| HONG KONG/BEIJING
HONG KONG/BEIJING Aug 11 In the early afternoon
of Monday, Aug. 4, ten men in suits and casual business wear
barged into a busy office at Mercedes-Benz's east
China sales office, near Shanghai's Hongqiao international
"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
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
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
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.
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."
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
"Staff have to respond very carefully," said Jephcott. "They
have to cooperate fully, but try to limit themselves to factual
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
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)