The Investigatory Process
The Enforcement Committee is a subdivision of the full Commission. It is responsible for making decisions in relation to all enforcement matters – namely, restrictive trade practices, consumer protection, unconscionable conduct, franchise investigations and product safety matters.
The EC meets once a week and comprises a number of Commissioners and senior managers. It makes final decisions on most enforcement issues, except for the decision to institute legal proceedings, which has to be made by the full Commission.
Before staff are able to incur significant amounts of money on an investigation, they must first get the approval of the Enforcement Committee.
The EC may make a range of decisions including whether to:
- pursue a proposed investigation
- pursue the proposed investigation in the way recommended by the case manager
- take a different approach to an investigation
- settle litigation
- close an investigation.
There are a broad range of investigatory approaches which an ACCC officer may adopt in relation to a particular investigation. However, the way in which restrictive trade practices and consumer protection matters are investigated is usually very different.
Investigating consumer protection cases
In most consumer protection matters, the investigation will commence with either a consumer or competitor complaint. As the issues will often relate to a misrepresentation made to the general public, there is no point in the ACCC carrying out a covert investigation. Rather once the investigator is satisfied that the representation may be misleading, they will write a letter to the company raising the allegations. In addition to asking the company to respond to the allegations, the ACCC will usually ask the company to provide information and relevant documents on a voluntary basis.
The ACCC will ask for a significant amount of information and documentary evidence from traders on a voluntary basis, even in restrictive trade practices matters. The primary reason for asking for information on a voluntary basis is because the process for issuing section 155 notices is quite slow and cumbersome. Only the Chairman or Deputy Chairman of the ACCC can form a reason to believe to issue a section 155 notice. Therefore, all reason to believe papers have to be considered by the Chairman or Deputy Chairman personally.
The powers of the ACCC to issue section 155 Notices are very different to the process at ASIC to issue notices under Division 3 of the ASIC Act 2001. ASIC officers have the authority to issue notices under the ASIC Act.
Usually if the company the subject of the investigation has been quite cooperative in its first response to the ACCC, the ACCC investigator will already be looking for ways to resolve the matter. For example, in cases where the company responds to the ACCC with a credible explanation which demonstrates that their conduct did not result in a great deal of consumer detriment or was inadvertent, the investigator will usually close the matter with little further investigation.
It is usually only when the company has not been forthcoming in its response or has been dismissive of the ACCC’s letter, that the investigator will consider whether they need to pursue the investigation further, usually through issuing section 155 notices.
In most consumer protection investigations, the ACCC will not issue section 155 notices. If section 155 notices are issued in a consumer protection matter, the focus will generally be on obtaining documents to prove accessorial liability – such as the names of the individuals in the company who approved or signed off on advertisements which made the alleged misrepresentations. Section 155 notices requiring the attendance at an oral examinations are rarely used in consumer protection investigations.
Once the investigation has been completed, the investigator may seek legal advice on whether the evidence discloses a breach of the CCA. Legal advice may be sought from internal lawyers or from external lawyers or barristers. However, the ACCC cannot commence legal proceedings based on internal legal advice, except for one limited exception. Where litigation is being contemplated, the ACCC must seek legal advice from an external legal adviser, usually a barrister.
Investigating restrictive trade practices cases
In restrictive trade practices matters the first step in the investigation is to prepare a case theory document. This is simply a narrative which explains what conduct the investigator believes the company under investigation has engaged in and why such conduct constitutes a breach of the CCA. Usually, in more complex restrictive trade practices matters the investigator will also prepare an evidence matrix to identify the evidence that the ACCC either has or will need to obtain to establish each element of the contravention.
Covert and overt phases
Overseas antitrust regulators draw a very clear distinction between the covert and overt phases of an investigation. In the US, the covert phase usually involves a confidential investigation through the grand jury process and/or the use of listening devices. The covert phase usually ends with either the execution of a search warrant on the target’s premises or the issuing of indictments by the grand jury. The European Commission also conducts covert investigations during which it may conduct confidential interviews with whistle blowers or executives of the companies seeking immunity. The overt phase usually commences with a dawn raid.
This contrasts with the ACCC which does not draw such a clear distinction between the covert and overt phases of an investigation. Often the ACCC will write to a company at a very early stage in the investigation, raising the allegations and seeking information and documents on a voluntary basis.
Search Warrants and Dawn Raids
Overseas regulators such as the US Department of Justice (DOJ) and European Commission routinely commence the overt phase of their investigations with a search warrant or dawn raid. They do this because they are very sceptical about the likelihood of companies producing incriminating documents to the regulator on a voluntary basis or even pursuant to a compulsory notice.
The ACCC’s practice is much different. It relies extensively on voluntary production of documents and the use of section 155 notices. Section 155 permits the ACCC to issue compulsory notices to obtain information, documents and oral evidence from companies and individuals. There is no privilege against self-incrimination under section 155 to the extent that the evidence is only used in a civil court proceeding.
The ACCC does not routinely execute search warrants in its matters. For example, in the 2009-2010 Financial Year the ACCC executed only 4 search warrants throughout the whole of Australia in all its investigations. These four search warrants were all executed in relation to consumer protection matters.
In the next instalment of ACCC Investigatory Insights I will discuss how to respond to an ACCC section 155 Notice.