As I mentioned in my post yesterday (here), the Division’s new policy on incentivizing compliance programs comes after years of lobbying by many in the defense bar and corporate compliance community.  Two of the leading advocates of this change are Ted Banks (Scharf Banks Marmor LLC) and Joe Murphy (Compliance Strategists).  I received a comment from Mr. Banks yesterday, joined in by Mr. Murphy.  With their permission, I am posting their thoughtful remarks:

Bob –

As one of the people that publicly and privately pounded on the Antitrust Division for their obstinacy regarding compliance, I think the scenario you outlined in paragraph #3 is possible, of course, but is hardly a justification for always ignoring an otherwise effective compliance program.  Indeed, going back to the Electrical Equipment cases where GE tried to deflect liability by pointing to its antitrust compliance policy, the judge rightly noted that this policy was a fig leaf that was ignored in practice.

But the point is that these decisions, like whether to grant a DPA or NPA, are made based on the evidence, not on “what ifs.”   One could attack the amnesty program by pointing to the hypothetical of a company gleefully participating in a cartel, but once it senses that the cartel was falling apart, suddenly deciding to apply for amnesty.  Could it happen? Sure.  Did it happen? I don’t know.  But it would not be a reason to wipe out the amnesty program.

The consensus position about compliance programs expressed in the Sentencing Guidelines, and generally reflected in the similar policies in about two dozen other countries, is that it is important to encourage compliance, and give credit where a company can show that it had a “credible and effective” program (the Canadian term).   The role of the Antitrust Division should be to encourage competition, and perhaps the most important way to do that is to do whatever it can to support in-house compliance programs.

To bolster the new policy, the Antitrust Division should enhance its internal compliance resources.  I don’t know if they have a staff position dedicated to compliance, but it would make sense to have someone with compliance experience able to assist in evaluating whether a compliance program is truly effective and designing a compliance program as part of a case settlement or amnesty determination.

Ted

There has been a great deal of publicity surrounding the Antitrust Division’s recent announcement that a corporation involved in a criminal antitrust violation may get credit for an antitrust compliance program if certain conditions are met.  The credit may include a DPA (Deferred Prosecution Agreement: the government reaches a plea agreement with the defendant; files criminal charges in an Information;  and defers the entry of the guilty plea for a period of time.   If the defendant fulfills its obligations (typically cooperation and a fine), the charges are dismissed without entry of a guilty plea].  Also under the new policy, if a DPA agreement is not merited, the corporate defendant may still get compliance credit in the form of a reduction in the criminal fine imposed. Conversely, an absent or toothless compliance program may result in probation being a condition of sentence in order to compel a serious compliance program.

This is a [seemingly] dramatic change in Division policy.  [More about the “seemingly” in a moment].  From the time I joined the Antitrust Division in 1980, and no doubt even before, a plea to the Division for credit for an antitrust compliance program was unsuccessful 100% of the time.  Many an Antitrust Division attorney quoted this statement of law from a criminal antitrust case against Hilton Hotels.  At the trial the district court gave this jury instruction:

“A corporation is responsible for acts and statements of its agents, done or made within the scope of their employment, even though their conduct may be contrary to their actual instructions or contrary to the corporation’s stated policies.”

United States v. Hilton Hotels Corporation, 467 F.2d 1000, 1004 (9th Cir. 1973).  The Court of Appeals upheld the conviction:

For these reasons we conclude that as a general rule a corporation is liable under the Sherman Act for the acts of its agents in the scope of their employment, even though contrary to general corporate policy and express instructions to the agent.  Id.at 1007.

The Antitrust Division’s policy, and the law, in essence mirrored the words Seinfeld’s infamous Soup Nazi: “No credit for you!”

But, in the last few years there have been cracks in this uniformity with credit given for “forward looking compliance programs” and also in limited circumstances, a DPA and even an NPA (non-prosecution agreement).  Also, with the development of a large organizations of compliance professionals such as the Society of Corporate Compliance and Ethics, commentators in the compliance world have argued that the credit for compliance  programs was needed to incentivize companies to institute meaningful antitrust compliance programs.  These efforts, and the Antitrust Division’s willingness to listen, have resulted in a major new policy change.

In case you missed it, here are the key documents relating to the Antitrust Division’s reversal and new compliance program policy:

1)        July 11, 2019 Press release:  Antitrust Division Announces New Policy to Incentivize Corporate Compliance, available athttps://www.justice.gov/opa/pr/antitrust-division-announces-new-policy-incentivize-corporate-compliance.

