Wiretapping: A valuable tool for competition authorities

Introduction

In Europe, competition authorities are making increased use of wiretap evidence to sanction anticompetitive activities such as cartels. Since the latter are often deliberately concealed by participants, they are difficult to detect. Evidence-sharing partnerships with criminal justice agencies and a recent initial endorsement of the use of wiretap evidence by the European Court of Human Rights (EctHR) suggest the usage of wiretap evidence could continue to increase. Meanwhile, the EU legislative framework for cooperation between national competition authorities appears to permit the sharing of wiretap evidence with one another.

The European Commission

We outline below, with reference to the EU legislative framework and to the case law of the European Court of Justice (ECJ), how wiretaps might start to feature more prominently in the European Commission’s (EC) cartel decisions.

Legislative framework

The EC’s most intrusive investigative powers are set out in Art.20 of Regulation 1/2003, the key legislation governing EU antitrust enforcement. The EC ‘may conduct all necessary inspections of undertakings and associations of undertakings’ and it can examine the books and other records related to businesses, irrespective of how these records are stored, as well as take copies of these (Art.20(2)(b) and 20(2)(c) of Regulation 1/2003). This now extends to private premises in certain circumstances, and these so-called ‘dawn raids’ can be unannounced. But Regulation 1/2003 does not itself contemplate real-time or interceptive surveillance capability.

ECJ case law

The EU General Court has examined the conditions under which secret recordings of telephone conversations (and related documentary notes) could be admitted as evidence of an Art.101 TFEU infringement in relation to a complex cartel concerning North Sea grey shrimp (Case T-54/14, Goldfish and Others v Commission). Here, the issue was not wiretaps, but rather recordings produced in secret by one of the cartelists in the Netherlands and obtained via the EC’s standard premises search powers.

The General Court concluded that, where such evidence was obtained lawfully by the EC, it was entirely -- at the level of principle -- admissible in an investigation into a breach of competition law (see Goldfish paras. 42-7, 58-9). It went further, stating that there was no provision in EU law expressly prohibiting evidence originally obtained unlawfully (for instance, in breach of fundamental rights)) from being considered in an investigation or judicial proceedings. The principle of the unfettered evaluation of evidence is key, even though fundamental rights and EU law general principles must still be considered (see Goldfish para. 76-80 and case law cited).

While not explicitly a wiretaps case, the Goldfish case provides insight as to how the EC might approach the use of wiretap evidence. Assuming it obtains this lawfully (see part (c) below for further), to comply with fair trial procedural safeguards, wiretaps would likely need to be part of a wider body of evidence and be disclosed to the parties during the investigation process. The parties would then have an opportunity to challenge their credibility in proving an antitrust infringement (see Goldfish, paras. 62-73).

Cooperation within the European Competition Network

Any EU Member State’s national competition authority (NCA) may on its own territory conduct “any investigation or fact-finding measure under its national law” either for itself or on behalf of another member of the ECN, the group of competent European agencies (Art.22(1) of Regulation 1/2003). Pursuant to Art.22(2) of Regulation 1/2003, NCAs, at the request of the EC, must also undertake inspections that the EC considers necessary under its powers of inspection.

The ECN members can extensively share information amongst themselves. For example, members can provide one another with, and use in evidence, any matter of fact or of law, including confidential information (Art.12(1) Regulation 1/2003). The provision covers the exchange between the Commission and NCAs and among NCAs. According to para.27 of the ECN Notice the legality of the evidence, for example from wiretaps, is assessed on the basis of the law of the transmitting authority.

The conditions in Art.12(2) could, however, limit the widespread sharing of wiretap evidence between EU Member State NCAs. First, the receiving authority can only use the exchanged information as evidence for the purposes of applying Art.101 and 102 TFEU (the EU’s central provisions against anti-competitive agreements and abuse of dominance). Second, it can only use the information in respect of the subject matter for which the transmitting authority originally collected the information. It is irrelevant in this context whether the procedure is of an administrative or criminal nature. The requirement does not therefore seem to prevent the Commission or an NCA from using wiretap evidence collected by a non-competition authority in a Member State as long as it was obtained lawfully on the basis of that country’s national law (especially considering the conclusions on the admissibility of transmitted evidence in ECJ, Case C-469/15 P, FSL v Commission).

Moreover, according to Art.12(3) of Regulation 1/2003, any wiretap evidence exchanged in this way can only be used to impose sanctions on natural persons if one of two alternative requirements is met. The law of the transmitting NCA jurisdiction must foresee sanctions of a similar kind in relation to infringements of Art.101 or 102 TFEU. If it does not, sanctions can be imposed only where information has been collected in a way which protects, to the same level, individuals’ rights of defence under the national rules of the receiving NCA. In the latter cases, the wiretap evidence cannot be used to impose custodial sanctions.

