In the last Cartel Capers post, I tallied up the criminal cases filed by the Antitrust Division in FY 2018. Measured by that standard, it was a pretty slow year for criminal antitrust enforcement. But, I also noted a couple of pretty important points to keep in mind: 1) criminal enforcement has always been somewhat cyclical. As blockbuster matters such as the auto parts cases wound down, the statistics were bound to slide; and 2) any new administration is initially largely dependent for criminal case filings on matters left in the pipeline by the previous administration. And I should humbly add that for all I know, the next big investigation may be in the works, or just an amnesty application away.
With that being said, below I discuss a few possible reasons why criminal case filings are down. On the TV show Ancient Aliens, the narrator always prefaces his remarks with “Is it possible…..?” or “Some people say…..” That is a good device to use here because I am merely throwing out ideas for consideration–“Is it possible…?” And I while I work with many people in the cartel bar, I never quote conversations unless asked. “Some people say…” is enough said here.
- It Is Possible Cartel Case Filings Are Down Because Deterrence Works?
Is it possible (or naïve) to think that increased jail sentences, extradition, Red Notices, proliferation of active competition agencies and private damage litigation has led to a decline in the formation/existence of price-fixing/bid rigging cartels? After all, as discussed in the next section, there is a growing belief in the antitrust bar that seeking amnesty has become cost prohibitive. Perhaps executives are taking notice that cartels themselves are becoming cost prohibitive. This is clearly not the only explanation—and there is a debate about whether current penalties are sufficient to deter cartels. But, I do recall that in the ADM lysine international cartel prosecution, only two US executives went to jail. All foreign conspirators were immunized. And the corporate defendants paid relatively small fines in relatively few jurisdictions. The only major private class action damage suits were brought in the United States. I don’t have hard figures, but I imagine if you fixed prices all over the world, but paid penalties in few jurisdictions, it may have been a very profitable cartel.
The same cartel today would find many foreign executives indicted, enforcement actions by many more global competition agencies and a growing class action damage bar in many jurisdictions. In very recent testimony to Congress, Makan Delrahim explained that a higher percentage of indicted defendants are actually being sentenced to prison and for a greater period of time. There’s a debate about whether cartels are still profitable, but there can be no debate that the cost of getting caught in a cartel has gone up dramatically for both companies and individuals. While not measurable (at least not by me), logic dictates that increased penalties must have some deterrent effect.
- Is It Possible That It Has Become Too Costly to Obtain Amnesty?
Some people say (and here, some people means many) that leniency is no longer always the best path to take if a cartel problem is uncovered. The corporate decision-making has gone from a “no-brainer we should seek amnesty” to a more cautious “Is amnesty the best option here?” More and more, and this is just anecdotal, companies are sitting on the information they have and taking their chances that they can just stop the problematic conduct and lay low. Seeking amnesty is still often the best course of action if a company discovers cartel activity, but it is not the easy choice it once was–or so some people say.
- Is It Possible That International Cooperation Creates Too Many Mouths for the Amnesty/Leniency Applicant to Feed?
All the difficulties of seeking amnesty in the United States are multiplied by the fact that enforcement agencies all over the world have become more active in cartel enforcement. A company (and individual) seeking amnesty/leniency, faces a decision of whether to report simultaneously in other jurisdictions. This is not always an easy call. If you report elsewhere (and elsewhere could be the EU, Japan, India, China, UK, Canada, Brazil—to name just a few jurisdictions) the costs in money and executives’ time for interviews jumps dramatically. But, if the company does not report elsewhere, it could get beat to the punch by another company seeking leniency in other jurisdictions.
- Is it Possible that the Global Spread of Private Damage Litigation Has Slowed Down the Leniency Rush to the Courthouse?
Private damage litigation is increasing across the globe. At one time, a company may reasonably hope that its private damages would be limited to the United States. That is not so anymore. The United States has done a tremendous job of encouraging competition agencies around the world to take aggressive steps to combat cartels. And private class actions, another form of deterrence and compensation to the victims, have also increased globally. It’s been a bit of a double-edged sword—surely (hopefully) the increased parade of horribles that awaits a cartel that is exposed must deter some cartel formation—or end a cartel in existence. It is likewise logical that the increased cost of seeking leniency has deterred some potential applicants from coming forward.
I discussed some of these issues in more detail in a May 2013 Law 360 article titled Corporate Leniency Should Come With a Warning Label:
When a doctor discovers a patient has a life-threatening condition there is often a good news/bad news discussion. The good news is that there is a treatment; the bad news is that the side effects may be fatal. When a client comes to the antitrust doctor with a case of “cartelitis” the discussion of treatment options can run much along the same lines.
The side effects of seeking the leniency “cure” have only increased in the last five years.
- Is It Possible the Last Administration Scared Away Amnesty Applicants With Certain Public Statements?
Some people say that during the last administration the Antitrust Division took a much less welcoming tone with potential leniency applicants. Where the Division speeches previously emphasized the benefits of leniency and the Division’s willingness to work with leniency applicants to perfect the leniency application, certain speeches in the last administration focused on some of the burdens of being a leniency applicant. In one speech, former Assistant Attorney General Bill Baer stated:
We expect leniency applicants to make those investments, including conducting a thorough internal investigation, providing detailed proffers of the reported conduct, producing foreign-located documents, preparing translations, and making witnesses available for interviews. Companies unwilling or unable to make the investments necessary to meet these obligations, or those that think they can do so on a timetable of their own choosing, will lose their opportunity to qualify for leniency.
