• The UK High Court has reversed a CAT decision and confirmed the threshold for the CMA’s use of dawn raid powers of employees’ homes.
• The CMA has signalled greater use of domestic raids given the prevalence of people working from home. The new “seize and sift” powers to take wholesale digital records and devices from domestic premises will soon become law.
• It is essential that companies train employees on proper conduct and on the individual’s and company’s rights in raids of domestic premises.

Dawn raids, or unannounced inspections, are possible at both business locations and homes. In response to the increase in remote work and electronic communication in recent years, competition authorities are making more use of their powers to carry out dawn raids at the homes of employees in order to secure evidence of suspected anticompetitive behaviour. The precise scope of these powers can vary by jurisdiction.

A recent High Court ruling in the UK has confirmed that, while search warrant applications for domestic premises deserve more scrutiny than applications to inspect business locations, no higher threshold automatically applies. This ruling is expected to encourage the UK competition authority, the Competition and Markets Authority (CMA), to continue to seek warrants to search homes as part of its competition enforcement work.

The CMA has made it clear that, with the changes in flexible working patterns, it sees these powers as essential for effective enforcement against illegal secret cartels.

Dawn Raids in the UK

Power To Enter Premises

The CMA has the power to apply to the High Court or to the Competition Appeal Tribunal (CAT) for a warrant to enter and search business or domestic premises where there are reasonable grounds to:

• suspect there are documents on the premises that are relevant to the investigation, and
• presume that such documents, when sought, would be concealed, removed, tampered with or destroyed.

Given the intrusive nature of these powers, there is also a requirement that the court weigh the authority’s need to search the premises against the protections set out in the European Convention on Human Rights (ECHR) — including the protection of private life — before the court confirms that the grant of a warrant is justified in a given case.

No General Higher Threshold for Domestic Raids

In October 2023, the CMA applied to the CAT for warrants to search three business premises and one home as part of an investigation into suspected cartel behaviour. The CAT granted the warrants in respect of the business premises but refused the application for a warrant to search the private residence of an individual.

In relation to the business premises, the CAT held that, because the CMA was investigating a secret cartel, an inference could be drawn that the second condition for granting a warrant was satisfied — i.e., a suspicion that the documents sought would be concealed, removed, tampered with or destroyed.

However, the same inference was not found to be sufficient in and of itself to justify granting a warrant for the home. The CAT held that, while the wording of the statutory test is the same for applications to search both business and domestic premises, a “higher order of scrutiny” was required for searches of domestic premises under Article 8 of the ECHR, which concerns the right to respect for private and family life.

Specifically, the CAT considered that something more to suggest a “propensity to destroy” must be presented in the CMA’s evidence in respect of domestic premises. The CAT did not consider that there was such evidence in this case.

The CMA applied for judicial review of the CAT’s refusal to grant the warrant, claiming that the ruling would make it “practically impossible” for the CMA to obtain a warrant for domestic premises in the future given the challenges of obtaining evidence of such a propensity to destroy documents at such an early stage of a secret cartel investigation.

On 22 April 2024, the High Court held that the CAT had erred in law when refusing the CMA’s warrant application. The High Court clarified that providing evidence of a propensity to destroy evidence is not always required and that, depending on the facts and circumstances of the individual case, the CMA may be entitled to rely solely on the secret nature of the cartel.

The CMA’s chief executive, Sarah Cardell, welcomed the ruling, noting that “with the increase of remote-working and electronic communication it’s essential that [the CMA is] able to search domestic premises to secure evidence of potential breaches of competition law where appropriate to do so.”

The CMA has been markedly active in carrying out raids of domestic premises. Since 2017, the UK authority has obtained search warrants for homes in nine cases and has, on a number of occasions, signalled its intention to carry out more.

Strengthened Investigatory Powers

While the CMA is already able to exercise significant investigatory powers, these powers will soon be strengthened in the incoming legislation under the Digital Markets, Competition and Consumers Bill, which is expected to receive Royal Assent this year.

