Legal Briefing

Dawn raids – expecting the unexpected

The In-House Lawyer Logo

Crime, Fraud and licensing | 01 October 2011

What are you usually doing on a Monday morning? Imagine it is 8am next Monday and you receive a frantic call from your company’s MD telling you there are a number of people in his office, going through his papers. Ten minutes ago, they arrived unannounced at reception and produced a document to your receptionist. They explained that they are from the Serious Fraud Office (SFO) and asked to be taken to the MD’s office immediately. What are you going to do?

Too dramatic? Unfortunately not. Businesses that have been faced with a dawn raid will be familiar with the scenario. Raids can be carried out by a number of regulatory bodies; the SFO, the Financial Services Authority (FSA), HM Revenue and Customs (HMRC), the Office of Fair Trading (OFT) or the European Commission to name a few.

The powers they wield and the penalties they can impose are severe. They will have obtained a warrant, or equivalent document, authorising them to carry out the raid. Usually, it will be the first time a business is aware that it is under investigation.

Recent examples include:

  • March 2010 – the SFO raided five business premises of a large multinational conglomerateand four residential premises in connection with a corruption investigation, resulting in the arrests of three directors.
  • January 2011 – a number of European Union authorities launched simultaneous raids on major truck manufacturers in Europe in a cartel probe.
  • May 2011 – the Commission simultaneously raided some of the world’s largest shipping companies as part of a major antitrust investigation.
  • July 2011 – the FSA raided the offices of London-based funds firm Castlestone Management, after receiving a complaint about the firm.

Most dawn raids will not be at dawn, but they will be an early morning surprise. Often companies will be raided in a number of jurisdictions at the same time, along with the homes of senior executives – who may at the same time be arrested and interviewed under caution. The surprise element will inevitably mean that there will be a degree of disruption. Raids always demand a large amount of dedicated management time.

In-house lawyers have a vital role to play in managing the crisis and limiting disruption. The following are just some of the things they need to consider:

  • Reception and security staff particularly will need to know how to greet inspectors and what to do next.
  • Which documents can regulators take?
  • What happens to privileged material?
  • Can inspectors seize computers?
  • Are inspectors allowed to take original documents?
  • Can the company retain copies of seized material?
  • What should be done if inspectors begin to interview staff?
  • How is the company going to deal with publicity surrounding the raid(s)?
  • Is the company’s external counsel ready and able to respond quickly to the raid?
  • What is the role of external counsel, and how does this interface with the role of the in-house legal team during a raid?

Understanding the powers of the investigators is essential. Failure to assist or to appear unco-operative can set a bad tone for an investigation, but at the same time the company needs to preserve its legal rights. A dawn raid manual should be compiled so that staff know what to do, and are familiar with the differing powers of the various bodies. External lawyers will be able to help develop and test a company raid response plan, and assist with raid training for company employees.

Bad crisis management can result in a faltering response to a raid, which could mean the following:

  • The company missing out on key signals as to the nature, focus and extent of the investigation.
  • The company unwittingly allowing investigators to overstep their powers.
  • The company inadvertently waiving privilege over its documents.
  • Charges of obstructing the inspectors in their investigation.

Raids, by their very nature, are unexpected and disruptive. As businesses are unable to predict whether and when they will occur, the only way to get a head start is to prepare for the worst. Some time spent devising a response plan and cultivating awareness among staff will reap dividends in the event of enforcement. And for in-house lawyers, a crisis management plan and a raid manual will provide comfort that if the MD rings them up at 8am next Monday morning, they will know what to say.