• European Commission Imposes Fine for Deletion of WhatsApp Messages During Dawn Raid
• First In-Depth Investigation of an Acquisition Under EU Foreign Subsidies Regulation
• Local Council Loans to Property Developer Challenged Under UK Subsidy Control Act
• UK FDI Regime Applied to University Joint Venture

European Commission Imposes Fine for Deletion of WhatsApp Messages During Dawn Raid

One of the basic lessons taught during competition law compliance training is that companies should never obstruct a dawn raid carried out to investigate anti-competitive behaviour. The European Commission (EC), along with national competition law regulators in the EU, UK and elsewhere, considers this a serious issue, and large fines on the company for a breach are inevitable.

Fines have been imposed for breaking seals during a raid, accessing blocked email accounts and diverting incoming emails. Another serious infraction is destroying documents, electronic or hard copy.

The latest EC fining decision on obstruction during a dawn raid, International Flavors & Fragrances Inc. and International Flavors & Fragrances IFFFrance SAS (IFF), announced on 24 June 2024, concerns deletion of WhatsApp messages on a mobile telephone. This was the first EC decision relating to deletion of messages exchanged via social media apps but not the first in the EU, as the Netherlands Authority for Consumers and Markets (ACM) imposed a fine for the behaviour in 2019.

During a competition law dawn raid of IFF, the EC asked to review the phones of some employees. In addition to corporate phones, the EC has the power to review private phones when they also are used for professional purposes.

The EC detected during its raid that a senior employee had deleted from his phone WhatsApp messages exchanged with a competitor containing business-related information after the employee had been informed about the EC’s inspection. The messages were not self-deleting (although if that setting had been on, it should have been turned off when the raid started).

After the detection, IFF immediately acknowledged the facts and proactively cooperated with the EC during and after the inspection. The EC was able to recover the deleted data within four hours, but IFF’s initial production of business records required under the EC’s dawn raid powers was incomplete.

IFF was fined €15.9 million for this serious infringement of EU law. The amount was based on the need for deterrence, that the deletion was made intentionally by a senior employee who was a target of the raid, and that the EC was not informed and had to detect the deletion itself. IFF, however, received a 50% reduction because it immediately admitted the deletion and cooperated, including helping the EC to restore the data on the same day.

Staff had been instructed not to delete any documents during a dawn raid, and the individual involved was a rogue employee. A senior EC official stated during a conference that she sympathized with IFF in this situation, but the high fine was necessary as it “sets the record straight” as to how seriously the EC takes this type of infringement.

The EC clearly considers the use of WhatsApp and similar platforms to be a problem for its enforcement of competition law, particularly given the high risk of deletion, which can be done instantaneously and from anywhere. Another EC official commented at the same conference that, illegality aside, a company may still have an interest in keeping them because if the EC does not initially find them, they could voluntarily be turned over, which could result in a reduction in fines for the anti-competitive activity. Deleting messages could also prove futile because the other party to the messages (e.g., a competitor) may have retained them.

First In-Depth Investigation of an Acquisition Under EU Foreign Subsidies Regulation

The obligation to notify the EC of certain large M&A transactions for clearance under the EU Foreign Subsidies Regulation (FSR) has applied since 12 October 2023, and the first in-depth investigation into an M&A transaction has recently been announced on 10 June 2024.

The jurisdictional test for a notification depends in part on the level of financial contributions provided by a foreign government or related body (foreign financial contributions or FFCs). The Commission will open an in-depth investigation if it has concerns that foreign subsidies granted to the parties to a notified transaction may distort the EU internal market. FFCs and foreign subsidies are different concepts. Foreign subsidies includes only FFCs that confer a benefit to their recipients and are limited to a particular business.

The recently announced investigation concerns the acquisition by the Emirates Telecommunications Group Company PJSC (e&) of sole control of PPF Telecom Group B.V. (PPF) excluding its Czech business. e& is a state-controlled telecommunication operator based in the United Arab Emirates, and PPF is a European telecommunication operator. The case shows that the potential implications of the legislation, not least on timing, need to be considered in any transaction.

The alleged subsidies take the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks directly facilitating the transaction. Such subsidies are among the most likely to distort the internal market as set out in the FSR. During its in-depth investigation, the EC will assess whether the foreign subsidies altered the outcome of the acquisition process by allowing e& to deter or outbid other parties or by allowing e& to perform the acquisition in the first place. It will also consider whether the foreign subsidies led to actual or potential negative effects in the EU internal marketwith respect to the merged entity’s activities going forward. Both the transaction and the market itself will be considered.

