I was recently a speaker at both the Society of Corporate Compliance and Ethics conference in Chicago and the Ethics and Compliance Officer Association conference in Atlanta. I learned a lot from the members and my fellow panelists, Tim Bridgeford of Tyco and Doug Tween of Baker & McKenzie. One theme of both panels, and the theme of this post, is the need for an effective antitrust ethics and compliance program. In the competition for compliance dollars, and C-suite attention, it is important to be able to effectively make the case for devoting resources to antitrust compliance. And the case is compelling, even though the Antitrust Division does not credit a company for having a compliance program if a price-fixing violations occurs.
Antitrust compliance has been overshadowed somewhat by FCPA compliance. For example, we were the only panel on antitrust compliance at the conferences. There were many FCPA related programs. One reason for this disparity is that the Criminal Division has given extensive guidance on what constitutes an effective compliance program. The Antitrust Division by contrast, while stressing that antitrust compliance programs are essential, has declined to offer guidance. Another key factor may be that in the FCPA world a company may avoid criminal prosecution if it had an effective compliance program, or may at least have the compliance program taken into account in its penalty if it is prosecuted. On the other hand, the Antitrust Division does not give credit for a preexisting antitrust compliance program.
The Antitrust Division, which rarely makes public comments about compliance programs, addressed the issue in two recent speeches. Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement gave a speech: Compliance is a Culture, Not Just a Policy. Snyder referred to Chapter 8 of the United States Sentencing Guidelines as providing “guidance for minimal requirements of an effective compliance and ethics program. The Guidelines set out several common-sense principles that, when applied, increase the likelihood that a compliance program will be effective.” Snyder also referred to competition compliance guidance given by the International Chamber of Commerce in The ICC Antitrust Compliance Toolkit.
A day later on September 10, 2014, Bill Baer, Assistant Attorney General for the Antitrust Division gave a speech: “Prosecuting Antitrust Crimes.” Baer reiterated the Division’s long held position that it is highly unlikely that a company can get credit for a failed compliance program: “The fact that the company participated in a cartel and did not detect it until after the investigation began, makes it difficult for the company to establish that the compliance program was effective.”
There is much more to both of these speeches as discussed in an earlier Cartel Capers post. And, there is much better news north of the [American] border. Canada has announced draft guidelines on compliance programs that offer credit to a company for instituting a robust and compliance and ethics program—even if, in certain circumstances, there has been a breach. These important guidelines have been published for public comment and can be found here.
Despite the Division’s position on compliance programs, there are compelling reasons why a company should have an antitrust/competition compliance program. We discussed some of these during our panels:
- The Antitrust Division is very active. It prosecuted 50 cases in 2013 and is on a similar pace this year.
- The Antitrust Division has averaged criminal fines of over $1 billion per year in the last several years.
- The Antitrust Division prosecutes individuals. Twenty-eight individuals were sentenced to prison in 2013 and 10 to date in 2014. The prison sentences averaged two years.
- Criminal prosecution by the Antitrust Division is just the beginning of the “Parade of Horribles” that accompanies a price-fixing conviction.
- Many foreign jurisdictions also pursue cartel prosecutions. These include the EU, Canada, China, Japan, Brazil, the UK, Australia and the list is actually much longer. Fines in the EU are typically even higher than in the U.S. There are other jurisdictions that impose criminal penalties on individuals for price-fixing and bid rigging.
- Class action private damage suits will certainly follow. One chemical company was just hit with a $1 billion judgment against it in a civil case for price-fixing. That even exceeds the largest Antitrust Division fine: $500 million.
- Class action damage suits are growing in other parts of the world.
- Reputational damage to a company convicted of price-fixing can be extensive, as is the drain on senior management that may be under investigation.
A couple of these items are worth explaining further. Take reputational harm to the company, for example. An FCPA violation may involve payment of something of value to a foreign official to gain an advantage for a contract. FCPA violations often involve lower level employees. Customers of the company, if they hear about the violation at all, may think “that is how you do business in Country X.” By contrast, price-fixing or bid rigging is a scheme to cheat customers of money by illegally inflating prices. That has a decidedly more damaging ring to it.
Another contrast is the risk to individual employees of incarceration. The vast majority of FCPA actions have involved enforcement actions only against the company. By contrast, the Antitrust Division, for maximum deterrent, makes individual prosecutions a priority. Antitrust violations often involve many executives in the company to carry out the scheme. The Antitrust Division typically charges at least two culpable individuals from each corporate defendant. [The exception is if the company’s compliance program detects the violation, and the company is the first to report the violation to the Division and qualifies for leniency. In the case of leniency, the company and its cooperating executives are not prosecuted]. A recent press release in the Division’s world-wide auto parts cartel investigations shows the breadth of antitrust investigations: On September 29, 2014, ToyodaGosei Co. Ltd. agreed to pay a $26 million criminal fine for its role in a price-fixing and bid-rigging cartel among auto parts manufacturers. To date in the investigation, 43 individuals have been charged; 29 companies have pleaded guilty or agreed to plead guilty and have agreed to pay a total of nearly $2.4 billion in fines. (full press release here)
As mentioned, prosecution by the Antitrust Division will likely be followed by enforcement actions by competition agencies around the globe (in the case of an international cartel) and an avalanche of private damage actions in the U.S., and often in other jurisdictions. Related follow on FCPA suits, by contrast are rare. The U.S. still accounts for nearly all FCPA actions, although other jurisdictions such as Canada and the UK are picking up their efforts. And private civil FCPA damage actions are rare. Two weeks ago a New York federal judge dismissed a class action by Avon Products shareholders that accused the company and its senior executives of falsely inflating stock prices by hiding violations of the Foreign Corrupt Practices Act. This is the fate of most private damage FCPA related cases. [But, an FCPA related suit against Walmart however is proceeding on the basis that Walmart intentionally omitted certain material facts from its public filings about when it learned of possible FPCA violations and how it responded.]
I’ll make one final point in a post that may have already exhausted your interest 🙂 FCPA compliance is challenging because employees at all levels of the company, as well as third-party vendors, can implicate the company in a possible FCPA violation. By contrast, price-fixing or bid rigging typically requires the involvement of someone in the company with the authority to fix price or rig bids. These employees are typically very senior executives. The job titles of defendants in Antitrust Division cases usually are President, V.P of Sales, Division Manager, etc. IN some ways, this makes antitrust compliance training easier. The training, as it should, must start at the top. All personnel should receive some form of training such as on-line videos, but those with pricing authority need face-to-face training. Typically these executives know that you cannot have a side meeting in the back room at the trade association with your competitors to “do something about the terrible pricing in the industry.” But, a reminder of the Parade of Horribles that come with an antitrust conviction will put some distance between a tempting thought to collectively “do something about the lousy pricing” and actually acting on that insane thought. Executives also need to know that language is important. An off-hand remark to even one competitor that “We should stop killing ourselves” may be the basis for a costly investigation, even if no charges are eventually brought because no actual agreement was reached.
This has been a fairly long post. There is a lot more to antitrust ethics and compliance training and I hope to follow up on some of other ideas that were discussed at the conferences. One area that interests me in particular about compliance training is discussing what you can do! Companies ought not to be afraid to compete hard and compete to win. But you need to know that rules of the game so you’re not flagged for unsportsmanlike conduct.
Thanks for reading.