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 "People were starting a new week and were just back from lunch, when
the men arrived," said a person familiar with the scene. "They
didn't have the slightest idea they were coming to rip the office
apart and question people for data and information for the next 10
hours," he said, adding the men were antitrust investigators from
China's National Development and Reform Commission (NDRC).
Such U.S. and European-style "dawn raids" have become a powerful
weapon for China's increasingly aggressive antitrust enforcement
agencies, the NDRC and the State Administration for Industry and
Commerce (SAIC), allowing them to seize evidence that may aid
broader probes into antitrust violations or corruption.
Several major foreign companies have been raided in recent months -
from car and drugs manufacturers to technology firms such as U.S.
software giant Microsoft Corp - as China steps up enforcement of a
2008 anti-monopoly law.
The raids have spawned a cottage industry in preparing multinational
companies on some basic do's and don'ts in the event of a surprise
visit.
Companies are giving staff practical coaching, including holding
mock raids, and bringing in legal experts to train them on how to
handle intense, on-the-spot questioning, negotiate cultural hurdles,
and make contingency arrangements to source emergency legal advice.
"We're seeing an increase in the sophistication of the enforcement
agencies, and personnel," said Marc Waha, a partner in the antitrust
practice at law firm Norton Rose Fulbright in Hong Kong. "They've
spent a lot of time with other agencies in Germany and Europe
learning about conducting investigations and the value of onsite
inspections. That's why we're seeing more active enforcement."
"WILD WEST"
Companies operating in China have few rights with respect to dawn
raids, and laws about what evidence can be seized - such as original
documents and files rather than copies - are ambiguous.
Critically, legal privilege, which in the United States and Europe
protects communication between a company and its legal adviser and
is regularly used to withhold evidence, is generally not recognised
in China.
"In China, there's very little guidance out there, it's much more
Wild West because it's all so new," said Mark Jephcott, head of the
Asia competition practice at Herbert Smith Freehills in Hong Kong.
The SAIC and NDRC did not respond to requests for comment.
Raids typically involve 10-30 antitrust agency officials arriving
unannounced at a company's premises, usually early in the morning,
and searching desk drawers, computers, files, lockers, safes and
even vehicles, lawyers familiar with the process said.
Raids by uniformed SAIC officials are generally regarded as
relatively professional, while the NDRC and local Development and
Reform Commissions can be more heavy-handed and often arrive in
plain clothes, they said.
Either way, "it's very stressful and unpleasant," said Jephcott, who
has been present at several raids, both as a former EU antitrust
official and as a legal adviser.
CULTURAL NICETIES
Amid the initial chaos of a corporate raid, it's important to
remember basic Chinese customs and courtesies, said Liyong Jiang, a
partner at Beijing-based law firm Gaopeng & Partners, and a former
official at the Ministry of Commerce, China's merger control agency.
Exchanging business cards and offering tea or coffee, and maybe
ordering in lunch, too, are important gestures of cooperation, he
said. "It doesn't matter what you offer, it's the gesture that's
important. It's the Chinese way."
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Having the regulators' business cards can also help a company's
lawyers track down officials later for further communication - not
always a simple process due to the bureaucracy at China's state
agencies. Sitting down to a take-away lunch can help senior managers
and lawyers chat with officials and build a rapport, Jiang said.
"They'll be less stringent - they are human, too."
That may not work for everyone, though.
Another of those with knowledge of the Mercedes-Benz raid said the
investigators, backed up by two or three computer technicians, went
through the office "cubicle by cubicle and room by room ...
questioning senior managers ... and downloading information from
computers."
"Those investigators didn't take any breaks. They didn't drink tea
or eat snacks or dinner," the person said, adding the officials only
left at 11 p.m. "It was a very serious affair."
MAKING THINGS WORSE
Dawn raid training - through seminars, online courses and one-on-one
coaching for frontline staff such as receptionists and security
guards - aims to mitigate blunders, help companies contain the
inspection and bring out officials' human side.
Lawyers recalled instances when well-meaning but naive employees
made the situation worse - such as receptionists turning away
officials because they didn't have an appointment or, worse still,
allowing officials to roam the premises unchecked. In other
examples, jittery employees deleted personal emails in what the
Chinese authorities later construed was an attempt to obstruct the
investigation.
"It's a detailed exercise," said Eva Crook-Santner, a member of the
antitrust practice at law firm Baker & McKenzie in Hong Kong. "We
guide clients through a dawn raid, focusing on all job functions -
from the security guard to the IT team."
Employees are trained how to handle intense questioning. This is key
in China where an individual cannot refuse to answer a question on
the basis they may incriminate themselves. Failing to respond
constitutes a fine-able obstruction. Sometimes, lawyers said, staff
wanting to appear helpful can share too much.
"Staff have to respond very carefully," said Jephcott. "They have to
cooperate fully, but try to limit themselves to factual answers."
Simple IT resource planning can also help things go more smoothly.
In China, officials will often take off with original documents and
files. Having a high-performance photocopier and back-up hard drives
can help provide copies of evidence, lawyers said.
Officials can sometimes show their human side.
One lawyer, who didn't want to be identified, recalled how an
official on one raid spent more time flirting with the secretarial
staff than searching for incriminating evidence.
(Editing by Ian Geoghegan)
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