We anticipate:

• New powers to “seize and sift” evidence when inspecting domestic premises, which will allow officials to take away all potentially relevant material and examine it at a later date to determine whether it is within the scope of the search warrant.
• Confirmation of the power to obtain electronically accessible information that is accessible from the premises (e.g., documents stored in the cloud), in addition to the existing power to obtain information held directly on the premises.
• The introduction of civil fines for failing to comply with, or obstructing, dawn raids.
• New powers to use any equipment on the premises to access electronically stored information and to require any person on the premises to give investigating officers reasonably required assistance (e.g., providing access passwords).

Other Jurisdictions

The European Union

Competition authorities in Europe need a judicial warrant from a national court to conduct a dawn raid of a private residence. The European Commission (EC) is able to carry out inspections of business or domestic locations in the EU where it has “a reasonable suspicion” of relevant business records being kept on the premises that may prove the competition infringement.

Although the EC has not exercised its powers to carry out domestic raids as frequently as the CMA, its first raid of a private residence was in April 2022, and more can be expected as hybrid working continues.

Other competition authorities across Europe have also started to make use of their powers to enter and search domestic premises. For example, the French authority conducted its first dawn raid of a home in 2021, and the German competition authority has undertaken inspections at employees’ private homes.

The United States

In the US, the same legal basis applies for inspections of both domestic and business premises in criminal investigations. The Department of Justice (DOJ) may apply to a magistrate for a search warrant, supported by an affidavit and other evidence establishing probable cause that a federal crime occurred and that documents or other items evidencing that crime exist at the place to be searched.

The warrant must specify with particularity the crime, the place to be searched and the items to be seized. Unlike its counterpart in the UK, the DOJ need not show any risk that the investigation’s subjects may conceal, remove, tamper with or destroy any of the sought items to obtain the warrant. But such a risk nevertheless is likely to cause the DOJ to opt for a law enforcement-executed search rather than the service of a grand jury subpoena demanding documents or other items.

While searches are most commonly directed at business premises in criminal antitrust investigations, the DOJ occasionally seeks warrants for other locations, including residences and vehicles, when there is reason to believe items, such as laptop computers or mobile phones, are likely to be found there and to contain relevant evidence.

Notably, some US courts have concluded that requiring persons to provide their passwords or passcodes for locked computers or mobile phones can contravene their constitutional privilege against compelled self-incrimination, in which case a search warrant would allow the DOJ to seize a device but not compel disclosure of its password or passcode.

Efforts to alter, conceal, or destroy electronic or other evidence can lead to criminal obstruction charges and significant criminal sentences against the employee, the employer or both.

Takeaways

The number of dawn raids carried out by competition authorities around the world remains high, and the trend is expected to continue. Authorities have welcomed a recent uptick in leniency applications and are opening a growing number of ex officio investigations at the same time.

Authorities are also expanding areas of enforcement focus beyond traditional conduct such as price-fixing to more novel forms of anticompetitive conduct, including buy-side and labour-related agreements. International cooperation among authorities on inspections involving cross-border conduct is becoming more frequent.

The increasing sophistication and coordination of dawn raids across the globe is prompting businesses to ensure that their internal policies and trainings are adapted to the authorities’ current focus and evidence-gathering activities. Such compliance programmes may need to be tailored to the specific enforcement practices in each relevant jurisdiction.

Domestic inspections are likely to take an individual by surprise. With inspections of homes and personal devices on the rise, companies might consider incorporating clear guidelines on what employees should do if officials from a competition authority arrive at their home address.

Failure to comply with the inspection could result in the authority imposing financial penalties, and individuals could face criminal prosecution in some jurisdictions if they intentionally obstruct an officer in the exercise of their powers under a warrant (e.g., by refusing entry to the premises).

Professional support lawyer Elizabeth Malik contributed to this article.

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