Obstructing an inspection: 16 million Euro fine for deleted WhatsApp messages during dawn raid

published on 15 July 2024 | reading time approx. 4 minutes

When a competition authority arrives at a company for a dawn raid, management and employees sometimes panic. They are usually aware that incriminating documents can lead to heavy fines. The exceptional situation of a dawn raid, unknown to most of those involved, can easily lead to hasty actions that can cost a company a lot of money. This is what happened to the fragrance manufacturer ”International Flavors & Fragrances“ (IFF). The European Commission imposed a fine of almost 16 million Euro for obstruction of an inspection by deleting WhatsApp messages.

EU Commission proceedings for obstructing the inspection »
Risks during a dawn raid »
The correct behaviour during dawn raids »
Preparations for a dawn raid »

EU Commission proceedings for obstructing the inspection

At the centre of the proceedings was a senior executive at IFF: One can easily imagine him sitting in his office on a Thursday morning in March 2023 when he receives the news that the European Commission is conducting an inspection at IFF. His employer is accused to be part of a cartel. He must then have remembered that he had been in contact with a competitor via WhatsApp and that the messages were still on his smartphone. What he does next has serious consequences: he deletes the messages.

The problems for IFF began, when the European Commission discovered this behaviour: The company had unlawfully obstructed the inspection by deleting the messages. Even IFF's subsequent cooperation and the recovery of the messages cannot undo this breach of the law. The result is a fine of 15.9 million Euro.

This fine makes it clear that antitrust authorities do not tolerate the obstruction of dawn raids. In the event of dawn raids by the European Commission or the German Federal Cartel Office, a fine of up to 1 percent of the global turnover of the entire group of companies can be imposed for this (and for other breaches of statutory obligations during a dawn raid). In this case, IFF was given credit for its cooperation with the European Commission in clarifying the matter and the fine was reduced from 0.3 percent to 0.15 percent. Such a fine is imposed in addition to the fine imposed by the antitrust authorities if they can prove violations of antitrust law in the investigation following the dawn raid.

Risks during a dawn raid

Dawn raids by antitrust authorities often lead to a state of emergency within the company concerned and can be the start of years of lengthy and burdensome antitrust proceedings. The course for the defence against alleged antitrust violations is already set during a dawn raid. Inadequate preparation for the situation and mistakes made at this point can cost a company dearly.

This is not just a matter of financial penalties for obstructing the dawn raid, failing to cooperate or breaching other obligations. Unprepared employees may unintentionally disclose incriminating information or may be questioned without the presence of a lawyer. During the dawn raid, it must be ensured that the competition authorities do not exceed their powers to the detriment of the company. In addition, companies may have to make a decision on the day of the dawn raid as to whether they wish to cooperate with the competition authorities and submit a corresponding application. The timing and order in which the competition authority receives the leniency applications can have a significant impact on the subsequent amount of the fine.

The correct behaviour during dawn raids

In order to avoid getting into the situation of IFF, companies must follow the rules regarding behaviour during dawn raids by competition authorities. Although the legal requirements in German and EU law have been largely harmonised in the last years, companies may be subject to different obligations depending on the authority conducting the dawn raid and the type of proceedings.

In principle, the companies concerned are required to submit to inspections and, in particular, may not actively obstruct them. For example, it is not permitted to destroy documents or warn other companies during a dawn raid. Opening sealed rooms can also result in a fine. In contrast to dawn raids conducted by public prosecutors, there is an additional duty to cooperate in certain situations during dawn raids conducted by competitions authorities. Upon request, companies must, among other things, grant access to IT systems, disclose passwords for laptops or smartphones or assist in locating certain documents,. They must also, within certain limits, answer questions about facts or documents related to the subject matter of the dawn raid.

This leads to a difficult balancing act: on the one hand, the companies and their employees must answer truthfully. On the other hand, they may also have the right to refuse to make a statement and should not disclose more information than necessary without good reason. This is all the more true as individual employees regularly do not have full knowledge of the facts. This can easily lead to misleading or even false statements. Legal advice is of great importance in such situations.

Preparations for a dawn raid

Companies should definitely take precautions to avoid serious mistakes during dawn raids and to prevent damage to the company. It is essential that the relevant employees in the company are contacted immediately when the authorities arrive, and that an antitrust lawyer is consulted. The corresponding processes should be in place and the contact details should be recorded and stored. In addition, depending on the size and structure of the company, the precautionary measures may also include raising the awareness of management and employees on the correct behaviour during a dawn raid, for example

Implementation of guidelines for different group of employees (front desk, management, compliance/legal department, IT, etc.)
Trainings
Carrying out a mock dawn raid

While these measures will not prevent a dawn raid, they can significantly reduce the associated risks.