Dawn raids on the rise
28 Oct 2022
The dawn raids that were conducted by the South African Competition Commission (“the Commission“) on 25 August 2022 on eight insurance companies may lead to the Commission conducting more dawn raids for the remainder of 2022. Accordingly, it is imperative for companies to ensure that their compliance efforts meet the highest standards. There will be a growing magnitude of penalties imposed by the competition authorities since dawn raids will allow the Commission to gather evidence to prosecute those companies that are involved in anti-competitive conduct. These search and seizure procedures were suspended during the COVID-19 pandemic.
The dawn raids were conducted at the premises of eight insurance companies operating in Gauteng, KwaZulu-Natal and Western Cape provinces. A dawn raid refers to a surprise inspection during which officials of the Commission enter premises, examine and copy books, seal business premises and ask for explanations in order to obtain information on suspected infringements of competition law. During the search, the Commission will seize documents and electronic data, which will be analysed together with other information gathered to determine whether these firms have contravened the provisions of the Competition Act.
The aforementioned dawn raids were conducted by the Commission as it had reasonable grounds to suspect that BrightRock Life Limited; Discovery Limited; FMI, a division of Bidvest Life Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MMI Limited; Old Mutual Insure Limited; Professional Provident Society Limited and South African National Life Assurance Company (Pty) Ltd (Sanlam) engaged in collusive practices to fix prices and/or trading conditions in respect of fees for investment products such as retirement annuity and premiums for risk-related products, namely, life insurance cover such as dread disease cover/chronic medical condition cover, disability cover, life cover and funeral assistance benefits, in contravention of section 4(1)(b)(i) of the Competition Act. According to the information at the disposal of the Commission, the companies under investigation share information on premium rates for risk-related products and fees for investment products, which enables them to adjust the prices of their existing and new insurance products.
The dawn raids were conducted as part of an ongoing investigation that was initiated by the Commission in January 2021.
The companies under investigation operate within the long-term insurance market. Their activities within the long-term insurance market include the offering of investment and risk-related insurance products. The risk-related insurance products include (i) life cover; (ii) funeral cover; (iii) disability cover and (iv) dread disease cover/chronic medical condition cover. The most common form of investment-related product offered by the companies is retirement annuity which becomes payable to the insured upon retirement. Clients of these companies are natural persons as well as corporate policyholders that buy cover such as retirement funds or group life schemes on behalf of their employees.
The Commission obtained warrants authorising it to search these companies from the North Gauteng (Pretoria) High Court, Kwazulu Natal (Durban) High Court, and Western Cape High Court.
Since there will be a rise in dawn raids, it is important for companies operating in South Africa to have a comprehensive plan in place to deal with search and seizure operations and to minimise business disruption in the event that they are faced with a dawn raid. In this regard, it is imperative that companies are familiar with the Commission’s powers when executing a dawn raid.
There are several rules of actions that companies should observe before, during and after the Commission carries out a dawn raid in/on its business premises. Confidential documents or documents which are subject to privilege should be marked and filed separately. The company should ensure that it has a copy of all the documents seized by the Commission. Every company should make sure that there is a structure of responsibility, and this may include having a representative who shadows the investigation and who takes note of exactly what is reviewed and seized during the dawn raid. The purpose and scope of the investigator’s authority should be identified at the outset of the investigation and the investigator must specify the legal basis of the dawn raid.
It is therefore crucial that an effective internal response strategy is put in place before being confronted with a dawn raid. All employees must know how to deal with the inspectors, as well as what their legal obligations and rights are. If a company fails to comply with its legal obligations during a dawn raid, significant fines can be imposed, and individuals may face civil or even criminal sanctions. At the same time, it is important to ensure that the company’s rights and the limits of the inspectors’ powers are respected, and that the impact of the dawn raid on the day-to-day business of the company is minimised.
Although it may appear that the Competition Act affords the Commission wide powers to conduct search and seizure operations, the Commission’s powers in this regard are not infinite. The Commission must ensure that it conducts these operations with strict adherence to the Constitution and the Competition Act. Failure to do so may result in another blundered dawn raid operation by the Commission.
It is imperative for companies to conduct dawn raid training for its employees to ensure that employees are prepared when the Commission conducts a dawn raid. In addition to dawn raid training, companies need to conduct a legal audit to ensure that they are not in contravention of the provisions of the Competition Act.
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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)