2)         Makan Delrahim’s July 11, 2019 Remarks Announcing the New Policy, Wind of Change: A New Model for Incentivizing Antitrust Compliance Programsavailable at, https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-new-york-university-school-l-0.

3)        Most importantly, the Antitrust Division issued a policy statement describing the new policy: U.S. Department of Justice Antitrust Division: Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations, available at https://www.justice.gov/atr/page/file/1182001/download.

4)         For extra credit, you can also review the Criminal Division’s April 2019 statement on Evaluation of Corporate Compliance Programs, available at https://www.justice.gov/criminal-fraud/page/file/937501/download.

Some Initial Thoughts on the New Policy

1. To the Extent the Policy Was Meant to Incentive Antitrust Compliance, It’s Off to A Good Start.

            I don’t believe that anyone keeps track of the number of “Client Alerts” that law firms send out to their clients about developments in the antitrust field.  But if there is ever a question on “Family Feud” about the number one development in terms of launching Client Alerts, the survey will say this policy was the Number 1 answer.  The reason is simple—law firms are always trying to market robust compliance programs to their corporate clients.  It is good business:  Good for the law firms to help implement strong compliance programs and good for the client to have them.  This new policy incentivizing antitrust compliance programs is marketing gold.

Every corporation, of course, already has plenty of incentive to have a good antitrust compliance program.  Possible criminal penalties, jail sentences for culpable individuals, painful civil litigation and bad publicity are all dire consequences of participation in collusion with competitors.  I’ve likened a criminal antitrust investigation to the Hundred Years War—seemingly endless pain. Corporations also have a moral obligation to warn executives of what hell can await them if they think that collusion with competitors is the answer to any market condition problem.  I’ve dealt with executives who were going to be spending time in jail who thought they were helping their company, with very little comprehension of the risks they were taking. Yes, they had a notion that fixing prices was not too smart (thus the “delete after reading” emails that often were not deleted).  But a forceful antitrust compliance program would not only make it clearer what the consequences are, it would make it harder to collude since price fixing is rarely done by just one individual in a company and a “culture of compliance” would make it difficult for the potential “one bad apple” to recruit others.

That being said, law firms face substantial headwinds in trying to implement serious antitrust compliance programs.  They boil down to two issues:  1)  Compliance programs are expensive in terms of both time and money [and there is a lot of competition for compliance dollars] and 2) The Antitrust Division, up to now, would not give any credit for all the time and money spent if a violation occurred [unlike the Criminal Division and other DOJ components].  Law firms can now “sell” the possibility of “credit for a compliance program” since the Antitrust Division is in substantial harmony with the program of the Criminal Division.

       2.    A Question: Is the New Policy Very Different From the Old Policy?

             The Antitrust Division previously did not give credit for compliance programs in large part because the culpable executives were high level executives.  How could the program be deemed “effective” if senior executives (and often several) were involved in the illegal conduct?  When confronted with the possibility that a lower level “rogue employee” could bind the company Antitrust Division management sometimes quipped “a true rogue employee in an antitrust case is akin to Bigfoot – ‘often rumored but seldom seen.’”

            But, if it is true that criminal antitrust violations are only carried out by senior executives, it would seem the answer to the request for credit under the new policy will continue to be “No Credit for you!”  The new Evaluation of Compliance Program Guidance directs prosecutors to ask: “To what extent was a company’s senior management involved in the violation?”  p. 3.  The Guidance further states:

Culture of Compliance

            The Division has recognized that “[i]f senior management does not actively support and cultivate a culture of compliance, a company will have a paper compliance program, not an effective one.”8 Indeed, employees should be “convinced of the corporation’s commitment to [the compliance program].” JM § 9-28.800.  Guidance p. 5.   A relevant question is: “Have senior managers tolerated antitrust violations in pursuit of new business, greater revenues, or maintaining customers? Were senior managers involved in the violation(s)?” Id. at 6.

So, it would appear that to the extent senior managers are always involved in price fixing and bid rigging, a company’s policy will still fail to produce a benefit regardless of how much money was spent or how stern the warnings were.

A company can also get credit for an “effective” compliance program under the sentencing guidelines.  But, will the involvement of senior management also preclude this break?. As the Evaluation of Compliance Program Guidance states:

Sentencing Considerations.

