On a Tuesday in July, European Union antitrust regulators showed up in the lobby of Orange SA (ORA)’s offices on the edge of Paris armed with laptops and a search warrant.
Stephane Richard, the chief executive officer of France’s largest phone company, was quickly forced to hand over his iPhone as the EU’s antitrust enforcement arm hunted for evidence that Orange was abusing its dominant position in the Internet connectivity market.
“They have their methods,” Richard said as he recalled the confiscation. Deutsche Telekom AG (DTE) CEO Rene Obermann and Cesar Alierta, his counterpart at Telefonica SA (TEF), also had their mobile phones snatched away during simultaneous July 9 raids by the EU, Richard said in an interview at a Brussels conference last week.
Analyzing electronic data, such as online chats used by Barclays Plc (BARC) traders to rig the London interbank lending rate, or Libor, has become commonplace for competition regulators. Smartphones are the tip of the iceberg as investigators mine everything from DVDs to tablets and desktop PCs for evidence.
Cecilio Madero, the EU’s deputy director-general for antitrust, said in June that officials pried into cloud-data stored remotely by BP Plc (BP/), Royal Dutch Shell Plc (RDSA) and Statoil ASA (STL) during raids in May.
“Companies have nowhere to hide,” Peter Citron, a lawyer at the Brussels office of Hogan Lovells International LLP. “The European Commission has sharpened its IT search methods over recent years, which make it less likely than ever that they will miss the smoking gun.”
The EU has had to rely more on electronic evidence as companies have gotten better at watching what they leave lying around the office. Gone are the days when officials found binders of paper documents in open sight with the words “cartel minutes” emblazoned on them, Kevin Coates, head of an EU antitrust unit, said in a blog post earlier this month.
Such “generous aid to the commission’s investigations rarely happens today -- cartelists have become more careful, and electronic documents have largely replaced paper ones,” said Coates, speaking in a personal capacity.
It’s “extremely difficult” for regulators to open cartel cases without outside help, Joaquin Almunia, the EU’s competition commissioner, said at a conference in Brussels today. The commission relies on companies or individuals in the know to blow the whistle, he said.
That enables the inspectors to “figure out what kind of information they need” when sifting through laptops and smartphones during raids.
Forensic software that allows inspectors to sift through huge volumes of data has been used in about 280 inspection sites since 2006, said Antoine Colombani, spokesman for Almunia.
After EU inspectors have copied data, they refine their search using keywords, according to an explanatory note on dawn raids.
Names of suspects, competitors and cities are among the most common initial search terms. More in hope than expectation, the word “cartel” is also still checked.
“Officials never have a perfect understanding of the scope of the case at the start of the inspection,” Coates said. “Search terms will develop depending on how the inspection develops.”
While the commission has broad investigative powers, it must tread carefully because it doesn’t have carte blanche to conduct fishing expeditions on company records. Privacy is another minefield, even in cases where raids aren’t carried out.
The commission inadvertently sent confidential data to 13 of the world’s biggest lenders this year as part of a probe into the credit derivatives industry. The EU authority blamed lawyers for some of the companies for failing to delete sensitive information that was sent to others involved.
With forensic IT tools “it is now much easier for any competition authority to copy a vast amount of material -- and therefore far more than they would be entitled to copy if they went through the documents in the old-fashioned way,” said John Temple Lang, a former antitrust official who’s now a consultant at Cleary Gottlieb Steen & Hamilton LLP in Brussels.
“There’s a lot of stuff there that the commission has no right to look at at all because it’s outside the terms of any reasonably, well-drafted search decision,” he said.
Having to review all the data collected is “extra work” for antitrust targets and their lawyers “and it’s an unnecessary and unjustifiable infringement of the company’s right to privacy” guaranteed by the Charter of Fundamental Rights, Temple Lang said.
During a four-day search of Orange’s premises, about 15 EU officials visited four different locations. After copying the data contained in Richard’s phone, the device was handed back a few hours later, according to a person familiar with the investigation, who asked not to be identified because the probe isn’t public.
Others had their work phones and e-mail accounts frozen for two days, said the person. Orange’s representatives declined to comment on the EU raids beyond Richard’s comments.
Telefonica cooperated with the commission officials, Simon Lloyd, a spokesman for the Madrid-based phone company, said in a text message. “This is what we always do in these cases,” he said. He declined to comment further.
Andreas Middel, a spokesman for Deutsche Telekom in Berlin, declined to comment on the specifics of the case.
While the technology used in EU antitrust raids has changed, some things have stayed the same, said Citron at Hogan Lovells.
As in the Orange case, “raids tend to happen on a Tuesday,” he said. “This allows inspectors time to travel to the company and finish a raid -- which can be up to 3 or 4 days -- without encroaching on the weekend.”
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