Whilst the exchange of wiretap evidence exchange may be possible, this does not mean the EC has used it in practice. Indeed, a review of the EC’s cartel infringement decisions in recent years finds no public discussion as yet of the use of wiretap evidence. Given the legislative provisions in place, however, the EC could plausibly use wiretap evidence where it receives such information from an NCA and the conditions above are fulfilled.

EU Member States

Use of wiretap evidence

National competition authorities have used evidence obtained through wiretapping when investigating competition law infringements.

• Latvia

In June 2023, in Latvia, three road construction companies were fined EUR 4.5m by Latvia’s Competition Council for rigging seven bids worth nearly EUR 25m. The tenders were run by the state-owned Latvian State Roads contracting authority between 2016 and 2018. Key evidence included several wiretapped restaurant conversations between the companies involved, and Latvian State Road officials. The evidence was provided to the Latvian Competition Council by the country’s Corruption Prevention and Combating Bureau and, according to a spokesperson of the agency, the Latvian Supreme Court has previously confirmed the legality of using such evidence.

• Italy

In 2022, relying on wiretaps, Italy’s national competition authority (AGCM) fined eight companies for bid-rigging a contract, worth EUR 2.7bn in 2016, for the supply of energy and ancillary services to public facilities. The AGCM based its assessment partly on documents acquired in the context of criminal proceedings conducted by the Prosecutor of the Republic of Rome in relation to the infringement.

• The Netherlands

In 2011, the Dutch competition authority used secret wiretaps, initially procured by the country’s Ministry of Housing, Spatial Planning and the Environment, to fine ship waste collection enterprises more than EUR 2.9 million, for price fixing and market allocation. The Dutch Public Prosecution Service and the Ministry’s investigation unit had handed over the recordings of wiretaps as well as written documentation to the competition authority.

Formalised cooperation agreements

A trend is emerging towards more formalised cooperation arrangements between agencies within Member States. State prosecutors and other criminal investigative agencies have been seen to transfer wiretap evidence to competition authorities. Distinct competency for criminal and civil investigations in the individual EU member states is often at the root of this situation.

In 2021, in the Netherlands, a new, formal cooperation agreement between the Authority for Consumers and Markets, and the Public Prosecution Service, was concluded. The latter is now permitted to provide data obtained in criminal proceedings “for purposes outside criminal justice” if this is “necessary for the purposes of an overriding interest” (see Art.9). The Chamber of Deputies in Czechia adopted new legislation in May 2023, which empowers the Office for the Protection of Competition to use wiretapping evidence obtained by the police in the course of criminal investigations in competition cases involving secret agreements between competitors and concerted anti-competitive practices. The Office does not itself have powers to procure wiretapping evidence. Although this reform was proposed in the context of implementing the ECN+ Directive into national law, the ECN+ Directive, which aims to improve enforcement cooperation across EU Member States, is silent on such surveillance capabilities. The Italian bid-rigging wiretaps mentioned above were provided to the AGCM via a 2018 cooperation agreement with public prosecutors in Rome and it is worth noting that the AGCM signed a comparable Memorandum of Understanding with the public prosecutor in Milan.

The above analysis suggests that a key factor for greater wiretap use is the extent to which national law permits the transfer of surveillance products from criminal investigations to administrative antitrust proceedings. We observe a far from uniform picture across the Member States. For instance, in Germany, the Federal Cartel Office is not empowered to wiretap or conduct electronic surveillance. Only where a bid rigging offence under Art.298 of the Criminal Code is at issue, telecommunications surveillance may be ordered by a court upon application of the public prosecution office. In France, meanwhile, in the context of secret recordings only, the Supreme Court held in 2011 that such evidence could not be used in proceedings to prove French competition law infringements (Cour de Cassation, 7 January 2011, Pourvoi n. 09-14.316).

Endorsement by the ECHR

The transfer of evidence obtained through surveillance to an antitrust agency was endorsed by the ECtHR in May 2023 (see Burando Holding B.V. and Port Invest v the Netherlands (2023)). It examined the fundamental rights concerns raised by such surveillance measures. Three applicant Dutch companies complained that the transmission to the country’s competition authority of intercepted conversations, legitimately collected in a separate criminal investigation, was a violation of the right to privacy in Art.8 ECHR. The Court applied the standards developed for secret surveillance measures to this question. It ruled that applicable Dutch national law gave “an adequate indication as to the circumstances in which and the conditions on which” public prosecutors could transmit the data. The Court was also satisfied that there were sufficient safeguards in place, such that the “system was adequately capable of avoiding abuse of power”. The interference with Art.8 ECHR could thus be legitimate to protect that nation’s economic well-being.

These grouped cases establish a precedent for this type of evidence transfer in the antirust context. It could therefore be instructive for national reform programmes, which seek to empower NCAs further in their use of surveillance methods. The Court nevertheless made clear that what is required by way of safeguards is context dependent. Legal frameworks currently in place in other European member states may not satisfy the Court that domestic protection against abuse is safeguarded. The judges were also themselves narrowly split on this question.