The Sentencing Guidelines are clear that a sentencing reduction for an effective compliance program does not apply in cases in which there has been an unreasonable delay in reporting the illegal conduct to the government. See U.S.S.G. § 8C2.5(f)(2). In addition, there is a rebuttable presumption that a compliance program is not effective when certain “high-level personnel” or “substantial authority personnel” “participated in, condoned, or [were] willfully ignorant of the offense.” U.S.S.G. § 8C2.5(f)(3)(A)–(C).  Guidance at 14.

The Evaluation of Compliance Program Guidance goes on to say: “Under the Sentencing Guidelines, ‘high- level personnel” and “substantial authority personnel” include individuals in charge of sales units, plant managers, sales managers, or those who have the authority to negotiate or set prices or negotiate or approve significant contracts. U.S.S.G. § 8A1.2, application note 3(B)–(C).’” Id.  Like Bigfoot, it would be hard to find a criminal antitrust violation that doesn’t involved somebody in the company meeting one of these descriptions.

The Guidance does point out that the role of senior management is a question staff should address, but it does not draw a per se rule against giving credit for an effective compliance program on that basis alone.  The Guidance lays out many other factors to be considered.  Another key factor is how quickly the corporation reports the violation upon discovery.  It could be that in practice a DPA might be considered in those situations where a company quickly reports the violation (and otherwise has strong antitrust compliance program) but just barely losses the race for leniency.

It is worth noting that the DPA recently given to Heritage Pharmaceuticals in the generic drug price fixing investigation seemingly would not been given under the new Evaluation of Compliance Program Guidance.  While the company got a DPA, the Antitrust Division charged two former Heritage executives with price fixing and the Press Release headline read:

Former Top Generic Pharmaceutical Executives Charged with Price-Fixing, Bid-Rigging and Customer Allocation Conspiracies  The executives were the former CEO and former President—clearly high level executives.  In fact, the Heritage DPA, not surprisingly, says nothing about getting credit for an “effective compliance program.” Instead the DPA was justified in part by:

Heritage Deferred Prosecution agreement.

(g) a conviction (including a guilty plea) would likely result in Heritage’s mandatory exclusion from all federal health care programs under 42 U.S.C. $1320a-7 for a period of at least five years, which would result in substantial consequences to the corporation’s employees and customers outside the federal health care programs; and (h) this Agreement can ensure that integrity has been restored to Heritage’s operations and preserve its financial viability while preserving the United States’ ability to prosecute it should material breaches occur.

3.       A Concern About the New Policy to Incentivize Antitrust Compliance                Programs   

            As mentioned, when I was with the Antitrust Division (1980-2013) I was against giving formal credit for an antitrust compliance program.  I believe most prosecutors in the Division were.  There were a couple of reasons.  One has already been mentioned.  In every case we had, the culpable individuals were very senior executives so any compliance program was, to us, a paper compliance program disregarded by the very people who were supposed to create the “culture of compliance.” But another reason why I worried about giving credit for compliance programs was because it seemed to be a hard policy to enforce fairly.  Corporate counsel sometimes came in and pleaded that Mr. Boss was an antitrust “hawk” continually warning his subordinates that it was illegal to fix prices, it wouldn’t be tolerated and they’d be fired if they did so.  Mr. Boss was shocked to learn the VP of Sales, Mr. Right Below the Boss, colluded with competitors against company policy.  But, I (and others) often suspected Mr. Boss was well aware of the price fixing and just did a good job setting things up so an underling would take the fall.  It often is difficult to hold accountable the most senior member in an organization who insulates himself from contact with other conspirators but authorizes or knows of the conduct going on within his company.  Mr. Right Below the Boss who is taking a plea may be motivated to protect Mr. Boss, but even if he says “Hey, Mr. Boss knew what I was doing”, it’s a convicted felon’s word against Mr. Boss.  My concern is that if the company can get a DPA and save perhaps hundreds of millions of dollars by drawing the culpability line at Mr. Right Below the Boss, it may make it even harder to hold accountable the most culpable member of an organization.

Maybe my concern is the product of an overly cynical view of who ends up often taking the fall for wrongdoing.  But I can also see how, even if my concern is valid, it may not outweigh the benefits of incentivizing corporate antitrust compliance programs by offering the possibility of credit if certain conditions are met.

