Dawn Raid

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Last Updated:February 4, 2024

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What Is a Dawn Raid?

“Dawn raid” is a slang phrase for the investigative process within the scope of the search and seizure powers found in Part B of Chapter 5 of the Competition Act 89 of 1998.

The Act gives the Commission the authority to, among other things, enter a company's facilities and seize or copy any papers or electronic data that might be relevant to an inquiry.

The word "premises" is used in very general terms and refers to any piece of land, building, structure, car, truck, boat, airplane, or container.

There are mainly two kinds: one with a warrant and one without a warrant.

For the person possessing a warrant, it must have been lawfully issued. Furthermore, the warrant must specify the location of the potential dawn raid site and provide a police officer or inspector permission to enter the site.

The only individual permitted to enter the premises under the provisions of the warrant.

Before using the warrant, the person executing it must provide identification, give the owner or other person in charge of the property an explanation of their rights under the order, and give them a copy of the warrant.

If such a person is not on the property, the authorized person must prominently and visibly attach a copy of the warrant.

A court or magistrate must be convinced that it is reasonable for a dawn raid to be undertaken at night. The warrant must clearly permit the night raid.

A raid without a warrant on a private home is prohibited. The phrase "private dwelling" refers to any area attached to or forming a portion of a structure utilized as a residence.

Given the circumstances, it may only be done at night if appropriate and required.

Key Takeaways

A dawn raid is when a significant number of shares are purchased at the start of the trading day.
One firm intends to collect a sizable amount of shares in the target to influence a prospective takeover of the target.
It is rather challenging to accomplish the goal in practice because of the quick broadcast of pricing data and exchange and securities laws.
It is already too late if the target discovers they are a victim of assault because the investor has already secured a sizable controlling stake position.
The bidder gains sizable ownership in its target at the current stock market price.
Any acquisition costs will probably be considerably less than they would have been if the acquiring business had announced its intentions before buying a stake in a target.

Background Of Dawn Raid

According to Section 46, the Commission can undertake a dawn raid after receiving a warrant from a court or magistrate.

Suppose there are reasonable grounds to believe that something related to an investigation is in the possession or under the control of a person who is present at the premises. In that case, a warrant will be issued under the following circumstances:

There are reasonable grounds to believe that something related to an investigation is in the possession or under the control of a person at the premises.
A prohibited practice (as defined in Chapter 2 of the Act) has occurred, will occur, or is likely to occur there.

The Commission can conduct a dawn raid without a warrant under Section 47 of the Act or If the owner or other person in charge of the property gives their consent.

Or, based on reasonable grounds, it is thought that a warrant would be given under section 46 of the Act if requested and that waiting to request one would make it ineffective.

During this time, an investor purchases a substantial percentage of a company's shares first thing in the morning, as the stock market opens for trading.

However, because a position larger than 5% requires official verification, only a tiny stake in a company's shares may be acquired in this manner

Therefore, the raiding business will likely launch a takeover attempt to purchase the remaining shares of the target company following a successful one.

Theoretically, a dawn raid makes it possible for a target company to acquire a discount before the acquirer's interest in its takeover target declines.

In practice, however, many established economies experience a level of market efficiency that makes it challenging to put it into action without having it known to outsiders.

Anonymity is made more difficult by high-frequency trading and other algorithm-driven investment tactics. Thus, the empirical findings are conflicting.

The expansion and adaptability of financial instruments have further distorted the idea of a dawn raid.

For instance, numerous instruments could be accessible in off-exchange or over-the-counter (OTC) markets. Additionally, it is possible to buy futures and options "pre-market."

The level of brokerage service is another factor. For example, popular bargain brokers do not instantly "fill" market orders. Therefore, it can be necessary to use more expensive full-service brokers if execution speed is necessary.

The South African Competition's dawn raids increased in 2015.

The Commission performed four studies in each of the following industries:

Firms offering fire prevention and control systems (20 March 2015)
Advertising agency for hiring (23 September 2015)
Firms who remove furniture (30 September 2015)
Providers of liquefied petroleum gas (14 October 2015)

It is now more critical than ever that businesses are aware of their rights and obligations and the best practices they should follow in anticipation of or response to these raids due to the Commission's increased reliance on them.

Rights and Duties under Dawn Raid

Any person has the right to oppose the Commission's inspection or removal of legally confidential documents.

The Commission may ask the registrar or sheriff to remove a document allegedly protected by the law so that it can be kept secure until a judge decides whether the law protects the information it contains.

