Dawn raids are well-known in competition or antitrust law cases, however they can also arise in consumer law cases in Ireland.
Ireland's consumer agency – the Competition and Consumer Protection Commission (CCPC) – has, according to media reports, conducted two dawn raids in regard to allegations of pyramid selling.
Media reports indicate that the CCPC conducted inspections or dawn raids on two properties in County Donegal on 2 November 2021 as part of an investigation of alleged pyramid selling in the 'health and wellness' sector.
The inspections were conducted by personnel from the CCPC and the Food Safety Authority of Ireland (FSAI). The inspectors were accompanied by An Garda Siochána (the Irish police force) and its National Economic Crime Bureau. An inspection is conducted on foot of a warrant issued by the relevant local District Court.
The implications of the case are wider than consumer law and pyramid selling – it is a sign that the CCPC will conduct dawn raids even during "COVID-19" times. While the media reports are unclear, the inspections may have been on private dwellings, a further sign that "dawn raids" are not just on offices but also on private residences and given the changes in work patterns due to COVID-19, there will probably be more dawn raids on homes in the future.
It is important to recall that: (a) these are just allegations of pyramid selling; and (b) dawn raids can be conducted on innocent third parties which could have evidence helpful to an investigation.
The dawn raids concerned alleged pyramid selling. Pyramid selling can be loosely defined as rewarding people for getting new recruits who pay a fee to join the 'scheme' rather than the ordinary selling of goods or services. As the CCPC says on its website: "pyramid schemes are marketing and investment frauds in which an individual is offered an opportunity to market a particular product. However, profit is gained not by the sale of a product, but by the recruitment of others into the scheme." (The word "only" might usefully be included in the last sentence so that it reads: "[h]owever, profit is gained not only by the sale of a product, but by the recruitment of others into the scheme.").
Pyramid selling can be difficult to detect (hence the use of dawn raids) and prosecute; however it attracts substantial penalties in terms of fines (up to €150,000) and imprisonment (up to five years).
Section 65(1) of Ireland's Consumer Protection Act 2007 provides that a person shall not:
establish, operate or promote a pyramid promotional scheme
knowingly participate in such a scheme, or
induce or attempt to induce another person to participate in such a scheme
Any person who does so, commits an offence by virtue of section 65(2) of the Act.
Proving an offence is complicated but section 65(3) eases the burden of the prosecution by providing that in cases of an offence under section 65, it shall not be necessary for the prosecution or the applicant to prove:
that the opportunity to receive compensation was a legally enforceable right
that the consideration or gift given, as the case may be, was given within the State
that giving consideration or a gift was the only requirement a person had to satisfy in order to -
participate or be eligible to participate in the scheme, or
be eligible or have opportunity to receive compensation under the scheme
that any compensation received was received within the State
that any opportunity to receive compensation was to be a receipt of such compensation within the State, or
that any arrangements under the scheme were recorded in writing
If, in proceedings for an offence, the alleged pyramid promotional scheme involves the supply of a product, then the following may be considered (among other things) in determining whether the opportunity to receive compensation is derived primarily from the introduction of other persons into the scheme:
in respect of a promotion of the scheme, the emphasis given to a participant’s entitlement to the product, as compared to the emphasis given to compensation derived from the introduction of other persons into the scheme
the extent to which the consideration given bears a reasonable relationship to the product, by reference to the price of the same or a comparable product available elsewhere.
It will be interesting to see how the case unfolds but certainly one step – the collection of some evidence – has commenced; and, the dawn raids have the wider significance in demonstrating that the CCPC's work has continued, despite the limitations of COVID-19. The case also demonstrates that the CCPC is interested in pyramid selling and willing to use dawn raids powers to conduct investigations in the area.