Monday, 12 September 2011

ACCC search warrants —plan for the worst


This article first appeared in Keeping good companies, Journal of Chartered Secretaries Australia Ltd, September 2011, Volume 63 No. 8, pp. 484-487.

Introduction
One could be forgiven for being unaware that the Australian Competition and Consumer Commission (ACCC) has the power to obtain a search warrant to investigate alleged breaches of the Competition and Consumer Act 2010 (CCA) (formerly the Trade Practices Act 1974).

The ACCC has used its search warrant powers sparingly since the power was introduced in 2006. Up to June 2011, the ACCC had only executed ten search warrants.

However, it just a matter of time before the ACCC starts utilising its search warrant powers more regularly. Virtually every other major overseas competition law enforcement agency uses search warrants extensively, particularly in relation to cartels.

Therefore, it is important for businesses to understand how to respond to an ACCC search warrant. Businesses should also consider developing their own action plan so they know what to do in the event that the ACCC turns up unannounced with a search warrant.

Legislation
The ACCC’s search and seizure powers are contained in Pt XID of the CCA.

The ACCC can apply to a magistrate for a search warrant if it satisfies s 154X. This section states that a magistrate may issue a warrant if they are satisfied that there are reasonable grounds for suspecting that there is evidential material on premises or there will be evidential material on premises within the next 72 hours. To be valid, the search warrant must contain particular information.

Evidential material is defined as a document or thing which may afford evidence of a contravention of the CCA.[i]

Powers and obligations of the ACCC

Prior to approaching a magistrate for a search warrant, the ACCC’s Chairperson must appoint an inspector and issue the inspector with an identity card (s 154B). The inspector must carry the identity card during the execution of the search warrant and produce the identity card on request (s 154C).

The search warrant must be executed within one week of being issued by the magistrate.

Division 4 governs entry to premises under a search warrant. Under s 154G(1), a search warrant authorises the executing officer (or inspector) to:

(a) enter the premises

(b) search the premises for the evidential material, and seize evidential material

(c) make copies of evidential material

(d) operate electronic equipment to access evidential material and

(e) take and use equipment at the premises for the above purposes.

Section 154G(1A) permits the ACCC to take photographs, or make video recordings, of the premises or of anything at the premises for a purpose incidental to the execution of a search warrant or with the occupier’s consent.

Moving items to other locations
Section 154GA permits the ACCC to move anything found at the premises to another place for examination or processing to determine whether it may be seized. This section may be used by the ACCC to remove hard disks if it is unsure whether they contain evidential material.

If the ACCC removes hard disks under s 154GA, it has a number of obligations. Under s 154GA(2), it must inform the occupier of the place and time when the ACCC will be examining or processing the information and must also allow the occupier or their representative to be present. Under s 154GA(3), the ACCC can only keep the thing for 72 hours, unless it obtains an extension from a magistrate.

Section 154H states that if the executing officer believes on reasonable grounds that data accessed by operating electronic equipment at the premises might constitute evidential material, they may do only one of three things:
  • seize the equipment and any disk, tape or other device
  • operate equipment at the premises to put the data into documentary form and remove the documents or
  • operate the equipment to transfer the data to a disk, tape or other storage device.
The difference between ss. 154GA and 154H is that under the former, the thing is not being seized by the ACCC pursuant to the warrant but rather is being moved to another place to be examined or processed to determine whether it contains evidential material which can be seized under the warrant.

To invoke s 154H, the ACCC must first form the reasonable belief that any electronic equipment (that is, a computer or server) ‘might’ contain evidential material. The inspector must also be satisfied that the requirements of s 154H(5) are met; that is, that data cannot be printed out or copied.

Section 154K allows the executing officer to authorise Australian Federal Police agents to attend the execution of the search warrant. Section 154L permits the executing officer or AFP agents to use force to execute the search warrant.

Section 154M requires the ACCC to announce its entry and to give the occupier an opportunity to allow entry. Under s 154N, the ACCC must make a copy of the search warrant available to the occupier.