Note that in late September 2023, the cases were referred to the Grand Chamber of the ECtHR and they remain pending.

Use of surveillance tools in the UK

Legislative framework

The UK’s Competition and Markets Authority (CMA) has certain intrusive surveillance powers under the UK’s Regulation of Investigatory Powers Act (2000). These do not concern wiretapping per se, but rather ‘directed’ and ‘intrusive’ surveillance powers such as the monitoring of people, vehicles, and the use of covert human intelligence sources (see sections 28, 29 and 29B).

The UK’s regime governing electronic surveillance powers, meanwhile, was substantially reformed in 2016 by the Investigatory Powers Act. On the one hand, the CMA is empowered to request ‘targeted equipment interference warrants’ itself under this legislation. These concern interference with equipment for the purpose of obtaining communications. This includes monitoring, observing or listening to a person’s communications or other activities, and recording these. The CMA can also obtain ‘targeted examination warrants. However, these types of warrants should be distinguished from interception warrants, which authorise the interception of communications during their transmission. The CMA is not one of a limited number of UK agencies with such powers.

On the other hand, the 2016 Act also restricts the CMA’s use of its powers. The CMA chair may only issue a targeted equipment interference warrant, if considered necessary for the purpose of preventing or detecting serious crime. Section 106(10) of the Investigatory Powers Act 2016 is explicit that the CMA chair may only consider this condition satisfied if the offence to which the serious crime relates is the criminal cartel offence. Further, the authorisation must be proportionate, disclosure safeguards must be in place and a Judicial Commissioner should approve the decision to issue the warrant. Proceedings for the cartel offence are also generally only initiated in cooperation with the Serious Fraud Office. Prosecutions for this offence have been rare in the UK. The CMA has secured five convictions for the criminal cartel offence to date. All five individuals pleaded guilty – three regarding the marine hose cartel, one regarding the pre-cast concrete drainage products cartel and one regarding the galvanised steel tanks cartel. There is no publicly known information about whether the CMA has investigated any criminal cartel offence cases since 2017. Although following a change in approach in late 2016, the CMA has notably significantly increased use of its director disqualifications powers in cartel cases, pursuing these even where it has not brought a criminal prosecution.

The pending UK Digital Markets, Competition and Consumers Bill buttresses the CMA’s investigatory powers in the exercise of its functions in relation to digital markets. For instance, the proposed section 71 enables the CMA to access business equipment in certain circumstances to obtain or collect information. However, no new highly intrusive surveillance powers, of the sort discussed here, are granted.

Use of wiretap evidence

A search undertaken of published decisions revealed that the CMA has not publicly highlighted the use of wiretap evidence in its own civil cartel decisions of recent years (noting again from the above that the CMA is unable to make use of interception warrants). However, the CMA does note in procedural guidance that one source of its investigations is indeed the use of its own powers under the Regulation of Investigatory Powers Act (2000). The extent that these available surveillance powers (and those granted by the 2016 Act) are used to substantiate investigations is perhaps not best gauged from public reference to them in the CMA’s decisions.

Implications

Companies should closely monitor for further developments and may need to update internal risk management protocols. If the use of intrusive surveillance intensifies, this could also influence strategies toward both leniency applications and private damages litigation.

Easier detection of cartels

Increased use of wiretapping evidence makes it harder for perpetrators to prevail in successfully disguising illegal behaviour. Where cartel agreements are verbal in nature (as they often are), a lack of written documentation can cause problems for enforcement authorities, when seeking to prove illegal activity. Wiretap evidence provides one, albeit intrusive, solution to this.

Leniency applications

Acting promptly to weigh up the strategic advantages and disadvantages of leniency applications is becoming ever more important. At present it can often be advisable to robustly contest most investigative steps and findings. The highly detrimental consequences of possible follow-on damages litigation, if NCAs establish liability, tends to dictate, in many cases, against applying for leniency. However, if NCAs are more frequently and more easily able to access wiretap evidence from partner criminal justice agencies, it may in general become harder to mount successful defences. In such circumstances, where an infringement decision is likelier in any event, leniency applications could potentially become a more attractive option.

Compliance and governance

Businesses should consider whether internal compliance policies and governance procedures are sufficiently responsive to a strengthened link between antitrust regulators and more traditional corporate crime prevention agencies. They should also question whether their risk management is sufficiently alive to the fact rogue conduct could in future more quickly translate into substantial antitrust financial penalties.

Private litigation

Lastly, it remains to be seen how a greater use of wiretapping might affect private litigation associated with cartel infringement decisions. Canada provides an instructive example, where in 2014 the Supreme Court ruled that plaintiffs suing for damages could access wiretap information previously held only by the country’s Competition Bureau. Should private claimants have greater access to this evidence it could increase the volume, credibility and ease of proving damages claims.

The author wishes to thank Oscar Baker, Trainee Solicitor, Norton Rose Fulbright LLP Brussels for his contribution.