There’s so many more issues to think through about the new policy such as “What effect, if any will it have on the Leniency Program; already perceived to be less of a bargain than it used to be?”  The Division once sold Leniency as the way to get credit for an effective compliance program.  If the company’s compliance program detected the wrongdoing, they could apply for Leniency.   Another big question: “What protection does a company have for quickly reporting the illegal conduct?” The leniency program has a well-established “marker” system.  Will there be a similar system in place to try to qualify for a DPA? Time will tell.

Thanks for reading.

PS.  Please send me an email if you have any thoughts you’d like to share (either privately or to be posted). Thanks.

Bob Connolly  bob@reconnollylaw.com

      On July 24, 2019 Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vt.), reintroduced legislation to extend whistleblower protection for employees who provide information to the Department of Justice related to criminal antitrust violations.

From the Press Release:

            “Violations of our antitrust laws hurt consumers, often in the form of less choice and higher prices. Without the help of industry whistleblowers, these sorts of violations often fly under the radar. This legislation incentivizes private sector employees to disclose criminal violations by protecting them from retaliation in the workplace after coming forward with information. It also can be a real deterrent to those who are thinking about committing fraud in the future. We’ve seen how whistleblower protections can be a real tool to helping root out waste, fraud and abuse. Just as whistleblower protections for government employees help root out waste, fraud and abuse, they can also help prevent misconduct in the private sector,”Grassley said.”

            “Our country has a proud history of working to protect whistleblowers, beginning when the Continental Congress unanimously passed the first whistleblower law 241 years ago next week, on July 30, 1778. Today I’m again joining with Senator Grassley to further those protections. It is common sense that our laws should protect those who take on significant personal risks to report criminal antitrust violations, such as price fixing. The Senate has unanimously passed this legislation three times, and Senator Grassley and I are hopeful that Congress this year will finally enact our bipartisan bill,”Leahy said.

The text of the Criminal Antitrust Anti-Retaliation Act is available here.

The bill will likely pass the Senate, which has unanimously passed four earlier versions of the bill; the last time being in 2017.  Regrettably, the House of Representatives failed to even consider any of these previous bills. I expect/hope that this time the House of Representatives will approve the Grassley/Leahy bill.  It is a good bill, but it’s only a humble start. The prospect of some anti-retaliation protection is unlikely to draw out many people to take the enormous risk of becoming an industry whistleblower.  Moreover, a large pool of potential whistleblowers in international price fixing cartels are foreigners.  The Securities and Exchange Commission just announced a $500 million award to an overseas whistleblower whose reporting helped the Commission bring a successful enforcement action (here).  Whistleblower awards are a key component of an effective whistleblower statute.

Kimberly Justice, [Freed Kanner London & Millen] and I have written several articles advocating for a more significant criminal cartel whistleblower statute that, like the SEC whistleblower statute, provides a financial award when the information leads to the successful prosecution of a cartel. Two of these articles are:

It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute

The Political Stars Align for a Criminal Antitrust Whistleblower Statute

Some of the Cartel Caper blog posts I’ve written on the subject are:

The Bid Rigging Whistleblower

A Whistleblower Story (Hypothetical)

I’m hoping that the Grassley-Leahy Anti-Retaliation bill will pass and create momentum for more significant efforts to draw out whistleblowers who have inside information ranging from local regions bid rigging to international price fixing cartels.

Thanks for reading

Bob Connolly

Bob@reconnollylaw.com

The Antitrust Section of the American Bar Association is hosting an August 1, 2019 teleconference on the Antitrust Divisions new policy on Incentivizing Antitrust Compliance Programs.  Below is an ABA description of the program and I’ve provided a link if you care to register.

Wind of Change: The Antitrust Division’s New Guidance for Evaluating Compliance Programs in Criminal Cases

12 PM EDT   August 1, 2019

Recently the U.S. Department of Justice Antitrust Division reversed its longstanding policy and issued new guidance stating that it will evaluate the effectiveness of corporate antitrust compliance programs at the charging and penalty phases of criminal investigations. In this program, experienced antitrust practitioners and a DOJ prosecutor will shed light on the practical implications of this new policy for corporate parties seeking to manage their antitrust risk.

Attendees are invited to submit questions for the panelists to address to the attention of Alicia Downey, co-chair of the Compliance & Ethics Committee, at alicia@downeylawllc.com.

