I’ve posted recently on my concerns with the Antitrust Sentencing Guidelines (2R1.1) as they relate to individual defendants (here). Other submissions have been made to the Commission by people/institutions with great insight and influence in the cartel arena. I’ve summarized a few of these below.
A. Department of Justice
The Department of Justice, Criminal Division, in its annual report to the Sentencing Commission included a section on the Antitrust Offenses guideline (2R1.1)(here see pps. 24-25). The DOJ believes the current guidelines are sufficient and provide the transparency and the flexibility to properly deter cartel behavior and other criminal antitrust offenses. David Baumann, who reports on cartel matters for PaRR, (Policy and Regulatory Report)(http://www.parr-global.com) wrote the following summary which he kindly allowed me to reprint:
DOJ opposes increase in criminal cartel fines, as Sentencing Commission studies possible boost–PaRR
- Current system provides effective deterrence — DoJ
- Fine levels should be doubled — American Antitrust Institute
- Guidelines should provide predictable fines — attorneys
Responding to a request from the US Sentencing Commission, the Department of Justice said it opposes an increase in criminal cartel fines, stating that current penalties provide an effective deterrent to criminal antitrust violations — a position that has drawn both praise and criticism from attorneys. “We believe the current…fine provisions…are appropriate,” Jonathan Wroblewski, the DoJ’s director of policy and legislation, said in a letter to the commission. The commission, a seven-member group appointed by the president, makes recommendations to Congress regarding criminal sentences. The commission raised the issue on 2 June as part of its proposed priorities for the year ending 1 May 2015 and sought comment on its overall plan, which contains several other possible unrelated sentencing revisions, as well as a plan to study criminal antitrust penalties. The deadline for comments was 29 July. The commission does not have the power to change sentencing guidelines, but may submit them to Congress, which then would have to amend federal laws to implement them. Two researchers — Robert Lande, a law professor at the University of Maryland and retired Purdue University professor John Connor — conducted a study of criminal antitrust penalties in 2012. They reported that the criminal antitrust fine level was woefully inadequate and that led the American Antitrust Association to recommend a huge increase in fine levels. The DoJ disagreed. The current sentencing guidelines call for fines based on the assumption that cartels increase the price of products by 10 percent. Under certain circumstances, the fine can reach 20 percent of the volume of affected commerce. The DoJ said that the actual level of overcharge is subject to debate and it is unclear what the level actually is. In addition, the DoJ said that the purpose of fines is to provide a “predictable, uniform methodology” to encourage deterrence. Lande told PaRR that he is “disappointed” by the DoJ’s position, saying that “they really didn’t refute our assertion that the 10 percent level is too low.” He said the current fine levels “are just not high enough.” He agreed with the DoJ position that the guidelines must allow for a “clear predictable” estimate of the impact that a cartel has on commerce, but added that the current level does not provide deterrence. Other attorneys said they are happy with the DoJ recommendations. “My experience is that almost all corporate fines are negotiated below the guidelines already — in return for a plea and cooperation — so you don’t need higher guidelines to get higher fines,” said Robert Connolly, an attorney with GeyerGorey and a veteran of the DoJ Antitrust Division. Connolly added that in addition to the DoJ, cartel participants risk charges from other jurisdictions and private class action lawsuits. “I don’t think any rational business person does a calculation and believes it is profitable to fix prices even if caught,” he said. “But, they just don’t expect to get caught — or think it through.” “Criminal antitrust fines have been tied to a defendant’s volume of commerce from the beginning of the Sentencing Guidelines,” said J. Brady Dugan, an attorney with Squire Patton Boggs and another veteran of the DoJ Antitrust Division. “This gives a sense of predictability that is useful to both the DOJ and the antitrust defending when the two sides are assessing their relative positions. by David Baumann in Washington DC
B. Letter of Douglas H Ginsburg (Judge, DC Court of Appeals) and Joshua Wright (FTC Commissioner)
Judge Ginsburg and Commissioner Wright wrote the Sentencing Commission and advocated an increase in deterrence by focusing on stronger penalties for individual defendants. The July 28, 2014 letter can be found here. This is an excerpt:
We write to urge the Commission to focus its attention for now not upon increasing fines to organizations across the board, but instead upon increasing and adding penalties for the individuals responsible for the antitrust violations within offending organizations; we do so on the grounds that there is no empirical evidence to suggest the ever-increasing penalties levied by antitrust enforcement agencies in the past 20 years have had a significant effect upon deterrence, and that there is every reason to believe that individual penalties are far too modest to induce optimal compliance with the law.
The letter went on to say:
“On the other hand, we agree with the former Deputy Assistant Attorney General for Antitrust, Scott Hammond, that “individual accountability through the imposition of jail sentences is the single greatest deterrent” to cartel activity. Accordingly, we urge the Commission to consider increasing the prescribed range of jail sentences and to consider as well other individual sanctions, including enhanced individual fines and, insofar as the law allows, disqualification from holding fiduciary positions for a period of years.”
A longer 2010 article by Judge Ginsburg and Commissioner Wright (“Antitrust Sanctions”) can be found here.
C. The American Antitrust Institute (AAI)
The American Antitrust Institute has called for a doubling of fines. The Sentencing guidelines make a presumption of a 10% overcharge from cartel behavior; a presumption the AAI says is far too low. The AAI cites empirical research that purports to show that cartels on average reap at least a 20% overcharge from the illegal behavior:
The 10 percent cartel overcharge presumption in the Guidelines is much too low to achieve deterrence. The best evidence demonstrates that the Commission should double it to 20 percent. This change would move the Guidelines in the direction of both recent and historical evidence on average overcharges likely to result from collusion, yet still be a conservative resolution of the issues. Raising the 10 percent presumption should improve the overall level of cartel deterrence and raise consumer welfare. (here)
The AAI website has additional links to articles and research in support of its position (here).
D. My Take
My own view is that without the DOJ seeking amendments to the guidelines, it is unlikely the Commission will seek any changes. The Antitrust Division, which typically negotiates the fines in plea agreements, already has significant discretion to seek higher fines when it believes that are warranted. The Division could give less generous discounts for cooperation (5K1.1 downward departures from the guidelines range fine). The Division could also seek fines at the higher end of the guidelines range, and in certain cases could even ask for an upward departure. Finally, where there is solid evidence of an overcharge in excess of the 10% presumption used in the guidelines, the Division may seek a sentence of double the gain/double the loss under the alternative sentencing provisions of 18 USC. Section 3571 (Sentence of Fine). The Division did just that in the case of AU Optronics, seeking a fine of $1 billion after the company’s conviction at trial for price fixing. The Judge rejected the government’s recommendation and imposed a fine of $500 million. And, a last note, the guidelines are not even applied until a volume of commerce has been determined. This is another area where the Division has a great deal of discretion and is often the subject of intense and lengthy negotiations with counsel for corporate defendants.
The submission of comments to the Sentencing Commission is just the first step in the Commission’s consideration of possible changes to the guidelines. The Commission will have a lengthy period of review and perhaps invite testimony. If the Commission feels amendments are warranted, it will submit proposals to Congress by next May for review and possible approval.
Thanks for reading.