UK: Guidance on FSA Dawn Raids

Introduction

As is evident from the recent press coverage the FSA is using its powers under the Financial Services and Markets Act 2000 (FSMA) to conduct raids on premises for information with more confidence and frequency than ever before. This note sets out the basis on which the FSA may use its powers and also guidance on how entities should prepare for the possibility of, and respond to, dawn raids. It does not deal with the general right the FSA has to visit the premises of authorised firms when exercising its supervisory powers.

The Law

Section 176 FSMA gives the FSA power to apply to a justice of the peace for a warrant for the entry of premises for the inspection and copying of documents and information relating to on-going investigations. Before a justice of the peace can issue a search warrant, he will need to be satisfied that there are reasonable grounds.

The company or person named on the warrant may not in fact be the object of the investigation but may employ someone who is or may be in business with another entity under scrutiny. The FSA will not give advance notice of the raid and the entity being raided is unlikely to even be aware it is under investigation at that point. The raid may extend to personal property as well as business premises and cars. Information stored electronically on computers and mobile phones/other electrical devices will fall within the scope of the definition of information, however depending on how the warrant is drafted there may not be scope for the investigators to image computers. Certain types of items, such as cash, may not be seized under a FSMA warrant.

Procedure

Raids may be carried out at dawn but are usually commenced at the start of the working day. They often take place simultaneously at various offices and homes of key individuals. FSA staff cannot execute a warrant without the attendance of at least one police officer and all people attending on the named premises to assist or search premises must be named on the warrant unless they are a police officer – i.e. the whole search team plus any technical staff must be named on the warrant. The investigators have to obtain a warrant for each of the premises which they enter. The investigators are entitled to use reasonable force to enter premises but they are obliged to show the warrant to whoever is in residence.

Once inside the investigators will search through documents, records and computers. They are likely to have at least one specialist computer forensics expert in the team. The investigators are entitled to take copies of any relevant information. If information is not readily available then the investigators can ask for it to be compiled. They may also be in possession of a Search and Seizure Order, in which case they can also take possession of hard drives and original documents. Under FSMA, only information or documents that fall within the terms of the warrant may be seized, however, the police may be able to seize other material (e.g. incriminating material giving direct evidence of a criminal offence) even if not specified in the warrant.

Access only has to be granted to information relevant to the warrant which will describe the terms on which it has been granted and to what it relates. Naturally investigators will usually make sure this is as vague as possible so that they have more scope for the search. It is possible to redact documents so that only relevant information is copied for the investigators. In addition, legally privileged documents do not have to be provided and that includes documents which might lead to self-incrimination. Legal advice should be sought to ensure there are reasonable grounds to believe that privilege exists. The investigators must keep a record of all documents they copy and they will ask someone to sign it before they leave and at that time a copy should be taken for the records of the company.

The warrant also entitles the investigators to interview individuals. Failure to co-operate with any aspect of the raid could be a criminal offence punishable by up to two years in prison1.

As a matter of courtesy investigators may be willing to wait for legal representatives to arrive before they commence their search but they are not obliged to do so.

Advance Preparation

It is recommended that firms advise their employees about the possibility of dawn raids occurring and brief them on the procedure and how they should ascertain the scope of the information which they should provide. In particular they should be aware of the legal consequences of a failure to co-operate and of tipping off any other persons who may be involved. Firms should have in place procedures for key staff to follow in the event of a raid, including who should be notified. We have attached examples of these for your assistance.

Consideration should also be given as to how information is stored and whether legal advice and communications should be filed separately. This is advisable in any event and in the event of a raid it will avoid the inadvertent disclosure of privileged information. In addition, firms are advised to consider lodging copies of sensitive information with their lawyers. If asked for copies the firm can advise the investigators that they are in safe keeping and that the solicitors will undertake to hold them pursuant to a Court order.

Firms should also consider whether the seizure of individual hard drives would inhibit the operation of the company or if all essential information is held on a central server. Consideration should also be given as to how the company would respond to any media interest and in relation to advising investors as to what has occurred. There should be clear internal policies as to how the company would respond if the activities of an employee or director are the focus of any investigation.

General checklist in the event of a raid

If there is a raid on your property, whether business or residential, it is important that you do the following:

  • Check that the warrant has been granted against your premises/abode and that it is signed, dated and sealed and that it is still in date – there will be a window of time for the investigators to make the raid
  • Ensure that all investigators present are named on the warrant. Exclude entry to anyone attempting to enter who is not named
  • Advise the investigators that you are contacting your solicitor and that you will ask them to be present
  • Check the terms of the warrant and the scope of the information which must be provided. Brief employees as to the scope of the warrant and remember you do not have to provide privileged legal advice and you have the right to redact documents which have information in them which is not relevant
  • Co-operate by allowing access to relevant documents and information and advise anyone else involved to co-operate
  • Do not tip off people who may not be present that there is a raid, particularly if you believe that they may also be involved and advise other employees of the same risk. Ask investigators before you notify other offices or directors
  • Keep a list of all the documents copied/supplied/asked for and also any questions which are asked and the answers given. The investigators must provide a list of what they are taking. The two lists should be checked against one another before you accept and sign the investigation record of documents copied/taken
  • Compile a report on the raid

Checklist for receptionists

  • Check the investigators' authorisations and take their names
  • Take copies of the authorisations and warrant
  • Seat the officials in an empty room and explain that you will call a senior person
  • Notify the following people straight away:
    • MD
    • In-house lawyers/external lawyers
    • anyone for whom the officials ask by name
  • Beware not to tip off any other person as to the raid

Checklist for Senior Management/In-House Counsel

  • If you don't have in-house lawyers, call your external lawyer
  • Let the investigators know when your lawyer will arrive and ask if they will wait
  • Unless you are told not to by the officials, call head office/other group companies in case of parallel investigation but be wary of tipping off
  • Check that the warrant has been granted against your premises/abode and that it is signed, dated and sealed and that it is still in date – there will be a window of time for the investigators to make the raid
  • Ensure that all investigators present are named on the warrant. Exclude entry to anyone attempting to enter who is not named
  • Do not leave the investigators unescorted in the Firm's premises and allocate a member of staff to shadow each investigator
  • If they will not wait for your lawyer to arrive check the terms of the warrant and the scope of the information which must be provided. Brief employees as to the scope of the warrant and remember you do not have to provide privileged legal advice and you have the right to redact documents which have information in them which is not relevant
  • Co-operate by allowing access to relevant documents and information and advise anyone else involved to co-operate
  • Keep a list of all the documents copied/supplied/asked for and also any questions which are asked and the answers given. The investigators must provide a list of what they are taking. The two lists should be checked against one another before you accept and sign the investigation record of documents copied/taken
  • Compile a report on the raid and begin to prepare briefings to stakeholders and the media

Footnote

1 Failure to comply with the warrant or to cooperate with the raid and/or to knowingly or recklessly falsifying, concealing, destroying or otherwise disposing of a document, or causing such to happen, which a person knows or suspects is or would be relevant to such an investigation is deemed to be contempt of court and can result in a prison sentence of up to two years. In addition, providing false or misleading information either knowingly or recklessly has the same sanction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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