Dawn raids – How to deal with the three “C”s when they come knocking at your door
Sherman Yan, Dominic Wai and Eutonia Chen, ONC Lawyers, give an overview of the dawn raid and investigative powers of the Independent Commission Against Corruption (ICAC), Securities and Futures Commission (SFC) and Competition Commission (CC), and practical tips on dealing with them.
What do you do if someone knocks on your door or comes to your office early in the morning with a search warrant to enter and search your premises? The ICAC, SFC and CC have the power to gain entry and search premises for investigations. Any company or individual might be subject to a ‘dawn raid’ if the raiding authorities have reasonable grounds to believe or suspect that such a company or individual has contravened particular laws, such as the Prevention of Bribery Ordinance (Cap 201), Securities and Futures Ordinance (Cap 571) and the Competition Ordinance (Cap 619).
Recently, the SFC has issued an announcement notifying the industry of anti-money laundering (AML) concerns. In the announcement, the SFC highlighted that during its onsite inspections of licensees and AML investigations, they identified the following areas of concern:
- failure to scrutinise cash and third-party deposits into customer accounts
- ineffective monitoring of transactions in customer accounts
- failure to take adequate measures to continuously monitor business relationships with customers which present a higher risk of money laundering
- inadequate enquiries made to assess potentially suspicious transactions to determine whether or not it is necessary to make a report to the Joint Financial Intelligence Unit, and lack of documentation of the assessment results, and
- failure to monitor and supervise the ongoing implementation of anti-money laundering and counter-terrorist financing policies and procedures.
As a result, the SFC has stated explicitly that it expects to bring a number of enforcement proceedings against SFC-licensed brokerages. In view of the rising concerns on AML and the recent implementation of the Competition Ordinance, it is expected that there will be increasing use of dawn raids for authorities to gather evidence for investigations.
What is a ‘dawn raid’ and what are the common allegations triggering it?
A dawn raid is an unannounced inspection of premises (for example an office, personal residence or warehouse) without prior notice. The word ‘dawn’ is used because the raiding authority is likely to conduct the inspection during the early hours of the day (say, before or around 9.00am). Generally, the ICAC, SFC and CC need a search warrant to conduct a dawn raid.
The following are some common allegations which might trigger a dawn raid:
- corruption, kickbacks and secret commissions (investigated by the ICAC)
- fraud and conspiracy to defraud (investigated by the ICAC)
- money laundering (investigated by the ICAC)
- insider dealing and market misconduct (investigated by the SFC), and
- price fixing and bid rigging (investigated by the CC).
Overview of the major investigative powers
It is important to understand the investigative powers of the raiding authorities, in order to ensure that the search investigation is conducted properly and the company or individual being investigated has fulfilled the legal obligations and their legal rights have been fully respected.
The ICAC Commissioner has the duty, on behalf of the Chief Executive of Hong Kong, to receive and consider complaints alleging corrupt practices and investigate such of those complaints as he/she considers practicable. The Independent Commission Against Corruption Ordinance (Cap 204) authorises the ICAC officer to conduct enquiries or examinations.
Further, the Prevention of Bribery Ordinance also gives the ICAC extensive powers to compulsorily acquire information if the ICAC is satisfied that there is reasonable cause to believe (i) that an offence under Prevention of Bribery Ordinance might have been committed; and (ii) that the accounts, books or documents are likely to be relevant for the purposes of an investigation of such offence.
In respect of the power of arrest, pursuant to Section 10 of the Independent Commission Against Corruption Ordinance, the ICAC might arrest without warrant anyone reasonably suspected to be guilty of the offences under the Independent Commission Against Corruption Ordinance or the Prevention of Bribery Ordinance or the Elections (Corrupt and Illegal Conduct) Ordinance.
Where the SFC has reasonable cause to believe that an offence under the relevant provisions might have been committed, or a person might have engaged in defalcation, fraud, misfeasance or other misconduct in connection with various conduct involving the financial products and activities which the Securities and Futures Ordinance (SFO) regulates, the SFC might in writing direct one or more of its employees or, with the consent of the Financial Secretary, appoint one or more other persons, to investigate the matter.
