Cartels and the race for leniency

The name alone is enough to strike fear in any executive’s heart: dawn raid. It conjures up images of police in riot gear kicking down doors, ripping out phone lines and herding frightened employees into storage closets for interrogation.

In reality, the scene is much more civilized. Typically five to 15 inspectors show up unannounced with a warrant reflecting broad powers to search for evidence of cartel activity, such as coordinating with competitors to raise prices on consumers or agreeing not to compete in certain regions or on key accounts.

Inspectors will often wait up to 30 minutes for legal counsel to arrive, then start searching email servers, sifting through files and questioning company executives about certain products or accounts. In most jurisdictions, cooperation is mandatory. EU antitrust authorities, for example, can levy huge fines on companies for refusing to turn over documents or answer questions. Stonewalling is not an option.

“It’s a high stress moment in any corporation’s existence,” says Fiona Carlin, head of Baker & McKenzie’s European & Competition Law Practice in Brussels. “Our team leader is on the phone with the client keeping them calm while the rest of the team races to the company site. We tell them to send out an email to employees to explain what’s happening but advise them against destroying documents or calling friends.”

Throughout the raid, the legal team tracks the inspectors, taking copious notes on the questions they ask and files they review. This information is crucial because the greatest power companies have in these seemingly powerless situations comes after the inspectors leave.

“As soon as the dawn raid ends, that’s when it gets interesting,” Carlin says. “It’s a massive race to look at what was seized by authorities, how serious it is and whether we can uncover additional information.”

In the days following a raid, Baker & McKenzie lawyers conduct a sweeping audit of a company’s operations to make sure if there is evidence of wrongdoing, they uncover it quickly and apply for amnesty. Working around the clock, the lawyers question key executives, search through emails and review documents to compile anything that will help the company qualify for leniency — and avoid millions in fines.

Taking a global approach to these cases is crucial. If there's a raid in one country, the question is whether similar conduct is occuring in neighboring markets. If it's a raid in multiple countries within a region like Europe, the question is whether it's happening in other regions. With 290 anticompetition lawyers worldwide, Baker & McKenzie can quickly determine the geographic scope of problematic behavior and position the company to get maximum reductions for leniency cooperation. Of course, prevention is better than the cure.

“When we’re assisting a client during a raid in France, for example, almost immediately we’ll start asking, ‘Is this practice likely to be happening anywhere else?’” Carlin says.

The benefits of moving quickly are significant. In the EU, for example, the first company in the cartel to file a leniency application gets total immunity from fines, which have run as high as EUR1 billion. The second company gets up to 50 percent reduction in fines and the third up to 30 percent.

With increasing international collaboration among competition authorities, being able to see the big picture has never been so important. It’s not uncommon for antitrust agents to conduct simultaneous raids in the US, Canada, Europe and Japan — all countries where Baker & McKenzie has offices.

“If you don’t have an internationally coordinated law firm working for you, they’re not going to put their heads together and come up with a global strategy,” Carlin says. “With a patchwork of local counsel, you risk being too late.”