European Commission, Competition DG

European Commission explains why it imposed a €38m fine on E.ON for the breach of a seal during inspection

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Source: European Commission, Competition DG

What is the legal background of the Commission’s decision?

The Commission has the power under Article 20(2)(d) of the Regulation (EC) 1/2003 to seal any business premises, books or records during the course of an unannounced inspection. This provision is intended to guarantee that incriminating documents are not removed before the Commission could register and copy them. The power to seal premises is of particular importance for the European Commission, since the Commission cannot simply seize whole filing cabinets and computers for later review at the Commission's headquarters. The search is done on the premises, and takes usually more than one day. Seals are thus necessary to ensure the efficiency and integrity of Commission inspections.

According to Article 23(1)(e) of the Regulation (EC) 1/2003, the Commission can impose a fine of up to 1% of the company's annual turnover should a seal be broken intentionally or negligently. The establishment of an intention to breach the seal is thus no precondition for a fine under Article 23.

Why does E.ON have to pay a fine although it is not proven that the seal was broken by E.ON intentionally and/or that documents were actually removed?

Regulation (EC) 1/2003 requires companies not to impede, mislead or otherwise threaten the integrity and effectiveness of a Commission antitrust investigation, inter alia by breaking seals during an inspection. It is therefore sufficient for a seal to be broken either intentionally or through negligence, and for a company to have had the opportunity to remove incriminating documents, for a Commission investigation to be compromised. By definition a seal is intended to be used during a period when no Commission official is present. Therefore - although the decision does not address the issue of whether E.ON broke the seal intentionally or removed incriminating documents - such a possibility cannot be ruled out. In practice, it would almost never be possible to prove that a seal had been broken intentionally or that documents were indeed removed.

If the Commission were obliged to prove an intentional breach, it would have to permanently supervise the seal, which would make the use of the seal redundant. This is why the Regulation (EC) 1/2003, like most similar provisions in Member States, does not require the Commission to prove an intentional breach. It is sufficient to show that the seal was broken at least negligently.

E.ON has not offered any credible explanations why the indications of a breach were apparent on the entire surface of the seal when the Commission team came back the next day. In this respect it is also important to note that according to EON no unauthorised person was in the building during the night and that E.ON had not informed all personnel in the building about the need to respect the seal.

It should also be taken into account that a negligent breach of the seal could easily have been avoided by E.ON in this case, since E.ON, one of Europe's largest energy companies, was well aware of the potentially serious consequences of a broken seal and even had a security service at its disposal. One could therefore expect that E.ON would have taken the necessary measures to secure the seal.

Does the Commission have evidence that the door was actually opened and documents actually removed from the room?

The Commission is sure that the seal was broken. Whether - and if so how long - the door was open and whether - and if so how many - documents were taken out by E.ON, is not of relevance for the decision of the Commission to impose a fine for the breach of the seal. In this respect it is however also interesting to note that E.ON had originally argued that the Commission was in the possession of the only key for the room, which had been sealed, but in the course of the investigation it turned out that 20 keys were in circulation for the room in question.

For the case at stake it should also be taken into account that the documents stored in the sealed room were pre-selected by the Commission team, but the Commission had not yet been able to register and copy all the documents collected in the first hours of the inspection. It is therefore possible that documents disappeared without the Commission being able to notice it. In any event asking for additional evidence would undermine the very purpose of a seal.

Why did the Commission not impose a higher fine (e.g. 1% of E.ON Energie’s turnover)?

When setting a fine, the Commission has to respect general legal principles such as the principle of proportionality. In this case, the Commission has not opted for a higher fine, inter alia because it was the first case ever in which the Commission imposed a fine for breaking a Commission seal.

Has the Commission already previously adopted fines for violations of procedural provisions?

While the Commission has never fined a company for breaking a seal before and while it is the first time that a fine is imposed by way of a separate decision, the Commission has previously been confronted with cases of obstruction of Commission investigations (e.g. by hindering inspection teams to enter business premises, destroying evidence, incorrect answers to information requests etc.). In these cases, the obstruction attempts were taken into account in the calculation of the fine for the breach of substantive law, i.e. there was no separate procedure for the violation of procedural rules (such as in this case). The previous examples show that it is important that fines in such cases have to be sufficiently deterrent to prevent companies from obstructing the Commission’s investigation.