The EC received notification of the transaction on 26 April 2024 and has until 15 October 2024 to make a decision. At the end of its investigation, the EC may accept commitments proposed by the company if it fully and effectively remedies the distortion, prohibit the concentration or issue a no-objection decision.

It is of note that all previous enforcement and in-depth investigatory activity under the FSR had involved a Chinese company. The Chinese Chamber of Commerce to the EU has regularly complained about the apparent focus on Chinese companies, most recently on 27 June 2024 when it stated that it supports the decision by China’s Ministry of Commerce (MOFCOM) to consider whether a “barrier investigation” under Chinese law should be started in relation to the EU’s practices under the FSR. If carried out, such an investigation could lead to countermeasures against the EU. The FSR remains controversial, and this action shows that its implementation by the EC could result in trade friction with China.

Local Council Loans to Property Developer Challenged Under UK Subsidy Control Act

On 27 June 2024, the second challenge before the UK Competition Appeal Tribunal (CAT) to a public sector subsidy under the UK Subsidy Control Act 2022 was announced.

The Subsidy Control Act, which came into effect on 4 January 2023, established a new system of subsidy oversight and control within the UK to replace the EU State aid regime, to which the UK is no longer subject following its exit from the EU. The system operates alongside the UK’s obligations under its free trade agreements with other countries, notably the provisions of the UK-EU Trade and Cooperation Agreement, the World Trade Organization rules on subsidies and the relevant provisions within the Northern Ireland Protocol, also agreed to with the EU.

The first case under the act concerned the collection and disposal of household and commercial waste by Durham County Council (DCC), a local authority. A competitor alleged that DCC was permitting its household waste collection operation to subsidise its commercial waste collection operation, permitting DCC to charge individual businesses less than the rate it would or could have charged had it run the commercial waste collection operation as a separate, self-standing and independent operation.

The CAT held that the subsidy control principles in the law did not apply to the contested decision by DCC because the giver of the alleged subsidy was the same person as the person on whom the subsidy was conferred (i.e., DCC in both cases). In addition, the CAT held that it could not identify an economic advantage that could be challenged.

The second case under the Subsidy Control Act concerns alleged loans granted by the Greater Manchester Combined Authority (GMCA), another local authority, to the Renaker Group, a property developer. Competitor the Weis Group claims that total overall lending to Renaker by GMCA and its affiliates amounts to £745 million at state subsidised lending rates.

The claim will focus on whether there have been manifest breaches of lending terms between the UK Government and GMCA, including unusual overexposure to one entity. According to Weis, under commercial lending norms, the best practice for lenders is not to exceed 10 percent of its loan book to one borrower or group. In this case, Weis claims, the figure is closer to 70 percent.

The claim will also examine the judiciousness of such loans, given Renaker has allegedly made the case before the GMCA planning committee that all of its schemes are “unviable” and do not meet market standard profits tests.

This second claim under the Subsidy Control Act shows the possibilities open to third parties that may want to challenge a potential illegal subsidy to a competitor in the UK under the act. The CAT’s stated desire for these appeals, which are anticipated to become numerous, is that they are “fast, cheap and simple.”

UK FDI Regime Applied to University Joint Venture

The part of the UK foreign direct investment (FDI) regime dealing with national security issues contained in the UK National Security and Investment Act 2021 (NSI Act) is wide in scope and must be taken into account in a range of transactions involving assets or businesses with a UK link. A recent decision by the UK government concerning a joint venture between the University of Liverpool and Pinggao Group Limited serves as an example.

The parties agreed to establish the Pinggao-Liverpool European Institute of Advanced Energy Technology. The institute will conduct collaborative research in energy and power technologies, including renewable energy, power switching technology, reducing greenhouse gas emissions produced from the electrical grid, and electrical and thermal energy storage technology. 

The UK government identified national security risk concerns that the location could facilitate outside access to the university’s wider research and intellectual property.

In order to gain approval for the institute, the university was required to set up an insider threat stakeholder group (ITSG) with responsibility for ensuring that wider research and intellectual property held by the university is sufficiently protected. The ITSG will also be responsible for implementing and overseeing policies and processes for the institute’s personnel in relation to additional research bids, physical access, access to business systems, visitor protocols and specified procurement requests. The chair of the ITSG must have UK security vetting clearance.

The parties will no doubt be required to report on compliance with these measures, which will impose a material burden.