Rights and responsibilities of occupiers
The occupier also has a number of rights and responsibilities. Under s 154P, the occupier is entitled to observe the search, as long as they do not impede the search. The occupier must provide the ACCC with reasonable facilities and assistance during the execution of the search warrant, such as access to photocopiers.

Under s 154R, the executing officer has the right to ask occupiers questions and to request that occupiers produce evidential material. The occupier must answer questions put to them by ACCC officers. The maximum penalty for failing to answer questions or to provide material is $3,300 or 12 months’ imprisonment. The occupier does not have any privilege against self-incrimination, except in relation to subsequent criminal proceedings.

Under s 154S, the ACCC must give copies of seized material to the occupier on request. The ACCC is also required to give a receipt for any evidential material seized or anything moved under s 154GA(1). Any evidential material which has been seized has to be returned to the occupier when the material is no longer needed or after 120 days.

When will the ACCC use a search warrant?
Despite a great deal of rhetoric around the time of the introduction of the search warrant power that it was needed to assist the ACCC in its fight against cartels, this has not played out in practice. Most of the search warrants have been issued in relation to consumer protection investigations.

The ACCC is more likely to use search warrants where it has received ‘inside’ information from an informant, such as a former employee, who has detailed knowledge of potentially incriminating documents, and their locations within the company’s premises.

Another significant consideration will be the logistical complexity of executing a search warrant. For example, it will be much more difficult to execute search warrants at numerous premises or premises with multiple entry and exit points.

Another area where the ACCC may seek to utilise its powers in the future is to prevent carbon tax price gouging, as it did in trying to prevent price exploitation during the introduction of the GST.

Execution of a warrant
The ACCC will undertake a great deal of planning prior to executing a search warrant. Not only must the ACCC identify the documents which they wish to seize, but they must also work out the locations of the relevant documents. The ACCC will endeavour to obtain information about the layout of the premises from former employees.

The ACCC will usually have between ten to 40 people in attendance during the execution of a search warrant, including at least two AFP agents and a number of forensic IT personnel, whose role it will be to copy hard drives.

On arrival, the ACCC inspector must identify who they are and give the occupier the opportunity to allow access. The occupier should permit access or risk being arrested.

Some legal advisers suggest that occupiers should ask the ACCC to wait until the occupier’s legal advisers arrive. There is no harm asking the ACCC to do this although the ACCC does not have to agree to wait. Indeed, it is very unlikely that the ACCC will agree to any delay which may provide occupiers an opportunity to destroy evidentiary material.

Once the ACCC has gained access, the occupier should ask to see the search warrant and the inspector’s identity card. If the inspector is unable to show the occupier their identify card, the occupier can ask the inspector to leave.

The occupier should then check the search warrant to ensure that it complies with s 154X to include:

(a) a description of the premises

(b) details of the kind of evidential material to be searched for under the warrant (including stating the alleged contraventions)

(c) the name of the inspector who is responsible for executing the warrant

(d) whether the warrant may be executed at any time or during specified hours and

(e) the day (not more than one week after the issue of the warrant) on which the warrant ceases to have effect.

The occupier should check that the name on the search warrant is the same as the name on the identity card. If the names are different, the occupier can ask the inspector to leave.

The occupier should check that the search warrant is being executed within one week of the issue date and within any stipulated hours. Again, if not, the occupier can ask the inspector to leave. The occupier should then contact their lawyer to ask them to attend the premises.

Most occupiers make the mistake of directing their employees to leave search areas or send them home. This is a mistake because the occupier’s lawyers will most likely be unable to observe the entire search because it is being conducted in multiple locations simultaneously.

A better approach is for the occupier to try to organise their staff into teams and task them to observing all aspects of the search. The occupier should assemble employees and advise them that they:
  • must answer questions put to them by ACCC officers
  • are likely to be video recorded while answering questions put to them by ACCC officers
  • have a right to observe the execution of the search warrant but must not impede the search
  • should stop doing their usual work, such as using their computers and particularly using shredders, because ACCC staff will be concerned that staff may delete evidentiary material.
Employees should be asked to pay particular attention to whether ACCC staff are searching any files which may contain legal advice or any other communications with legal advisers.