Is it true that the seal was not torn into two parts but just slightly displaced?

The seal was indeed not 'destroyed' or torn into two parts. This is because the seal, which is made of a very strong plastic film, is designed in a way that it is almost impossible to tear it into parts. Instead, it shows irreversible “VOID”-signs when it is removed from the surface where it was fixed. Even when the seal is re-affixed at the same place where it was before, the “Void”-signs remain visible. Furthermore, when a seal is removed and re-affixed, there are often parts of glue visible next to the seal, because it is very difficult to re-affix the seal at exactly the same place as before. The glue traces next to the seal are therefore a further typical indictor of a broken seal. A third indicator that the seal had been broken was the fact that small parts of glue were found on the back of the seal, at places where previously there was no glue. These glue traces can only be explained by the fact that the seal was removed and re-affixed.

How did E.ON explain the state of the seal?

E.ON has not provided any concrete explanation for the state of the seal. While it had first claimed that a cleaning lady might have “moved” the seal when wiping over it, it then proposed a number of different explanations, including the influence of vibrations between door and frame, of humidity or of a cleaning product. It also claimed that the seal was too old to function properly and that the surface was not cleaned properly before fixing the seal or that the seal might not have been affixed correctly.

The Commission has carefully analysed all these explanations, inter alia with the help of the manufacturer of the seal and an independent expert and has come to the conclusion that none of these explanations can explain the state of the seal as found.

Both the manufacturer and the independent expert have confirmed that there is no conceivable other explanation for the state of the seal than somebody removing it from the door and re-affixing it. While it may be possible under extreme conditions that a seal does not stick (e.g. on dirty and greasy surfaces), this would not give rise to the appearance of “VOID”-signs (which only appear if the seal stuck on the surface before). Similarly, although vibrations of the door may loosen small parts of the seal (e.g. 1-2 mm along the gap between door and frame), “VOID”-signs would not appear on the whole surface of the seal in such a scenario. Also the glue parts at the edges and on the back of the seal cannot be explained by vibrations, but only by a breach of a seal.

Neither the age of the seal, nor the fact that the surface on which it was affixed might not have been cleaned before, nor humidity, vibrations, the impact of a cleaning agent or all factors combined can explain the state of the seal. E.ON has not submitted any study or test result that could show that vibrations, humidity or any other reason might result in a state of the seal comparable to the one found by the Commission. The Commission's expert confirmed the full functioning of the seals in his tests.

Is it true that the expiry date of the seals used by the Commission had already lapsed?

The seals used by the Commission do not have an “expiry date”. While the product guarantee of the seals may have expired, this has, according to the manufacturer and the Commission’s own tests, no effect on the functioning of the seals. The appearance of VOID signs on the whole surface can under no circumstances be explained by the age of the seals. Many seals stemming from the same production batch have been tested in the meantime and they all functioned properly.

Is it the first time that a seal was broken?

Yes, but there were, as explained above, other cases in which companies obstructed the Commission's investigation (e.g. by hiding or destroying documents, delaying the entry of the inspection team etc.). This behaviour has already in past cases led to a significant increase of the fine of several million euros.

Why did it take so long before the Commission could adopt a decision in this case?

In the course of the procedure, E.ON has successively submitted a number of detailed expert opinions with varying explanations for the state of the seal. The Commission had to verify these arguments carefully before it could adopt a decision. In particular with a view to the high fine at stake, the Commission has sought to exclude any possibility that the state of the seal could be explained by any other reason than a breach of the seal, inter alia by ordering several own studies to test the functioning of the seals used by the Commission.

Why did the Commission leave documents in the premises of E.ON at all?

In particular in large companies, the Commission cannot search all premises and register and copy the collected documents within a few hours, and it has no powers to remove the original documents from the premises. This is why the Commission often stores the documents initially collected in a room secured by a seal in order to prevent their removal. Also – unless the company allows the Commission to stay longer – inspections have to respect normal office hours of the company.

Might the incident have a negative effect on the investigation of the main case concerning anticompetitive practices in the German electricity sector?

The Commission cannot rule out the possibility that important documents were removed in the night of 29/30 May 2006. However, it is impossible to prove that a specific document is missing since the documents had not been verified, registered and copied. The Commission's investigation in the main case concerning anticompetitive practices on the German electricity market is ongoing.

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