Last week I spent a few days at a Consero Corporate and Ethics Forum in San Jose, California. It was a very informative conference that brought together senior compliance executives in an intimate format to discuss many aspects of compliance such as “Internal Investigations: Soup to Nuts.” This was the third major compliance program I have attended since I retired from the Antitrust Division. Earlier this year I was a speaker at the annual conferences for the Society of Corporate Compliance and Ethics (SCCE) and Ethics Compliance Officer Association. These conferences have their own personality and I enjoyed each. I have learned an enormous amount about the far-ranging responsibilities compliance attorneys and officers shoulder, often with limited resources. And, having been on the side of the prosecutor (regulator) for so long, I think I have been able to add some ideas to the discussion. Thus, the title of this post “Nobody like to see a competitor in trouble, but….”
The “but” is that when a competitor is in trouble it may be the best time to focus compliance resources on a particular area. Being able to go to management and say, “Company X is embroiled in this investigation and I think it may be something we need to focus on” can be a more persuasive than saying, “We need more resources.” One example may be if a competitor has an issue with a third-party vendor in an emerging market. That would be an ideal time to move any compliance efforts in that location to the top of the heap. In the antitrust area it is very common for investigations to start fairly localized and then spread. A prime and recent example is the record-breaking auto parts cartel investigation. What started as an investigation in the United States of one auto part has spread to prosecutions involving virtually every auto part except the air freshener hanging from the front view mirror. This quote is from the most recent press release from the DOJ relating to another guilty plea in the auto parts investigation: “Including today’s charges, 48 individuals have been charged in the department’s ongoing investigation into price-fixing and bid rigging in the auto parts industry. Additionally, 32 companies have pledged guilty or agreed to plead guilty and have agreed to pay more than $2.4 billion in fines.” (here) The auto parts investigation not only spread from one product to another, but also from the United States to competition authorities around the world including the EU, China, Japan, and Korea. The auto parts investigation is an unusually large investigation, but industry “way of life” cartels are fairly common.
The expansion of the auto part investigation did not happen by accident. From my time in the Antitrust Division I know that prosecutors have an instinct that if corruption is happening in one area of a company or industry, it may well be happening elsewhere. Or, at a minimum, it is worth a look. And prosecutors employ many effective tools to broaden investigations. The Antitrust Division gives credit in plea agreements to companies and individuals who can “expand” the investigation. That credit includes a more favorable plea deal in the product currently under investigation and the possibility of complete non-prosecution for any areas in which cooperators can expand the investigation. This policy is called “Amenity Plus.” In short, there are tremendous incentives for a company in any kind of trouble to ferret out all of its troubles and cooperate with the government. In the world of cartels, that means implicating new products and new competitors. And the irony is, the more cartels a company has been involved with, often the better deal it can make for itself and its executives.
So, given the way government enforcers operate, it is imperative to keep informed of developments in your industry. The conferences/organizations I mentioned, and the resultant networking, are one way to do this. And if the bombshells are landing anywhere near your “space,” it is a good time to boost compliance defenses in that area. There are many tools that company counsel and compliance officers know of but don’t always have the resources to implement. It would be a good time to conduct a focused audit if a competitor is dealing with an antitrust compliance issue. Pricing audits may be too expensive and inconclusive, even when a red flag is raised, but other types of audits may make sense, for example:
a) Expense Accounts: A review of expense accounts of individuals operating in the at risk area may reveal meetings with competitors or unexplained travel that raises red flags.
b) Trade associations: Many price-fixing cartel schemes are launched, and/or carried out in connection with trade association meetings. Executives sometimes set up completely bogus trade associations just to create an opportunity to meet and collude with competitors. A complete check of every trade association to which key executives belong is a very good idea.
Pricing personnel: One thing that is helpful about an antitrust compliance investigation is that there is a smaller subset of executives who can usually get the company in trouble. These are executives with pricing authority. Interviews with these executives may help ferret out wrongdoing. Especially if the interview is done after the audit of expense reports and trade associations and there are pointed questions to be asked. An experienced investigator who can educate employees on the benefits of coming clean quickly can often identify problem activity in a hurry.
Support personnel: Who knows what is really going on with the boss? Administrative assistants and support personnel. They may know for example, that Mr. Smith from Competitor A always calls before a price increase.
Former employees: When I was with the Antitrust Division, we always tried to find former employees to interview. You should too. They no longer work for the company so they can “spill the beans” without implicating colleagues or worrying about retaliation. And, they may have a resentment about their former place of employment and make willing witnesses.
You probably already do some of these things some of the time, but what I’ve learned from company counsel and other compliance professionals is that risks have to be prioritized. Few if any companies have the resources to hit every compliance metric they would like. After all, while your company wants to be compliant, the objective still is to make a profit. But, if you see a competitor in difficulty, it may be time to hit the Bat Signal and focus on the area that has just leapt to the top of your risk assessment chart.
PS. It probably is not true that “Nobody likes to see a competitor get in trouble, but….” Thanks for reading!