REGULATORY
EU Competition Law
European Commission Fines Energy Companies for Obstructing Competition Inspection
Suzanne Rab
The European Commission (Commission) announced on 29 March 2012 that it had fined Czech energy companies Energetický a průmyslový and EP Investment Advisors EUR 2.5 million (approximately USD 3.3 million) for obstructing an EU competition inspection.
The Commission raided the companies’ Prague offices in November 2009, in order to obtain evidence of behaviour allegedly aimed at restricting competition in the Czech wholesale electricity market.
Failure to cooperate can be costly
Commission investigators have a wide variety of powers, ranging from entering company premises, requesting and copying information, examining books, sealing off areas or documents, interviewing staff, and even entering non-business premises when there is a reasonable suspicion that books or other business records relevant to a competition investigation are kept there. The national competition authorities in the EU member states have similar powers.
The Commission opened proceedings against the Czech energy companies in May 2010 and set out its charge in December last year. The Commission maintains that the companies failed to cooperate with its inspections. In particular, it found that they failed to block an employee’s email account at the request of the Commission, diverted emails in another employee account, and failed to disclose all relevant information.
The case is a reminder of the risks of obstructing Commission investigations against a backdrop where the Commission’s use of forensic investigatory tools to locate evidence is becoming increasingly sophisticated.
Experience suggests that authorities have a clear policy of punishing companies that are found to be obstructing or interfering with investigations. Fines may be imposed for such occurrences, with perhaps the most notorious example being German power company E.ON, which was visited with a EUR 38 million (approximately USD 50 million) fine after it was found that a seal placed around an office was tampered with.
Circumstances demonstrate that the Commission is not afraid to impose elevated sanctions against a company once an investigation is underway. Sony, for instance, saw its fine for anticompetitive practices increased by 30 per cent after it was found that employee representatives refused to answer questions relating to competitor pricing and shredding of documents had occurred.
Challenge to EU Courts
The Czech energy companies have indicated that they are considering appealing the decision to the EU Courts. One of the companies has stated publicly that the Commission has used the case to send a “clear message” to companies of the perils of being raided and failing to cooperate with the investigation. It maintains that the Commission failed to take proper account of the circumstances of the raid and that, owing to the size of the company, it did not expect that it might be subject to an inspection.
Recently, there has been a discernible trend for companies to assert their rights of defence and to keep a closer watch on the investigatory methods of the Commission. A series of appeals has been brought against the Commission that claimed investigators had overstepped the mark in terms of their powers of investigation and enforcement.
One of the high profile cases in 2011 involved German rail company Deutsche Bahn, which claimed that a Commission investigation from March last year should be annulled because the Commission had not obtained prior judicial authority. Deutsche Bahn also claims that the raids were disproportionate, not least since the local German regulatory authorities were already closely monitoring the company’s activities. Other notable instances of dawn raids being challenged before the EU Courts and in cases which are not yet decided involve: a group of cement companies, including Cemex and Holcim; ONP; Prysmian; and Nexans.
However, challenging competition investigations carries risks. Any challenge must be well grounded in fact, law, and evidence. Refusing to submit to an inspection authorised by a Commission decision can incur fines of up to one per cent of group worldwide turnover and periodic penalties of up to five per cent of turnover for each day of a violation. Obstruction may also amount to aggravating circumstances causing an uplift in the fine for the substantive infringement.
As such, it is imperative that corporate counsel understand the company’s rights when it comes to enforcement and investigatory action. Putting in place a clear internal procedure for dealing with information requests and inspections will go a long way to avoiding confusion or confrontation if the Commission launches any investigations. Ignorance of the procedures is no excuse and size does not matter. All companies, both large and small, are subject to the same duties of cooperation. |
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