Click here for a link to the program announcement and registration.

Thanks for reading.

Bob Connolly

bob@reconnollylaw.com

This major news has been extensively covered but in case you missed it:

On July 11, 2019, Makan Delrahim announced a major reversal in the Antitrust Division’s treatment of Corporate antitrust compliance programs.  In a speech titled “Wind of Change: A New Model for Incentivizing Antitrust Compliance Programs,” Delrahim stated: “effective immediately, the Antitrust Division will: (1) change its approach to crediting compliance at the charging stage; (2) clarify its approach to evaluating the effectiveness of compliance programs at the sentencing stage; and (3) for the first time, make public a guidance document for the evaluation of compliance programs in criminal antitrust investigations.”

The Antitrust Division has historically refused to decline to criminally charge a company based on its compliance program.  This was essentially a per serule:  If a criminal antitrust violation occurred, your program was ineffective.  No credit for you!  The Antitrust Division justified this position on the basis that price fixing/bid rigging crimes are [almost always] committed by senior executives—at least senior enough to bind the corporation in pricing issues.  After the revised Corporate Leniency Program was issued in August 1993, the Antitrust Division added that it didcredit compliance programs in that if the compliance program detected the violation, the company could apply to the Antitrust Division for leniency.  The old policy was: “[T]he Antitrust Division has established a firm policy, understood in the business community, that credit should not be given at the charging stage for a compliance program and that amnesty is available only to the first corporation to make full disclosure to the government.” This statement has been deleted from the Justice Manual § 9-28.400 cmt.

Under the new policy, a company may benefit in two ways from an antitrust compliance program even if the company did become involved in a criminal antitrust violation.  Even if the one leniency per investigation has been claimed, a company may qualify for a Deferred Prosecution Agreement (DPA).  Delrahim elaborated: “Going forward, when deciding how to resolve criminal charges against a corporation, Division prosecutors must consider the Division’s Corporate Leniency Policy, the Principles of Federal Prosecution and the Principles of Federal Prosecutions of Business Organizations, including the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of the charging decision.” Later in his speech, he added, “Precisely how much weight and credit to give a compliance program will depend on the facts of the case.”

The Principles of Federal Prosecution Business Organizations  lays out “Factors to be Considered in Charging an Organization.”  Delrahim in his speech noted four that relate to a good compliance program:  (1) implement robust and effective compliance programs, and when wrongdoing occurs, they (2) promptly self-report, (3) cooperate in the Division’s investigation, and (4) take remedial action.

If a DPA is not secured, a corporation may still qualify for fine reduction at sentencing based its compliance program.  There are three possible sentencing benefits: (1) earning a three-point reduction in a corporate defendant’s culpability score if the company has an “effective” compliance program, (2) a reduction in the corporate fine the Antitrust Division recommends, and (3) avoiding having the Division require/recommend probation as part of the corporation’s sentence.  The Division may more aggressively seek probation under the Sentencing Guidelines if a corporation does not have an effective compliance program.  What constitutes an effective compliance program is still at least partly a [Division] judgment call and, “[p]recisely how much weight and credit to give a compliance program will depend on the facts of the case,” Mr. Delrahim said.

As just noted, a robust compliance program does not guarantee either a DPA or credit at sentencing.  It remains to be seen how the Antitrust Division will apply its new policy.  But, the change in policy is a huge one, resulting from years of lobbying from the defense bar and compliance professionals who have argued that such a change was needed to incentivize corporations to spend the money to institute serious antitrust compliance programs.

Thanks for reading.

Bob Connolly

bob@reconnollylaw.com

For further information, these documents should be consulted:

Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations (hereinafter, “2019 DOJ Guidance on Antitrust Compliance”), U.S. Dep’t Justice, Antitrust Div., July 2019, available at https://www.justice.gov/atr/page/file/1182001/download

Deputy Assistant Attorney General Brent Snyder, U.S. Dep’t Justice, Antitrust Div., Compliance is a Culture, Not Just a Policy, Remarks as Prepared for the International Chamber of Commerce/United States Council of International Business Joint Antitrust Compliance Workshop, September 9, 2014, available at https://www.justice.gov/atr/file/517796/download.

I am a bit obsessed with trying to gain support for a criminal cartel whistleblower statute.  Toward that end, I often comment on the wildly successful SEC fraud whistleblower statute and why I think a cartel whistleblower statute would have equally positive results.