When a responsible person was at the premises during the entrance, a firm is entitled to compensation from the Commission for any harm sustained due to forcible entry.

To summarize, these are your rights:

You know the warrant's scope should be the only limitation of the search.
You have access to an inventory of the seized materials.
You have the option to receive or withhold privileged materials.
You can decline interviews on important subjects, which are optional in the US. You may demand legal representation.
You must respond to strictly factual inquiries in the European Union but are free to decline to do so when the questions could lead to self-incrimination.

The company is required to work with the Commission throughout this time to fulfill its obligations.

It is against the law to hinder, oppose, obstruct, or unfairly influence anyone using their authority or doing their duties under Section 70 of the Act.

During this period, commissions receive duties as well. The Commission must respect every person's constitutional right to dignity, freedom, security, and privacy.

The Commission must also carry out its rights with the utmost regard for decency and order.

Only a Commission inspector of the same gender may search a person.

Any person the Commission will question must first be advised of their right to legal or advocacy representation and allowed to exercise that right.

If the Commission removes anything from the property, it must provide the owner or person in charge with a receipt. It also needs to return the item as soon as the intended purpose is complete.

A police officer may use reasonable force to remove any barrier, such as a closed window or locked door.

Responding to a dawn raid

Adopting best practices may help you avoid any possible negative legal and reputational repercussions of becoming the target of a raid. Among the procedures are the following.

Prevention Is Preferable To Cure

All company employees should receive regular training on competition law. Hence, they are aware of the circumstances that could develop while performing their tasks and result in Act violations, as well as how to avoid them.

Examples include techniques used in dealings with rivals, membership in trade associations, and contracts with non-compete, exclusivity, or preferential pricing clauses.

To avoid any potential illegal actions, businesses should routinely consider the policies and practices that routinely assess the established policies.

Maintaining Records

Businesses must ensure that their data are organized and simple to find to lessen the intrusiveness of a dawn raid.

A straightforward, organized, and legal document retention policy will help lessen the possibility of allegedly deleting the incriminating documents.

Techniques

Businesses should create and implement the policies and processes they will use during events.

The "front-of-house" staff who will be a company's first employees to communicate with the Commission during this time should receive intensive training.

The following points should be emphasized:

Always maintain composure, professionalism, and courtesy.
Verify the investigator's credentials and license to operate.
Inform the legal representatives of the company of its scope and intended use. (All employees who need to communicate with the investigators should have access to a list of phone numbers.)
Ask the investigator and any supporting staff to wait in a meeting room until the lawyers show up, but don't push it if they don't want to.
Do not destroy any records or make contact with rival businesses.
Make sure your attorneys are always accompanying the inspectors.
Provide any papers protected by legal privilege to the inspectors.
Give the inspectors access to private company records that contain trade secrets, with the understanding that the company has the right to demand that the Commission respect the privacy of the documents using the CC7 form.
Keep a thorough record of all documents taken, copied, spoken about, or have questions addressed.
Without first consulting your counsel, never sign any documents or remarks.

Step-by-step guideline

Set up a selected key person or people within your business to handle dawn raids, should they ever happen.

To monitor these actions as soon as the officials show up, this/these person(s) must be contacted:

Make immediate contact with outside counsel.
Make sure the officials are always accompanied. Such questions should be addressed only in the presence of legal counsel or in-house counsel.
Do not obstruct the investigation; ask the officials to hold off until the attorney(s) arrive.
Verify and note the authorities' identifications, including names and ID numbers and their arrival time.
Follow the officials into an unoccupied meeting room (one without files or computers).
Verify the investigation's justifications and the company's compliance obligations.
Find out what information is available on-site by contacting your IT specialists.
Give a thorough account of everything that has occurred thus far when the attorney(s) arrives.
Request a copy of every document the officials obtained during the period.

Officials from any of the aforementioned authorities may use the following investigation powers during this time:

Without permission, enter any place of business, property, or mode of transportation.
Interview them and ask them questions; in such situations, it is generally advisable to have a lawyer present.
Examine any business records relevant to the investigation.
Investigate formal and informal documentation (including emails, notes, minutes, agendas, phone records, social media accounts, and text messages).
Request physical access to desk drawers and filing cabinets.
Copy or extract information from both physical and digital records.
Restrict access to conference rooms, other locations, and equipment (breaking or otherwise interfering with official seals by any person can result in substantial fines).