Investigation Agency Must Disclose Names of Investigated Companies to ACM

Difotrust, a forensic investigation agency, must disclose to the ACM the names of the companies in a specific sector of industry investiged by Difotrust for evidence of possible violations of the Competitive Trading Act. The Court of Appeal of ’s-Hertogenbosch so decided in its ruling of 24 April 2013.  Earlier, on 5 October 2012, the Court of The Hague had ruled that Difotrust’s obligation to cooperate did not extend to such disclosure.

The Procedure

Last year the ACM, then called the NMA, was investigating possible violations of the Competitive Trading Act in a specific sector of industry. In this investigation the ACM established that Difotrust had audited several companies in that sector for violations of the Competitive Trading Act. The ACM asked Difotrust for the names of the companies that had been the subject of forensic audits. When Difotrust refused to disclose those names, a discussion ensued about the scope of the obligation to cooperate as referred to in Article 5:20 General Administrative Law Act (‘Awb’). Difotrust eventually took the matter to the Court of ’s-Hertogenbosch, which in a judgment of 5 October 2012 decided that Difotrust’s obligation to cooperate was not as comprehensive as the ACM believed. However, Difotrust was required to retain the information to which the ACM referred for a period of three months. The State filed appeal against this judgment with the Court of Appeal of  ’s-Hertogenbosch.

The Obligation to Cooperate Contained in Article 5:20 Awb

Article 5:16 Abw stipulates that regulators have the right to demand information. Pursuant to Article 5.20.1 Awb everyone is required to comply with such demand within the term set by the regulators. According to the Court of Appeal the limits of the regulators’ powers in this respect are defined only by the general principles of proper administration by which the regulators, too, are bound, and the criterion laid down in Article 5:13 Awb, by which regulators may exercise those powers only insofar as reasonably required for the exercise of their duties (the so-called proportionality principle). In the Court of Appeal’s view this means that, unlike the Court held, there is no rule of law that opposes regulators like the ACM to request information from third parties on the basis of which they can decide whether (further) regulatory powers will be exercised (whether or not against companies that are suspected of making cartel agreements).

Moreover, there is no general rule that information can be requested from third parties only if that information is no longer available at the potential offender. In specific cases, however, the circumstance that the requested information may be retrieved otherwise could imply that requesting information from third parties is disproportionate. Holding that the Court’s reasoning was not correct, the Court of Appeal examined whether the ACM had acted in breach of the proportionality principle or any other general principle of proper administration by asking Difotrust to disclose the names of the companies it had audited.

Appraisal by the Court of Appeal

In the opinion of the Court of Appeal the ACM has a justified interest in learning the names of the companies at which Difotrust has performed forensic audits. The findings of the audit, after all, enable those companies to remove any evidence of violations of competitive trading regulations. Moreover, the request is not disproportionate as the ACM just wanted to have the names of the companies, not the findings of the audit itself. As part of the obligation to cooperate Difotrust could even be required to draw up a new document for the ACM if necessary. Although the Court of Appeal believes there are limits to what can be asked of the party to which the regulator applies, in this particular case such limits are not exceeded given the limited information requested by the ACM of Difotrust.

Difotrust  held the view that it could no longer do its work if the ACM would be able to compel Difotrust to disclose the names of the companies where Difotrust performs or has performed audits. The Court of Appeal dismissed this defence because at the hearing Difotrust had stated that it was now performing its audits under the flag of a holder of confidential information, such as a lawyer, and that on that basis Difotrust could rely on a derived right of non-disclosure.

Difotrust had promised confidentiality to the companies it audited. This duty of confidentiality, so Difotrust held, opposed disclosure of the names to the ACM. This defence, too, was dismissed. According to the Court of Appeal the manner in which Difotrust had contracted with its customers did not prejudice ACM’s powers under Articles 5:16 and 5:20 Awb.  Moreover, the Court of Appeal subtly pointed out that the non-disclosure undertaking given by Difotrust provided for the possibility of disclosing information if so requested by the competent authorities.

On a final note, the Court of Appeal discussed Difotrust’s obligation to retain the information requested by the ACM for three months. In the Court of Appeal’s view the obligation to cooperate contained in Article 5:16  Awb includes the obligation to retain certain information in connection with the possible exercise by regulators of the rights laid down in Articles  5:16 and 5:17 Awb. The ACM held that Difotrust should retain the information for the entire duration of the investigation. The Court of Appeal clearly thought this too drastic, as the ACM’s viewpoint in fact implied an unlimited duty of retention. Taking everything into consideration the Court of Appeal ruled that Difotrust should retain the information in question for six months after the ruling had become final and irrevocable.

Conclusion

The ruling discussed above has sweeping implications in practice. Companies that have an audit done, after all, run the risk that the investigation agency must inform the ACM that such audit has been performed, or may even have to provide the findings of that audit. Whenever they are the subject of a forensic audit companies would do well, therefore, to have that audit performed under the flag of a holder of confidential information, like a lawyer.