The ACCC will take a significant number of video recordings during the search, including recordings of conversations with occupiers. The ACCC will not provide copies of these video recordings to occupiers on request, nor will it release copies of these videos under freedom of information legislation.

Finally, the ACCC has the right to prevent any persons removing items from the premises, such as laptop computers or files. Accordingly, if a staff member has to leave the premises, the ACCC will request that they do not remove any items which may contain evidential material.

The ACCC also has the right to search any bags or briefcases which a staff member may be removing from the premises to determine whether they contain evidential material.

What can the ACCC take during a search warrant?

The ACCC can seize evidential material, which is material which discloses, or may be relevant to, the contraventions alleged in the search warrant.

The ACCC can choose to:
  • take the actual documents or items
  • make copies of documents
  • download data onto electronic storage devices such as memory sticks or hard disk drives or
  • remove electronic storage devices, such as hard disk drives from the premises.
Legal professional privilege
The main issue which arises during a search is whether the ACCC wishes to seize any documents which may be subject to a claim of legal professional privilege (LPP). If the occupier believes that particular documents may be subject to LPP, they should ask the inspector to place the documents in a sealed envelope pending resolution of the LPP claim. The occupier should insist that any potentially privileged documents are kept away from the investigatory team until the LPP issue is resolved.

The occupier should also ask the inspector to explain what information is being copied from computers. If the inspector refuses to provide an explanation, the occupier should immediately request copies of all seized material. The inspector has an obligation to provide copies of all seized material as soon as practicable after seizure.

As soon as the occupier finds out what information has been seized, they should review the material for relevance and LPP. If the occupier believes the ACCC has seized any material which may be privileged, it should immediately raise these concerns with the ACCC and ask that the investigatory team have no further access to these documents until the LPP issue is resolved.

Recent experience — moved versus seized
Last year I acted for a client who had received two ACCC search warrants. During the searches, the ACCC removed a number of hard disks. We assumed that these hard disks had been moved pursuant to s 154GA because the ACCC had conducted only a cursory examination of the hard disks before removal and the hard disks had been returned within 72 hours, as required by s 154GA.

Because we believed that the hard disks had been moved, we became very concerned that the ACCC had apparently not complied with the safeguards in s 154GA. The ACCC responded to our concerns by simply stating that the hard disks had not been moved pursuant to s 154GA but seized pursuant to s 154H.

This raises concerns about the utility of s 154GA. It seems that the ACCC can avoid the safeguards in s 154GA by simply claiming, in every case, that it has decided to seize electronic equipment under s 154H. It is quite clear from s 154H that seizure of such things as hard disks is an exceptional step. Under s 154H, the ACCC can keep the hard disks in its exclusive control for up to 120 days. This contrasts with s 154GA where the ACCC has supervised access to hard disks for 72 hours.

If the ACCC seeks to remove hard disks from premises under a search warrant, the occupier should clarify whether the inspector is utilising s 154GA or s 154H. If the inspector claims the hard disks are being seized, the occupier should challenge the inspector about whether they have satisfied the requirements of s 154H:
  • that they believe on reasonable grounds that the hard disks contain data which might constitute evidential material and
  • that it is not practicable to print or copy the data at the premises.
Conclusions
It is likely that the ACCC will increase the use of its search warrant powers once it gains more experience and confidence using the power. Accordingly, businesses must know how to respond appropriately to an ACCC search warrant. The main challenge facing businesses is not to panic by having a clear plan to implement when faced with an ACCC search warrant.

Therefore, businesses should spend some time developing their own ACCC search warrant action plan. Once you have developed your plan you should go the next step and conduct a mock search to assess how your plan works in practice.


[i] As well as Pt 20 Telecommunications Act 1997, Pt 9 Telecommunications (Consumer Protection and Service Standards) Act 1999 or specific provisions of the Commonwealth Criminal Code.