Extraterritorial, or just foreign? CMA asserts its right to German documents and BMW challenges – a test case for the CMA’s post-Brexit powers

On 6 December 2022, the UK Competition and Markets Authority ("CMA") imposed a £30,000 fine, plus a daily penalty of £15,000, on Bayerische Motoren Werke AG ("BMW") for a failure to comply with an information request. The daily penalty will continue to accumulate until BMW Group provides the requested information, or until the CMA issues an infringement decision or closes the case. BMW has announced it will appeal the CMA’s decision, making this a critical test-case for the CMA’s post-Brexit information gathering powers.

The CMA’s investigation and the information request to BMW

Last year, the CMA launched an investigation under the Competition Act 1998 (“CA98”) into suspected anti-competitive coordination in relation to the recycling of old or written-off vehicles, specifically cars and vans, which are known in the industry as ‘end-of-life vehicles’ or ELVs. The investigation involves a number of vehicle manufacturers and trade associations and remains in its initial information gathering phase. Critically, although there is a parallel European Commission probe (launched on the same day), in the absence of a formal memorandum of understanding between the two authorities, this did not extend to information sharing.

As the CMA considered that “important aspects of the suspected conduct” occurred outside the UK, it issued a formal notice under section 26 CA98 to the “BMW Group”, which was addressed to BMW UK and its ultimate parent, BMW AG.

BMW seeks to call the CMA’s bluff on its extraterritorial information gathering powers

While BMW UK provided the requested information pertaining to its employees or in its possession, BMW AG refused to comply, claiming that the CMA does not have jurisdiction to require information production from “a company domiciled in Germany which does not have a branch in or operate in the UK”. BMW also said that BMW AG would risk breaching its obligations under German and European data protection law by providing additional information to the CMA.

BMW sought to rely on a UK Supreme Court decision from May 2021, R (on the Application of KBR, Inc) v Director of the Serious Fraud Office (“KBR”), where the UK Supreme Court held that a domestic subsidiary of US-based engineering company KBR (with no fixed place of business in the UK) could not be forced to hand over documents held outside the UK as part of a criminal investigation by the Serious Fraud Office. BMW also argued that the CMA’s information request should have been issued to a “person” (i.e., BMW UK), rather than an “undertaking” (i.e., the entire BMW Group). BMW argued that since the CMA had no power to require documents from BMW AG, it also lacked the power to impose penalties for non-compliance. Given the legal uncertainty on this issue, also evidenced by the fact that the CMA’s information requests to another foreign-domiciled car manufacturer is currently the subject of ongoing judicial review, BMW AG claimed it had a “reasonable excuse” for not responding to the information request.

CMA fights back with its maximum fine (for now)

The CMA strongly resisted these arguments: in its view “person” includes “any undertaking”, and therefore could capture all BMW Group entities. According to the CMA, this meant that the KBR case – which did not deal with the concept of an undertaking that exists under CA98 – was not relevant. The CMA argued that the addressee of the section 26 notice, the BMW Group, is present in the UK through a subsidiary, meaning that information requests can be issued to, and enforced against, any BMW Group entity – i.e. that its information request was not extraterritorial.

In any event, the CMA argued that UK competition rules, including section 26 CA98, have extraterritorial effect, which “is implied by the scheme, context and subject matter” of CA98. These rules (and relevant enforcement powers) apply to any arrangement which has been implemented in the UK, such as the suspected breach. The CMA also noted that BMW itself has not challenged the CMA’s powers to issue an information request; the mere fact that another market participant has issued proceedings, which are still at pre-permission stage, is not sufficient to claim “legal uncertainty”.

The penalty imposed by the CMA is the current statutory maximum under CA98 (though proposed legislative reforms will see the maximum fine increased to 1% of global turnover). In justifying the imposition of the maximum fine, the CMA put weight on three main factors:

  • the intentional nature of the breach;
  • the potential for significant harm to the CMA’s investigation; and
  • continued non-compliance.

Broader implications for future CMA probes?

The CMA’s fining decision is the first addressed to a foreign company in relation to a failure to comply with an information request under section 26 CA98, but it is far from an isolated example of the ongoing procedural crack-down.

In recent years the CMA has not hesitated to “show its teeth” in cases of non-compliance with information requests in various contexts, such as market studies (see fine on AppNexus in 2020), merger investigations (e.g. Sabre/Farelogix in 2019) or CA98 investigations (e.g. fine on Pfizer in 2016).

The CMA is doubtless keen to make an example of BMW to send a message, and is expected to defend BMW’s appeal vigorously. The CMA’s penalty notice explicitly addresses the “elephant in the room” that the CMA is no longer able to avail itself of the cooperation mechanisms of the European Competition Network, of which it is no longer a part. The CMA claims however that section 26 CA98 empowers it to require undertakings based outside the UK to produce documents and information which the CMA considers relate to any matter relevant to an investigation. The Competition Appeal Tribunal will have to determine (i) whether the request for information held by BMW AG can be characterised as extraterritorial when BMW Group as an “undertaking” operates in the UK; and if so (ii) whether CA98 empowers the CMA to obtain such information. The appeal will prove an important test case for the CMA’s information gathering powers outside the ECN.

Once the forthcoming Digital Markets, Competition and Consumer Bill is passed, the CMA will be further empowered to issue fines of up to 1% of a company’s global turnover in cases of failure to comply with information requests. Given the trend described above, we would expect – subject to the findings of the BMW’s appeal – the CMA to make full use of these additional powers.