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First fine imposed for obstructing CMA inspection

First fine imposed for obstructing CMA inspection

  • United Kingdom
  • Competition, EU and Trade

28-03-2019

On 20 March 2019 the Competition and Markets Authority (‘CMA’)  imposed a fine  of £25,000  on the guitar supplier Fender Musical Instruments Europe Limited (‘Fender Europe’) for failure to comply with a requirement to produce documents  during a dawn raid.   This is the first fine imposed by the CMA for obstruction and signals a more aggressive approach towards companies that fail to comply with their powers during an investigation.

The dawn raid

In April 2018 the CMA carried out a dawn raid at Fender Europe’s headquarters. During the raid the CMA required Fender Europe to produce specified documents, in particular a number of hard copy notebooks. The request was made on more than one occasion and Fender Europe was made aware of the consequences for non-compliance.

On the second day of the dawn raid the CMA repeated the request for the notebooks to be produced to a senior business representative of the company, together with his external legal adviser. Subsequently a diary and one notebook were provided. Based on certain recent entries in the notebook the CMA asked if any earlier notebooks existed. The CMA was told by the individual that his previous notebooks “only contained Human Resources notes etc.”, and  that when his notebooks became full he transferred all ongoing material to his new notebook and disposed of the old ones.  From these statements the CMA understood that all previous notebooks had been destroyed.

However, on 11 May 2018, the CMA was notified that this individual had a further 10 notebooks that had not been provided to the CMA, nor disposed of as claimed. The CMA was told that the reason for not providing the notebooks was because the relevant individual did not consider them relevant, but no explanation was given as to why he had stated that they had been disposed of. When the notebooks were produced and reviewed by the CMA, 4 entries were identified as being relevant to the investigation.

The CMA fined Fender Europe £25,000 on the basis that this action obstructed the investigation.

Factors considered by the CMA to impose a fine

In argument against the imposition of a fine, Fender Europe argued that this was the actions of a  ‘rouge employee’ who had acted outside his authority and against company policy and that as soon as Fender Europe became aware of his actions, they reported it to the CMA. The CMA rejected these arguments – it was the responsibility of the company to produce documents and companies should be held to account for the conduct of their officers and employees.

The CMA considered that Fender Europe’s breach was flagrant, committed intentionally and of an egregious nature and that the actions frustrated the very purpose of the CMA dawn raid, to preserve and effect the production of relevant documents. Furthermore, senior employees are viewed by the CMA as having a special responsibility to establish a culture of compliance with competition law.

The maximum level of fine that the CMA could impose is £30,000. Setting a fine at a level of £25,000 was considered appropriate to achieve deterrence and confirms that any failure to comply with the investigatory powers of the CMA are treated seriously. A higher fine was avoided

because Fender Europe took steps to remedy the breach as soon as it became aware of the issue and due to the limited adverse effects on the investigation. Had it not been for the prompt actions of Fender Europe, the CMA would have imposed the maximum penalty of £30,000.

Fender Europe has the right to appeal the penalty decision to the Competition Appeal Tribunal, within 28 days of the penalty notice being served on them.

Comment

This is the first time the CMA has imposed a penalty for failure to provide documents during a dawn raid and signals a more aggressive approach by the CMA towards companies who obstruct their investigations.   

This decision also emphasises the need for companies to cooperate with CMA inspections and to take full responsibility for the actions of their employees, however senior. We should expect the CMA to continue to take a more hard line approach to obstruction and to punish companies that fail to comply with, or in any way hinder, their powers to carry out investigations.

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