In December 2015, the Egyptian Competition Authority (ECA) announced that it had uncovered a cartel in the pharmaceutical distribution sector and referred the four infringing companies to the Prosecutor’s Office. If subsequently referred to the Criminal Court, the companies /responsible managers of those companies may be jointly liable for fines of up to EGP 500 million (approximately USD$ 64 million). Significantly, the ECA revealed that it had gathered evidence of the cartel during dawn raids. These are unannounced and highly intrusive inspections where officials from the Egyptian competition authority can:
- enter premises (public or private, with the exception of places of residence) without a warrant during business hours ; and
- review all available documents, ledgers, computers, emails and other e-documents as well as take copies.
Although we believe the ECA conducted dawn raids in other sectors in the final quarter of 2015, this is the first dawn raid which the ECA has publicly mentioned in four years. The ECA’s renewed focus on dawn raids is not surprising. Dawn raids are a ‘tried and tested’ method, internationally, for obtaining evidence of cartels – as is clear from our 2014 Dawn Raid Map. Often, raids are triggered by a leniency application – where the first company to self-report an infringement of the competition rules can escape fines. But competition authorities may also launch raids (as was the case here) following a complaint.
Implications for you
Dawn raids are intrusive and effective at gathering evidence. Indeed, the ECA managed to conclude this case in 10 months – probably due to the quality of the direct evidence uncovered. Consequently, companies that are active in Egypt – especially in higher risk sectors where there are only a few competitors – should ensure that dawn raid preparedness is part of their approach to competition law compliance. By taking the time to put in place a checklist and training for key personnel (e.g. Reception, Legal, IT staff), a company can mitigate the risks. Preparation will enable a targeted company to cooperate as required by law but also defend itself by making sure that officials do not go beyond the limits of their powers.
Price fixing in the pharma sector – what happened?
On 3 February 2015, the Syndicate of Pharmacists complained to the ECA that the four main distributors of pharmaceuticals in Egypt had engaged in a cartel to fix prices and coordinate on the commercial terms offered to small and medium pharmacy customers in Egypt. The ECA’s investigation concluded that the companies had indeed fixed their prices by agreeing to reduce credit/facility periods and discounts for small and medium-sized pharmacies. The ECA found that this collusion adversely affected small and medium-sized pharmacies by reducing their profit margins. It also restricted their ability to provide medicines in the quantities and variety needed, and caused them to lose customers. Ultimately this conduct harmed end consumers, including by reducing the availability of medicines in remoter areas.
Companies need to be alert to the fact that the ECA has increased its competition law enforcement activity – and formally returned to using intrusive investigative methods. Indeed, in this case and others, the ECA was able to obtain clear evidence as a result of a dawn raid, e.g. a clear signed document indicating the existence of a cartel. Companies are advised to ensure that managers and employees have at least a basic understanding of Egyptian competition law to avoid engaging in practices which could have criminal consequences and expose the companies and the individuals to very large fines and negative publicity. Being prepared for a dawn raid can also remove some of the stress and ensure that the company is best placed to defend itself against serious allegations.