When companies apply for leniency, their current employees may earn it too. (emphasis added). As with employers, however, leniency for employees is not an entitlement; it requires full and timely cooperation. To cooperate fully, individuals must be prepared to admit to all collusive conduct they participated in or know about. They need to be prepared to be candid and credible witnesses in front of a grand jury and at trial.”
Mr. Baer added:
In recent years we have on occasion investigated jointly with other DOJ components conduct reported by a leniency applicant that involves both antitrust violations and other crimes, such as fraud, tax evasion, or corruption. Our leniency policy is quite clear that it governs only the Antitrust Division’s exercise of its prosecutorial discretion in connection with self-reported criminal violations and does not prevent other components from prosecuting offenses other than Sherman Act violations. See, Bill Baer, Assistant Attorney General Antitrust Division, USDOJ Prosecuting Antitrust Crimes, September 10, 2014, Georgetown University, available at, https://www.justice.gov/atr/file/517741/download
These statements are true, but quite a different tone than the more inviting “We are going to work with you to help you perfect your marker” tone that was central to many previous Division speeches.
On a similar note, in the very last days of the Obama Administration, the Antitrust Division issued a new and revised Frequently Asked Questions. Some people say the changes in the document reflected a less certain path for individuals to amnesty—particularly former employees. The revisions also highlight that the amnesty protection does not extend to non-antitrust offenses. There has been no revision or explanation by the new administration of the changes in the FAQ. FREQUENTLY ASKED QUESTIONS ABOUT THE ANTITRUST DIVISION’S LENIENCY PROGRAM AND MODEL LENIENCY LETTERS, Originally Published November 19, 2008, Update Published January 26, 2017
The real question is whether the practice of the Antitrust Division reflects a more demanding route to obtaining amnesty. Some people say it has with an ever-increasing demand from the Antitrust Division to produce witnesses and documents, and a more uncertain fate for cooperating employees, in a very lengthy and exhaustive investigation before receiving a conditional leniency letter.
- Is It Possible that ACPERA Has Been a Failure at Encouraging Leniency Applicants?
When the Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”) was passed in 2004, an important provision designed to help promote whistleblowers (i.e. amnesty applicants) was that amnesty recipients who also provided “substantial cooperation” to the private damage plaintiffs would have their civil exposure limited to single, instead of treble damages. Some people say that the single damage “carrot” has been ineffective for reasons similar to those mentioned above. The cost of cooperating with the private bar has become too high in terms of the extent and cost of cooperation demanded. And, the process of knowing whether you have satisfied “substantial cooperation” and qualify for the single damages is too lengthy and uncertain.
- Is It Possible Closing Four Field Offices in 2013 Hurt Cartel Enforcement?
Some people, including me, say YES. In 2013, the Antitrust Division closed four field offices (Atlanta, Cleveland, Dallas and Philadelphia). Each of these offices had brought international price-fixing cases. Notably, the Dallas Office brought the Vitamins cases and the Philadelphia Office brought the Graphite Electrode cases. Each closed field office (and the ones still open) brought international cartel cases—too many to mention. But Vitamins and Graphite Electrodes are worth a mention because these two matters were some of the early successes of the international cartel program bringing in hundreds of millions of dollars of fines.
The field offices were in large measure responsible for developing their own cases through various outreach efforts. This was a huge incentive to get out and talk to investigative agents, run down every lead and conduct thorough investigations. This not only led to certain large international price-fixing cases, but gave the Antitrust Division a regional presence that was key to developing bid rigging cases on government contracts based on leads brought by agents in our respective territories.
- Is It Possible The Antitrust Division Has a Shortage of Experienced Investigators?
The Antitrust Division has always attracted top talent; people who believe in the antitrust laws, and cartel enforcement specifically. That is still the case as the Antitrust Division is stocked with talent. But some people say that current staff may collectively have less than optimal experience in investigating cartel cases. Two decades or more of amnesty applicants bringing cases to the Division with amnesty applications can deaden the hunter’s skill in chasing down the prey. And closing the field offices scattered many experienced hunters into retirement, private practice and even blogging! People may forget, but before there was leniency there was still robust cartel enforcement. The grand jury is still an effective tool to take a lead and see if it can uncover a cartel. But, since leniency has predominated there has been less of a need to make cases “the old fashion way.” To cite a lack of investigative experience, of course, is a generalization but I can say that early in my career I was in the grand jury several times a month questioning lower level executives (and sometimes very senior executives), working our way up to try to build a case. The Philadelphia Office usually had three standing active grand juries—in Philadelphia, Pittsburgh and New Jersey. By the time I left in 2013 we did not have any exclusive antitrust grand juries. Cooperating witness interviews had taken the place of grand jury interrogation. Our use of grand jury time was limited. When needed, we would use time in a US Attorney’s grand jury—usually simply to put on the evidence we needed to return an indictment. But since most cases were voluntary pleas–Informations– even the indicting grand jury was not used very often.
There will likely always be periods when the amnesty pipeline is a little dry. It’s good to have a few people around who remember how to dig from the ground up.
Some things that may decrease amnesty applications such as increased international enforcement and greater ability globally for customers to seek damage remedies are good things, even if they are expensive toll booths on the road to amnesty. But, some people also think there are ideas consistent with robust cartel enforcement that may help return a sheen of attractiveness to seeking amnesty. It’s possible I’ll discuss those in an upcoming blog.
Thanks for reading.