Brussels, Belgium. 9 November 2006

Manoeuvring in the New Europe Best practices in balancing local and regional laws and regulations

Session co-chair:

Christopher Barnard, General Counsel, European Union Group, Coca-Cola

Siobhan Moriarty, Associate General Counsel Diageo, General Counsel Europe, Diageo

Session co-hosts:

Götz Drauz, Maarten Meulenbelt, Howrey LLP

John Cook, Riccardo Celli, O’Melveny & Myers LLP

Session facilitator:

Leigh Dance, ELD International, Inc

As companies increasingly operate across multiple jurisdictions, general counsel frequently find themselves forced to deal with unfamiliar legal regimes and unknown regulators. This counsel to counsel session examined practical steps that counsel could take to minimise their employees’ legal risk exposure at the hands of these regulators.

Dealing with local regulators

Many general counsel are responsible for wide geographical areas, covering multiple countries and territories. Realistically, they cannot be expected to maintain a close working relationship with each of the regulators that oversee their company’s business units. With limited resources, it is normally prudent for counsel to concentrate their attention on the regulators that are critical to the company’s existence.

Of course, even this approach may not be without its problems. One counsel who attended the meeting admitted that they were unsure who in their company was ultimately responsible for maintaining relations with the regulators. “In my company, there’s a real turf war between our public affairs division and the regulatory lawyers over who should maintain that relationship,” they stated. Clearly, not an ideal state of affairs, this uncertainly makes it possible that both departments were doing the same work, and therefore wasting money. More seriously, there was also the danger that both departments could be presenting a different “public face” of the company to the regulators.

In order to facilitate good working relations with regulators, one participant suggested that local business units should actively engage with them in non-conflict situations. One in-house lawyer suggested that, when CEOs or key directors relocated to a new jurisdiction, the in-house counsel should facilitate a friendly meeting between them and their key local regulators.

Here, the objective was for the directors to learn about the priorities of the local regulator, while the regulator could also learn about the concerns of the international business community. The counsel argued that, not only would this approach allow for the formation of “more personal” relations between businesses and regulators, it would also help reinforce the message to – often highly mobile – senior staff that they were now working in a different regulatory framework from the one they may be used to. “Too often, you find that directors assume that they only have to comply with the rules applicable in their head office,” they said.

A private practice participant suggested this approach would probably be most appropriate where a company is entering a new market for the first time, and is likely to face problems with an existing “dominant player”. “If you’re planning to do a lot of filing with a national competition authority for example, then a meeting definitely makes sense”, they said. Others suggested raising their profile with local regulators by intervening in relevant anti-trust matters, or responding to official surveys in a timely fashion.

By contrast, other speakers expressed scepticism about this, suggesting that it may result in a company unnecessarily drawing attention to itself. “I think most regulators would wonder why you wanted to come to see them – what are you trying to hide,” said one private practice lawyer. Just as importantly, many regulators suffer from high staff turnover, making long-lasting relationships difficult to maintain. “In my experience, with the exception of Germany, most of the regulators are very young and badly paid. The good ones don’t stay long, and tend to go into private practice.” For them, the main benefit such an initiative would provide would be to familiarise themselves with their regulators’ methodologies. “If you’re operating in Italy, for example, you need to adopt a more legalistic approach than you would in the UK.”

The challenges of globalisation

In many situations, regulatory investigations can “leak” between countries. The challenge for global counsel is therefore to insure that the risk of regulatory investigations “snowballing” around the world are minimised.

For several speakers, being exposed to multiple regulatory actions required them to take a different legal approach each country affected – hardly a satisfactory solution in a so-called “single market”. “In one dispute we were involved in, each national regulator began a different type of proceedings against us,” recalled one in-house counsel. “In one country, we found ourselves engaged in criminal proceedings and, in other, in regulatory proceedings. In other countries, we settled out of court.” The lesson of this experience is clear – it is often not possible to devise a “one size fits all” solution to multiple regulatory investigations, even if these investigations are based on the same set of facts.

