- with readers working within the Metals & Mining industries
It's 7am on Thursday 3 August 2000 at the offices of PPC ("Pretoria Portland Cement Company Limited"). The early arrivals were puzzled to see a number of vehicles in the company's parking lot, containing unfamiliar individuals, accompanied by members of the SAPS and journalists and TV crews. The unknown individuals started broadcasting live from PPC's offices and the words "dawn raid", "Competition Commission", "one of the first, if not the first", "new act, the Competition Act," and "cement cartel" were mentioned. Before long, senior management had arrived to meet the members of the Commission, accompanied by the SAPS officials, who had arrived at PPC to execute a dawn raid authorised in terms of the Competition Act ('the Act"), which had only come into force two years before.
Senior executives, legal counsel and compliance officers may have had the Act on their radar (or perhaps not yet, because the Commission was still a very new organisation) or on one of those long "to do" lists, because the large "top" firms had only just started to advertise conferences about this new law. However, none of the PPC lawyers would likely have had a working knowledge of one of the most intrusive and draconian provisions of the Act: the power of a dawn raid.
What the Law Permits
The dawn raid provisions of the Act give the Commission the power to seek (and be granted on an ex parte basis, without notice to the company concerned) a warrant from a High Court judge, regional magistrate or magistrate to enter and search a company's premises without prior warning. The Commission's powers once on the premises are broad: it may search people, examine and copy documents, interrogate computer systems, and remove anything bearing on the investigation. The warrant may only be executed during the day, unless night execution is specifically authorised.
The First PPC Raid: August 2000
In PPC's case in 2000, the warrant authorised the dawn raid to continue to the next day, 4 August 2000. Employees who had not been briefed (likely all but senior employees and the legal and compliance team) would have been astonished by the media circus in the parking lot. They would likely have heard the Competition Commissioner and Head of Enforcement labelling PPC as a "cartellist", "guilty of engaging in contraventions of the Act" and accused of being "likely to have destroyed or hidden documents or information, if they had been granted prior warning".
The PPC offices would have been packed with lawyers from the firm representing it, noting the behaviour of the Commission officials. The senior partners would have been carefully considering the wording of the warrant and scheduling urgent appointments with advocates specialising in competition and administrative law. These appointments would be used to map out what the Commission was, and was not, entitled to do, and to explore PPC's legal options, including taking the Commission's decision to seek the warrant on review.
As it turned out, this first PPC dawn raid was a storm in a teacup: PPC was successful in overturning the warrant. The presiding High Court judges criticised the Commission's conduct, calling aspects unlawful and disproportionate. They stressed that "(s)earch and seizure powers must be exercised with strict regard to the rights of those affected." Commenting on the media circus and the interviews given by the Competition Commissioner and the Commission's Head of Exemption in PPC's parking lot: "(p)ublicity of this kind undermines the integrity of the investigative process." PPC's complaint against the Commission faded away quietly and, probably unsurprisingly, did not receive the same publicity as the raid itself.
The Second PPC Raid: June 2009
Fast forward nine years to Wednesday 29 June 2009. On that day, the Commission raided the premises of four cement producers: PPC, Lafarge, AfriSam South Africa and Natal Portland Cement Cimpor. This time, PPC's reception and legal team were prepared, and there was no media circus, the Commission having been sufficiently chastened by the judges in relation to the previous raid. A quick and terse call to PPC's competition lawyers. They arrived in under 45 minutes: senior lawyers accompanied by a team of junior lawyers who had been briefed on their tasks: to shadow the Commission, ensure it did not have sight of privileged or personal documents, and take copies of anything the Commission either reviewed with interest or asked to have copied, so that the legal team could subsequently reconstruct what the Commission's case might be.
The Commission's IT experts asked to mirror the whole server and copy all information on cellphones belonging to identified PPC employees. PPC's lawyers had their own IT expert on hand, who shadowed the Commission's experts, ensured they kept within the bounds of the warrant and that no damage was done to PPC's systems.
But this time the dawn raid was not a damp squib. PPC cooperated pragmatically with the Commission officials during the raid. Later, PPC applied for leniency in relation to conduct which it admitted had contravened the Act. As the first of the four companies to apply for leniency (having also tendered its cooperation in providing information against the other three) it was granted immunity from prosecution. In due course it entered into a consent agreement with the Commission (ultimately made an order of the Tribunal), protecting PPC from any further claims, including possible class actions.
The Lessons: Relevance Today
The lessons from PPC's experience are clear, and should be of considerable interest in light of the Commission's recent dawn raids on four scrap metal purchasing companies: Scaw South Africa (Pty) Ltd, Cape Gate (Pty) Ltd, Shaurya Steel (Pty) Ltd (trading as Force Steels) and Unica Iron and Steel (Pty) Ltd. These were the first dawn raids of any scale in three years. For some time, competition lawyers had been quietly speculating whether the Commission's very strong focus on market inquiries might have taken precedence over cartel investigations. As it turned out, the Commission's cartel division was simply quietly assembling the information it considered necessary before proceeding.
Dawn raid training, supported by competition law compliance, is now a "must have" for in-house lawyers and compliance officers. This is particularly true in sectors which the Commission has identified as being of interest: cement, insurance, food, healthcare and other concentrated industries. However, organisations operating outside these sectors should not assume they are "safe". All it takes is a whistleblower: a senior employee who has been "read into" cartel rules, or a disgruntled director or person with management authority who fears they may have "caused, knowingly acquiesced in, or knowingly authorised" cartel conduct, neither of whom wish to face the severe personal penalties under section 73A of the Act. These are a fine of up to R500,000 and/or imprisonment for up to 10 years, with no recourse to applicable "Directors and Officers" insurance. The company itself faces penalties of up to 10% of annual turnover, a fine which, as one practitioner has observed, "would completely wipe out many companies."
The More Fundamental Question: How Compliant Is Your Organisation?
Many competition lawyers are posting about dawn raid training and readiness. With respect, this misses a more fundamental question: how competition compliant is your organisation? Although a competition compliance audit may sound unaffordable, or a bridge too far (particularly for smaller companies), comprehensive competition law training, specifically tailored and "fit-for-purpose" for the organisation, consistently unearths questions, often from junior employees, which point to systemic competition law risk and potential exposure for the organisation as a whole.
For this reason, clients who undertake competition compliance training are encouraged to combine it with a "disclosure amnesty" lasting one to two weeks after the training. Employees are encouraged to raise concerns or make disclosures on the basis that there will be no adverse consequences for them. Forewarned is forearmed; and, most importantly, the first organisation to disclose evidence of a contravention under the Act is first in line to receive amnesty. That has to be first prize for any organisation in those circumstances, as opposed to harbouring uncertainty about what may be concealed within the lower echelons of the organisation among employees who are not yet aware of competition law risks.
If the Commission's investigators and police officers were to turn up early tomorrow at one of your offices: what would your dawn raid preparedness look like? And where do you think you might be most exposed?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