Under Section 183 of the SFO, the SFC might also by way of a written notice, require the person under investigation, or any person believed to have any relevant record or document or information to attend an interview at a time and place specified by the investigator to answer any question relating to the matters under investigation.
The CC might conduct an investigation if it has reasonable cause to suspect a contravention of a competition rule has taken place, is taking place or is about to take place. The CC has powers under the Competition Ordinance to issue notices requiring a person to provide documents, information and/or to give evidence before the CC.
Further, the CC has the capacity to seek for a search warrant from a judge of the Court of First Instance to enter and search specific premises for documents that may be relevant to an investigation by the CC.
Practical tips on dealing with dawn raids
If the raiding authority knocks on your door in the morning with a search warrant, you should remain calm, polite and cooperative during the investigation. The following are some practical tips on dealing with the search investigation.
Request for legal advisers to be present
Once the raiding authority has arrived, you will be allowed to call your lawyers to attend the search. It is recommended to have a legal representative (for example your in-house lawyer or external lawyers) present during the search. However, the ICAC, SFC and CC are under no legislative duty to suspend their search until your lawyer has arrived at the premises. If the search nevertheless commences before your legal representative arrives, it is advisable to study the terms of the search warrant and ensure that the search will be properly conducted.
It is important to note that the CC issued a Guideline on Investigations on 27 July 2015 which expressly indicates that, where parties have requested that their legal advisers be present during the search and there is no in-house lawyer already on the premises, the CC officers will wait for a reasonable time for external legal advisers to arrive. During such time, the CC officers may take necessary measures to prevent tampering with evidence, such as instructing the employees and other persons at the premises to move away from their workspaces, requesting that computer/IT system access or email accounts be blocked, stopping external communications and sealing offices and/or filing cabinets (para 5.31 of the Guideline).
Bear in mind the concept of legal privileged documents
It is necessary to identify the documents which should be protected by legal professional privilege in the course of the investigation in order to avoid accidental disclosure of the privileged documents to the investigators. This might not be easy and the raiding authorities have no obligations to remind the suspect/witness in relation to the legal professional privilege, hence, it is recommended to have your in-house lawyers or external lawyers be present during the search.
Pursuant to Article 35 of the Basic Law, Hong Kong residents shall have the right to confidential legal advice. In gist, privilege arises in two instances, namely: litigation privilege and legal advice privilege:
- litigation privilege protects documents and communications from disclosure if they are brought into existence for the sole or dominant purpose of actual or contemplated litigation, and
- legal advice privilege protects documents and communications made in confidence between a lawyer (including in-house lawyer) in his/her professional capacity and his/her client for purpose of giving or seeking legal advice.
In practice, it is not easy to determine on the spot if the documents to be removed by the raiding authority contains privileged materials. Further, it is the usual practice for the raiding authority to remove from the premises laptop computers or even hand phones which they believe contain the relevant information subject to the search warrant. Where there is a dispute as to the nature of documents to be removed, it is advisable to convey the objection to the raiding authority, who may then put the disputed documents in sealed containers, pending the court’s resolution.
Can the suspects/witnesses remain silent?
If the raiding authority wishes to put certain questions relating to the investigation to you or your staff during the course of search, it is advisable to remain silent and wait until the arrival of your legal representatives. After the dawn raid, the raiding authority might arrange for an interview with the person involved or connected to the matters being investigated. If a person (for example employees of the company being investigated) receives a Notice to Answer Questions from the SFC or CC, there is no right to silence and such person must answer the questions being raised.
However, for the interviews conducted by the ICAC, generally the interviewee may exercise his/her right to remain silent by answering ‘I exercise my right to silence and have nothing to say’.
It could be a very disconcerting experience to have a dawn raid conducted at your office or personal residence. Therefore, it is essential to contact your in-house lawyers or external lawyers at an early stage and ideally should have your lawyer accompanying you during the dawn raid and the interview to be conducted after the raid. It is also advisable to have a dawn raid plan and policy so that all personnel of the company will know what to do if there is a raid.
Sherman Yan, Partner; Dominic Wai, Partner; and Eutonia Chen, Associate; ONC Lawyers