Council Regulation 1/2003 (“the Regulation”), which entered into force on 1 May 2004, provides for important changes regarding the powers of the European Commission (“the Commission”) to investigate infringements of Articles 81 and 82 of the EC Treaty. The role of the National Competition Authorities (“NCAs”) of the Member states in supporting the Commission in its investigation has changed as well. In that sense the recognition of legal professional privilege is also of importance.
The main changes with regard to the Commission’s investigatory powers include:
- the power to interview any natural or legal person who consents
- the power to seal any business premises and books or records to the extent necessary for the dawn raid
- the power to ask any staff member for explanations of facts or documents
- the power to search private homes
The Regulation also includes:
- the powers of the national courts when authorising a dawn raid by the Commission
- a significant increase of fines and periodic penalty payments
Main changes in the Commission’s powers
1. Interviews with consent
The Commission is entitled to interview any natural or legal person who consents to be interviewed for the purpose of collecting information relating to the subject matter of an investigation.
This power enables the Commission to collect more information than under Regulation 17/62. It also gives the Commission the opportunity to take statements from whistleblowers and (dissatisfied) ex-employees. However, the interviewee must consent and cannot be penalised for the refusal to answer or to give incorrect or incomplete answers. The interviewee is also allowed to check the accuracy and correctness of his or her answers.
The collected information can be shared with other NCAs within the European Competition Network (“ECN”). Nevertheless, the information can only be used as evidence if the safeguards of Article 12 of the Regulation are met. In essence these safeguards are that the law of the transmitting authority enables sanctions of a similar kind to those of the receiving authority, or in absence thereof, that the information has been collected in a manner that respects the same level of protection of the rights of defence of natural persons as provided for under the national rules of the receiving authority. However, in this case the information cannot be used to impose custodial sanctions.
2. Explanations from any staff member
Under both Regulation 17/62 and the new Regulation, the Commission is entitled to ask undertakings for explanations of facts or documents relating to the subject matter and purpose of the inspection. Contrary to the previous regime the company can now no longer decide who will provide the explanations. The Commission can request any staff member to explain documents and facts. The Commission can record the answers in any form and a copy must be provided to the company. In case the individual staff member was not authorised to speak on behalf of the company, the undertaking is allowed to correct the answers. The explanations provided can be used as evidence and can be shared with NCAs within the ECN.
3. Searching private homes
Under the Regulation the Commission is also allowed to inspect any other premises, land and means of transport. This includes the homes of directors, managers and other members of staff of the undertakings under investigation. The reason for extending the Commission’s power on this point is that the Commission was often confronted with the fact that incriminatory documents of the companies concerned were kept at private homes. However, before private homes can be searched, the Commission has to meet certain conditions. There has to be a reasonable suspicion that these books or records exist and they have to be relevant to prove a serious violation of Article 81 or Article 82 of the EC Treaty. The Commission can also only conduct such a search by issuing an order that shall specify the subject matter and purpose of the dawn raid. Furthermore, prior authorisation from the competent court of the member state concerned is required. Unlike business premises the Commission is merely entitled to search other premises, but cannot seal them.
4. Powers of the national courts
The Regulation provides that prior authorisation of the competent national court is a requirement for dawn raids on domestic premises. Prior authorisation by the court is also required when an undertaking opposes a dawn raid and the national law of a Member State requires authorisation when the NCA assists the Commission in its investigation. The authorisation is therefore also a means to put aside potential resistance by undertakings.
The Regulation sets out the scope of the national courts’ review thereby codifying the European Court of Justice’s (“ECJ’s”) Roquette Frères judgment. The national court is entitled to verify that the Commission’s decision to conduct a dawn raid is authentic and that the coercive measures are neither arbitrary nor excessive. The national court may also ask the Commission for detailed explanations on those elements that are necessary to allow its control of the proportionality of the coercive measures. However, the national court may not call into question the necessity of the investigation nor demand that it be provided with information in the Commission’s file. The lawfulness of the Commission’s decision shall be subject to review by the Court of Justice only.
5. Fines and periodic penalty payments
Under the Regulation, the fines and periodic penalty payments that can be imposed on undertakings are significantly increased.
The fines have increased from a maximum of €5,000 under Regulation 17/62 to a maximum of 1% of the total turnover in the previous financial year. Fines can be imposed for the provision of incorrect, misleading, late or incomplete information, the refusal to submit to a dawn raid ordered by a Commission’s decision and for breaking Commission seals.
Periodic penalty payments have increased from €1,000 per day under Regulation 17/62 to 5% of the average daily turnover in the preceding business year.
The role of the National Competition Authorities
Under the Regulation the NCAs can be involved in Commission’s inspections in two ways. First, the Commission can request an NCA for active assistance in an inspection carried out by Commission officials. In that case the NCA has the same powers as the Commission. This request has the advantage that under national law it is often possible that the NCA can use force to enter premises or to search documents, while the Commission has no power to use any kind of force.
Secondly, the Commission can request the NCA to carry out a dawn raid on behalf of the Commission, in which case the NCA’s national procedural rules apply. This means that if a dawn raid takes place in various Member States on behalf of the Commission, the rules under which the dawn raids are conducted can differ from one Member State to another.
An NCA can also be requested by the NCA of another Member State to conduct a dawn raid on its behalf. The NCA receiving the request will then apply the powers and procedures under its own national laws.
In the course of a dawn raid the Commission may come across documents that are protected by professional legal privilege. Under EC law, the documents may be subject to legal privilege when they are composed in the course of providing legal advice or in anticipation of judicial proceedings. The concept of legal privilege varies from one Member State to another. On the basis of the ECJ’s judgments, in the AM&S and Hilti cases, legal privilege in the EU is limited to external counsel. Records drawn up by in-house counsel that represent advice from an external counsel may be privileged, but communications originating from in-house counsel, US and other non-EU bar members are not considered privileged. The AKZO order from the President of the Court of First Instance recently showed that the scope of legal professional privilege has been contested and will be considered further. The AKZO interim order has been appealed and the ECJ ruling is expected to clarify the concept further.
Since not all Member States recognise legal privilege, it affects the involvement of NCAs in Commission’s investigations. If a Member State, unlike the Commission, recognises communications to or from in-house lawyers as privileged, the NCA’s ability to investigate under Articles 81 and 82 EC is limited compared to the Commission. This may affect the Commission’s decisions to ask the NCA of a certain member state to act on its behalf in a dawn raid.
When one NCA acts on behalf of another NCA, the conditions of Article 12 of the Regulation should be met with respect to exchange of the information obtained. The receiving authority is entitled to use, in evidence, any matter of fact or of law, including confidential information. It can be argued that documents from an NCA that does not recognise legal privilege, cannot be rightfully exchanged with an NCA where the document would be privileged.
Regulation 1/2003 has considerably enhanced the Commission’s power in the course of an investigation. As a result undertakings should take into consideration that the Commission: can now request from them more information than under Regulation 17/62; has access to more premises - especially private homes; and can punish undertakings severely for non-existent or insufficient co-operation through increased fines. However, it can be said that Regulation 1/2003 now codifies a safeguard when an undertaking opposes a dawn raid or when private homes are searched in the sense that prior authorisation by the national court is required. The role of NCAs involved in the Commission’s investigations, and their respective powers, are also issues to take into account seriously when confronted with a dawn raid.