The rebirth of Dawn Raids!!!

A dawn raid is a search and seizure process where the South African Competition Commission (“Commission”) enters and searches the premises of a company based on suspicion of a contravention/s of the provisions of the Competition Act. Once the documents have been seized by the Commission during a dawn raid, a risk analysis is undertaken by the Commission to ensure that there is no contravention of competition law. Search and seizure procedures were suspended by the Commission during the COVID-19 pandemic.  The National State of Disaster was lifted as from 5 April 2022, which has led to the rebirth of dawn raids. 

The rebirth of dawn raids occurred on 25 August 2022, where eight insurance companies were raided by the Commission. The insurance companies fall under one of the priority sectors that were identified by the Commission during the 2020/2021 financial year, namely banking and financial services. Other priority sectors include agriculture, food and agro-processing; construction services, property and infrastructure; healthcare; transport and automotive; ICT and digital markets; manufacturing; and energy sectors. It is important for companies in the priority sectors, as identified by the Commission, as well as other sectors to ensure that they comply with the provisions of the Competition Act as this rebirth of dawn raids may lead to further dawn raids being conducted by the Commission this year. Companies must ensure that their employees are trained on the legalities surrounding dawn raids as this will assist them immensely when a dawn raid is conducted. In addition, it is imperative for companies to conduct a legal audit on its business operations as this ensure that there is no risk in the company contravening the provisions of the Competition Act. The aforementioned dawn raids were conducted at the premises of eight insurance companies operating in Gauteng, KwaZulu-Natal, and Western Cape provinces.

The aforementioned dawn raids were conducted by the Commission as it had reasonable grounds to suspect that BrightRock Life Limited; Discovery Limited; FMI, a division of Bidvest Life Limited; Hollard Insurance Group (Pty) Ltd; Momentum, a division of MMI Limited; Old Mutual Insure Limited; Professional Provident Society Limited and South African National Life Assurance Company (Pty) Ltd (Sanlam) have engaged in collusive practices to fix prices and/or trading conditions in respect of fees for investment products such as retirement annuity and premiums for risk-related products, namely, life insurance cover such as dread disease cover/chronic medical condition cover, disability cover, life cover and funeral assistance benefits in contravention of section 4(1)(b)(i) of the Competition Act. According to the information at the disposal of the Commission, the companies under investigation share information on premium rates for risk-related products and fees for investment products, which enables them to adjust the prices of their existing and new insurance products.

The dawn raids were conducted as part of an ongoing investigation that was initiated by the Commissioner in January 2021.

The companies under investigation operate within the long-term insurance market. Their activities within the long-term insurance market, include the offering of investment and risk-related insurance products. The risk-related insurance products include (i) life cover; (ii) funeral cover; (iii) disability cover and (iv) dread disease cover/chronic medical condition cover. The most common form of investment-related product offered by the companies is retirement annuity which becomes payable to the insured upon retirement. Clients of these companies are natural persons as well as corporate policyholders that buy cover such as retirement funds or group life schemes on behalf of their employees.

The Commission obtained warrants authorising it to search these companies from the North Gauteng (Pretoria) High Court, Kwazulu Natal (Durban) High Court, and Western Cape High Court.

It is uncertain whether the Commission will still focus on its priority sectors when conducting dawn raids. In this regard, it is imperative for companies in all sectors to ensure that they are familiar with the Commission's powers when conducting a dawn raid.

Before the Commission can enter a company's premises to execute a dawn raid, legal advisors need to be present to assess the authenticity of the search and seizure warrant produced by the Commission as well as the legal basis of the dawn raid. During the raid, documents which are confidential or privileged must be marked and kept separately from other documents. Each official of the Commission should be shadowed in order to ensure that notes are taken on information that is seized by the Commission. Copies of documents that are seized by the Commission must be kept (by the company and its legal representatives).  During this time, employees must continue to work, so as to prevent business interruption. All employees must know what is expected of them when a raid is conducted and when they comply with the inspectors' powers, hence the requirement for training is so crucial. Failure by a company to comply with its legal obligations during a dawn raid raises a risk of significant fines as well as a risk of civil or even criminal sanctions being imposed.

In light of the above, companies need to be fully prepared for dawn raids since we have seen their rebirth. To be fully prepared, companies need to have dawn raid training for its employees. A legal audit will ensure that a company has complied with the provisions of the Competition Act.

Motsoeneng Bill Attorneys has a dedicated, reliable, and hard-working corporate & commercial law team. We are ready to render tailor-made solutions to any legal challenge that your organisation may be facing – whether the issue be within the competition law arena or any other area within the commercial sector. Please do not hesitate to contact the writer herein for the best professional legal service.