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Commission Confirms Strict Approach to Seal-Breaches, but Cooperation with the Authorities Counts

September 5, 2011

On 27th August, the European Commission (the “Commission”) published its decision against Suez Environnement, fining the company €8 million (US$11.4 million) for breach of a seal, during a raid at one of its subsidiaries.

The decision highlights the fact that the responsibility for ensuring that seals are not tampered with rests solely with the company, and any violation will result in serious fines. But such fines will be significantly reduced where a company cooperates with the regulator.

Facts

On 13th April 2010, the headquarters of a subsidiary of Suez Environnement, Lyonnaise des Eaux, were raided in the context of an investigation for potential anticompetitive conduct in the French water-treatment market. On the second day of the raid, the team returned to resume the inspection, but discovered that a seal placed on the door of a company executive on the previous day had been tampered with, and the lights of the office were switched on, which was not the case the previous day.

Following this discovery, Suez Environnement took several steps to respond effectively to the breach. First, company staff summoned the police to try to get finger prints taken from the door, and demonstrated that the lights had been switched on by an automatic system. The company then conducted a search, identified and took testimony from the staff member responsible for the breach of seal. The staff member stated that the breach had been done by accident. He had been searching for a colleague in a neighbouring office and, failing to find him, went directly to the office of the company executive, initially failing to notice an A4-sized warning sign placed on the door by inspectors as well as the seal placed across the door. After partially opening the door, which had not been locked, the staff member felt some resistance, realised the seal was in place and then closed the door once again. The company submitted this testimony, as well as footage from two surveillance cameras indicating that the staff member had arrived at the sealed office at 10am and departed at 10.03am.

In addition to this exhaustive practical cooperation, when it came to the proceedings instituted by the Commission with respect to the breach, the company also decided not to contest the Commission’s findings and application of the rules laid down in Regulation (EC) 1/2003.

Decision of the Commission

In its decision, the Commission acknowledged the fact that the company had gone beyond its obligations to cooperate under the relevant legislation by taking several mitigating steps, but it did point out that it is solely the company’s responsibility to ensure that seals are not broken. In this instance, it stated that the particular door should have been locked to prevent such a breach of a seal. Consequently, the regulator imposed a hefty fine of €8 million (US$11.4 million) on Suez Environment.[1]

Contrasting Suez Environnement with the noteworthy precedent of E.ON

The Suez Environnement decision is not the first case where the Commission imposed a significant fine on a company for breach of a seal in the context of an antitrust investigation. In January 2008, the Commission imposed a very substantial fine of €38 million (US$54.2 million) on the German energy company E.ON for breach of a seal. However, in contrast to the evidently high level of cooperation by Suez Environnement, E.ON has vigorously contested the facts surrounding the breach, as well as the level of the fine, and is currently appealing the fine before the Court of Justice of the European Union.[2] This suggests that cooperation may be a key consideration of the Commission in the setting of fines.

The lessons for companies following this decision

The decision highlights a number of important lessons for companies that find themselves the target of a raid by competition inspectors in the European Union.

First and foremost, the Commission confirmed its exceptionally strict approach towards any obstruction or interference with its inspection. In particular, the Commission considered that a breach of the seal alone, irrespective of its consequences, constitutes a serious infringement which will likely attract a very heavy fine. There is no requirement on the authorities to show any intention to breach the seal on the part of a company, or to show evidence that documents were taken from the site. Therefore, companies are responsible for ensuring that all proper precautions are taken to ensure that seals are not broken and a secured inspection site is not tampered with. Necessary measures may range from the simple act of locking sealed doors, to informing staff of the situation, or closing off those sections of an office that are the focus of the authorities inspections.

Second, where a seal has been broken, or an inspection site tampered with, fines are likely to be greatly mitigated where (i) a company can demonstrate the interference was unintended, and (ii) proactive efforts are made on the part of the company to cooperate and assist the regulator. The example of E.ON suggests that aggressive contestation of the facts at every step is unlikely to serve the interests of a company when it comes to the imposition of fines.

Third, the Commission’s strict approach with respect to seal-breaching and site-tampering is also likely to be reflected in the approaches of the National Competition Authorities in their respective Member States, where fines have already been imposed for similar breaches of seals, although at significantly lower levels.[3]

Finally, it is worth noting that the Commission deemed it necessary to detail the involvement of Suez Environnement staff in the investigation of its subsidiary’s premises, despite the fact that this is not a requirement for the extension of liability to a parent company for an obstruction or interference with an inspection by a subsidiary. It raises the question as to what the Commission’s reasoning would have been if Suez Environnement staff had not been involved, although one suspects the same conclusion would have been drawn by the Commission in light of the scope of Regulation (EC) 1/2003.

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[1] Under Article 23(1) of Regulation (EC) 1/2003, the Commission is allowed to impose a fine of up to 1% of a company’s annual turnover where a seal is broken, either intentionally or negligently.

[2] This follows an unsuccessful appeal to the General Court of the European Union, in which the General Court confirmed the reasoning in the Commission’s original decision to impose a €38 million (US$54.2 million) fine.

[3] For example, the Dutch Competition Authority imposed fines for breach of seal to Sara Lee in 2008 (€269,000) and to an association of country doctors in 2010 (€51,000).