This article was previously published in Real Business
Size and reputation mean little when an unannounced inspection (or a dawn raid, as they are commonly known) is conducted by a regulatory authority. Often, it will signal the start of protracted proceedings against an organisation, which can cause disruption and distress to the business and individuals alike.
Preparation is key. Whilst it will never be possible to predict if or when a dawn raid will take place, organisations should have a tried and tested plan in place so that informed decisions can be made on how to react.
The Serious Fraud Office, the European Commission, the Office of Fair Trading, the Financial Conduct Authority and HM Revenue & Customs (to name but a few) all have powers to enter premises to search for and seize material.
The early morning arrival of a team of investigators will usually be the first time that an organisation is aware that it is under investigation. Subject to the terms of the search warrant in the investigator’s possession, a copy of which the organisation must have sight of, officials are free to enter business premises and search for relevant material, which may be in the form of physical or electronic documents. And organisations should be aware that in some cases reasonable force can be used to effect an entry to premises. Obstructing the search will result in the individual committing a separate offence.
If incriminating evidence is found, investigators are allowed to take copies, if not the originals, away with them. Whilst interviews should not be conducted at the business premises, officials may ask employees questions, which can raise its own issues if they have not received regular and adequate training during their period of employment.
How should an organisation prepare for and react to a dawn raid?
Clearly the best preparation for a dawn raid is to ensure that compliance procedures are sufficiently robust to avoid regulatory breaches in the first instance. However, if the worst is to happen then “be prepared” is the mantra. Circulate guidelines to employees who will be at the coalface when investigators arrive: your receptionist, security staff and junior management. Ensure they have the firm’s checklist of procedures and have been trained to understand the powers and methodology of the regulator.
When the investigators arrive, senior management and in-house legal representatives should first find out the nature of the allegation and scrutinise the warrant. A request should be made for the search to be delayed until the organisation’s external lawyers arrive. The appointment of external lawyers will provide the protection of legal professional privilege for relevant documents and communications, and expertise in the consideration of the search mandate. Legal professional privilege is not available to the in-house legal team.
Monitoring the raid is vital: shadow each official to make sure their behaviour is recorded accurately and that, crucially, no privileged correspondence is reviewed or seized. Any documents which are to be seized should be copied and a full record of who took them should be made for future reference. If a seized document is in electronic form, it should be backed up onto the central server.
The organisation’s IT manager will be relevant in such a scenario because the investigators may have brought along an IT specialist to retrieve electronic data from computers. It is imperative that documents are not deleted, shredded or otherwise removed from the premises whilst the raid is taking place. Any approach for comment/statements from employees should be made in the presence of a lawyer, and then should be kept short and relevant to the question. What an employee must not do is lie. This will lead to an offence being committed, which can result in a prison sentence if proved.
Once the raid is completed, it is important that employees are updated on the reason behind the raid and the organisation’s stance on the search.
Whilst SMEs may be of the view that this tends to happen only to larger entities, such a nonchalant approach could be their undoing if, for instance, the SME is part of a larger investigation or is the sole focus of the enquiries. Dawn raids are no longer the preserve of the silver screen, but a real weapon in the modern day regulator’s armoury.
For further information, please contact Sophia Purkis, Partner, Fladgate LLP (firstname.lastname@example.org)