the investigation.
Clearly, even the best processes fail if they are misunderstood, too complex or unknown within the organisation. This is the reason that many companies, particularly larger ones, are increasingly organising mock raids, to see how prepared the organisation really is, to test the practicalities of the processes and to ensure that all employees feel as comfortable as possible with the process.
Dawn raids by their very nature are uncertain animals. Nobody welcomes a dawn raid, and by and large companies do not expect them when they happen. What is certain, however, is that such raids are becoming more frequent. Being ready allows you to manage the risks to and exposure of your business.
John Schmidt is a partner at leading UK law firm Shepherd and Wedderburn LLP. He has significant experience in representing businesses in regulatory investigations as well as in preparing businesses for such investigations.