For those around the table, the principal challenge in terms of regulatory co-operation was in relation to competition law-based proceedings. Here, the European Competition Network was singled out as the most active body in terms of cross-border co-operation. “This network is fast, intense, and everyone works in English,” commented a law firm representative. “Every time a new investigation is launched by one of its regulatory bodies, details are submitted to the Network. This means that, if you become aware that an investigation is taking place in one jurisdiction, you should take it for granted that investigations are also taking place elsewhere.” However, few counsel at the meeting believed that this intra-country cooperation would be extended into other legal disciplines – especially in relation to tax law. “Tax law remains ferociously national, and I believe most countries want to keep it that way,” commented one corporate lawyer. Another added: “I’ve not noticed any enthusiasm for harmonising tax regimes in Europe.”

One issue that several speakers were unsure of was the extent to which regulators shared information gathered during their individual investigations between themselves. This issue is particularly important where one agency has specific powers – for example, the ability to make use of phone “taps” – not available to equivalent regulators in other countries. Here, the consensus appeared to be that counsel should err on the side of pessimism. If one regulator discovered incriminating evidence in one country, they should assume that it would be shared with regulators in other countries.

However, despite this threat, most of those present believed that regulatory co-operation and harmonisation was their “least worst” preference on how this issue should develop in the future. Having witnessed the inconsistent approaches taken by national regulators at first hand, several said that, on balance, it was preferable to aim for a consistent regulatory approach throughout Europe.

Handling a regulatory investigation

The possibility that a company should be subject to a regulatory investigation – or, more dramatically, a dawn raid - is a threat that all general counsel should be prepared for. And, realistically, it is not always likely that a raid will take place in a location in which a local in-house counsel is based. General counsel must therefore ensure that all key staff are as highly trained as possible on how best to mitigate the legal threats posed by a raid until legal representation can arrive.

Previous counsel to counsel sessions had stressed the importance of providing training to key staff on how to react the early stages of a raid. Here, counsel can play a lead role, not only in providing training, but also in selecting who should receive it. This is because they are most likely to be familiar with what materials the regulators are likely to be looking for - and what they are entitled to take. “In addition, the in-house lawyer is often the best-placed person to decide who the regulator should meet,” suggested one of the private practice participants. “Often, it’s not just a case of what they know, but how good they are at presenting a situation to outsiders.”

Typically, dawn raid training will be provided to reception staff. This training ensures that the reception staff can authenticate the investigators’ credentials, without unduly antagonising them in the process. The reception staff should also know which key personnel to inform that a raid is taking place. However, this meeting extended the range of staff that counsel should consider providing with training to also include senior secretaries and IT personnel. “The senior secretaries will be the ones who actually supervise the photocopying and delivery of documents,” said one law firm representative. “Regulators often target the junior IT guys in the back office,” another counsel warned.

More generally, counsel agreed that all key staff should be trained to ensure that they do not panic and unduly hamper the investigation. However, this is not to say that they should make life easy for investigators. “I once heard of a company that had a rule that no-one could enter its head office until they had watched a health and safety video,” said one private practice lawyer. “So long as the video doesn’t last more than a few minutes, that is probably acceptable.” However, more high-risk delaying tactics are likely to backfire. “I heard of another company where someone set off a fire alarm when they were raided,” they added. “The investigators wouldn’t believe there was a real emergency unless they received written confirmation that there wasn’t a fire drill taking place”.

Moving beyond the first stage of a raid, the meeting came up with several alternative suggestions on how to make a regulatory investigation run as smoothly as possible. “The best way to save time and money is to make sure you know who in the company to go to in order to get information,” suggested a law firm speaker. “If you are not careful, you may end up getting inaccurate information from someone who doesn’t know what they are talking about.” Developing this theme, a corporate counsel added: “Our lawyers are embedded in our business units, and can get information quickly.”

Takeways

■ General counsel should focus their efforts on maintaining relationships with key regulators in essential markets. While it may be desirable to build working relationships with regulators in other countries, be realistic about what is feasible.

■ Assume that regulators talk to each other, and share information, particularly in relation to competition matters. Keep up-to-date with regulatory investigations taking place in other countries – a similar investigation could be coming your way.

■ Ensure key staff are trained on how to handle the early stages of a raid, before counsel arrives. Inform them that they should not attempt to frustrate an investigation – but nor are they required to be unduly helpful.

■ In the event of an investigation, ensure you know who in the company can provide you with accurate information – quickly.

Last updated -2 July 07

Back to homepage