Thomas Berger heads the litigation department at law firm Allen & Overy. Photo: Allen & Overy

Thomas Berger heads the litigation department at law firm Allen & Overy. Photo: Allen & Overy

The dawn raid--busting into a Luxembourg-based financial institution and demanding access to the most sensitive of documents--used to be a thrice yearly only occurrence for Allen & Overy lawyer Thomas Berger. However, now his team can be called to participate in a dawn raid in a financial institution as often as once a month, and, on one memorable occasion this year, twice in one day. He gives Delano the scoop on the growing number of dawn raids in the grand duchy--and why he thinks this is.

“The first person the police or the inspectors will encounter in a dawn raid is the receptionist,” said Berger. “From this moment on, every second counts, so it is important that reception staff are trained to alert management to a dawn raid immediately--to help them prepare.”

And by preparing, Berger does not mean building a document bonfire and striking a match. In fact, shredding documents can result in a prison term. It instead means being ready to cooperate with the authorities, having one’s data and documents prepared, and having recourse to their own lawyer.

“Once you have faced one [dawn raid] unprepared, the second one takes place completely differently,” Berger said.

The growing number of dawn raids in Luxembourg

A dawn raid is where either law enforcement officials, such as the police, or regulatory bodies, such as the Luxembourg financial authority CSSF, conduct an unannounced inspection on a business premises. During this time they are entitled to question staff, examine documents, take copies and even seal off areas of the office.

In the past, many of these dawn raids in Luxembourg were related to suspected tax offences. Now, according to Berger, it’s broader in scope. “The investigations’ underling offences connected to anti-money laundering, breach of AML. We see quite a few on organised fraud. Abuse of corporate assets is another one.”

And they are growing in number in Luxembourg. Why is this?

“I think there are three reasons,” said Berger. “There is greater manpower at the moment. Authorities are better equipped to carry out dawn raids. Then there is the fact the financial sector has grown and continues to grow.”

However, the third reason is the most important one, according to Berger.

“Today there is more effective cooperation between authorities, for example, the European Investigation Order Directive as of 2014.” The European Investigation Order Directive was introduced in 2014 and implemented in Luxembourg in 2018. It is a mechanism established under EU law by which a judge or magistrate in one EU member state can make a binding request to the law enforcement agencies of another member state to collect evidence to assist in a criminal investigation. 

How to prepare for a dawn raid

For the financial sector, the increased cross-border cooperation promoted by the directive is a wake-up call to understand the risks of dawn raids and to get prepared.

“There are two things to do,” said Berger. “If you want to avoid, or limit risks, you need to promote a strong compliance culture. But, if the dawn raid happens it is important to be prepared.”

Berger advises having a manual in place which sets out the roles of everyone--including the receptionist and security staff--in the event of a dawn raid. This guide will set out what to do when inspectors arrive, when the search starts and what to do when they leave.

Next, there is the training of staff. Inspection authorities during a dawn raid will be most interested in the legal, compliance and IT departments, said Berger.

“In a dawn raid today, all the docs are usually digitised with more and more data [to sift through]. So inspectors are interested in access to IT, the key person being the head of IT.”

The organisation of documentation is crucial. “What is also key is the documentation is organised into privileged documentation. Privileged documentation is lawyer client communication, used for the defence of the company and it is not meant to be seized.”

Speaking of the defence of the company, Berger notes that it is imperative to have a lawyer present. “You need to know who you want to call if you have an inspector arriving--it increases stress otherwise.”

According to Berger, the lawyer and his or her team can accompany the inspectors throughout their search and be present for interrogations of staff. This includes shadowing the inspectors to ensure the internal flow of information.

“Our role during the dawn raid itself is to help the client find the balance between respecting the inspector’s powers and preserving the company right of defense,” said Berger. “One example is the interrogation process. We can help determine whether questions posed by the inspectors are reasonable or not.”

Such is the importance of the lawyer’s presence, the dawn raid can be delayed by an hour or so to allow for the arrival of the company’s lawyer.

So the inspectors arrive unannounced, they potentially wait a short period for the lawyer to arrive, they start the search, see all the necessary papers, copy all necessary data and conduct interrogations, what happens next?

“If there has been a dawn raid, there has been a reason,” said Berger. “You need to work with the company to review what has been seized, analyse the risks, set the strategy and start an internal investigation. It’s about mitigation and remediation. As a company, you’ll need to report to the regulator, to the insurer and to the management.”

The risk of internal chats and emails

It sounds like a lot of work, particularly if the number of dawn raids has been steadily growing in Luxembourg. What are the other main changes?

“What has changed compared to ten years ago is the amount of data [to go through]. More emails, more internal chat,” said Berger. Again, an important area for the company to enforce compliance.

For the legal teams assisting in dawn raids, it’s a busy time and it’s only getting busier. “In my team I have people who have worked in criminal matters able to assist on the spot. One day we had two raids on the same day. It was a coincidence but it was very busy. Dawn raids can last past midnight,” said Berger.

And they must involve early starts too? “Actually, that is not the case. Although it’s called a dawn raid, there’s no point the inspectors arriving at 6am at a financial services company as there will be no one there. The raid has to at least begin during business hours.”

He notes that it’s still morning. “I hope I don’t get a phone call that there’s not one today. There’s still time,” he joked.

This article was published for the Paperjam + Delano Finance newsletter, the weekly source for financial news in Luxembourg. .