A May 24, 2019 Wall Street Journal column by Mengqi Sun and Kristin Broughton (here) reported that:

A former orthopedic surgeon in Brazil received an award of more than $4.5 million for raising concerns to the Securities and Exchange Commission about an alleged kickback scheme operated by a subsidiary of a medical device maker, according to lawyers for the whistleblower.

Under SEC rules, whistleblowers are entitled to between 10% and 30% of monetary penalties when their tips result in a successful enforcement action and when the monetary penalties are more than $1 million.

The whistleblower receiving the award Friday received about 15% of the amounts collected by the SEC and the Justice Department.

Another news report added this:

            Whistleblower Awarded $4.5M for Reporting Internally and to SEC Within 120 Days

            By Caroline Spiezio | May 24, 2019 at 02:54 PM | Originally published on Corporate Counsel

 A whistleblower sent a tip to the SEC within 120 days of reporting internally, which sparked the company to self-report. This is the “first time a claimant is being awarded under this provision of the whistleblower rules,” according to the agency. 

Friday’s award is the latest in a series of massive whistleblower awards, and not just from the SEC. During one week in March, whistleblowers in unrelated cases received $86 million in awards, including $1.87 million for the former general counsel of the Houston Housing Authority. A press release from the SEC Friday claims the agency has awarded “$381 million to 62 individuals since issuing its first award in 2012.”

Comment:

Do you think there might be any potential whistleblowers overseas that know about international cartels and might be tempted for a monetary reward to risk their career to report the activity?  Cartels, particularly large international cartels, have so many participants, including lower level employees who have minor culpability, that the chance of a whistleblower coming forward is real.  Even if the odds are low, they is not zero.  Worrying about a potential whistleblower can destabilize a cartel, expose cartels, or better yet, stop cartels from forming.

Another point is illuminated by this SEC whistleblower case:  A whistleblower statute will complement, not undercut, the Corporate Leniency Program—especially type A leniency. There are no public statistics but anecdotally attorneys suggest that some companies that discover cartel issues are not coming forward with Type A leniency because the costs of cooperation and civil damage suits outweigh the benefits of sitting back and hoping the cartel is never discovered.[1]  The discussion in the corporate board room about what to do with a discovered cartel problem will be quite different if the company has to worry about an individual whistleblower having incentives to report the wrongdoing.  Currently, a company may (and some allegedly have) bet that another cartel member won’t go in for Type A leniency because that company faces the same enormous collateral consequences of exposing the cartel.  An individual whistleblower, of course, faces enormous blowback from being a whistleblower, but a possible financial reward may overcome these disincentives.  In terms of destabilizing cartels and promoting Type A leniency, the wildcard of a possible individual whistleblower certainly moves the cost/benefit analysis of seeking Type A leniency towards self-disclosure.

Thanks for reading.

Bob Connolly

bob@reconnollylaw.com

[1]  One contributing factor to the apparent decline in leniency applications may be a dramatic reduction in “hot documents” that cartel members—particularly foreign members –are creating.  After a decade of being put in jail in the United States and hunted down with Red Notices and border watches, it is likely that cartel members have gotten the message that they (and their records) are not beyond the reach of the US antitrust laws.  Hopefully, this has resulted in a reduction in the formation of cartels.  It most assuredly has led to a decrease in the amount of explicit cartel emails/documents/travel records that are created.  The lack of “hot documents” must also factor into a companies’ decision about whether to seek Type A leniency.  The fewer hot documents are being created, the greater the need for individuals to come forward.

Assistant Attorney General Makan Delrahim gave a talk on Friday, May 10, 2019 at an ABA Antitrust Section of Law conference in Buenos Aires, Argentina. The full remarks can be read here.

Mr. Delrahim made reference to two policy changes that are in the works involving two key Antitrust Division policies : 1) Corporate Leniency; and 2) Credit for Compliance Programs.  This talk did not indicate what changes may be in store, but Mr. Delrahim’s remarks are worth noting (in italics below):

Leniency Policy

The Antitrust Division has several important tools for detecting cartels, but the leniency program has proven to be our most effective tool by far.  Under the Antitrust Division’s Corporate Leniency Policy, the company (and any cooperating employee) that first reports its involvement in illegal activity can qualify for a complete pass from criminal prosecution in exchange for providing comprehensive cooperation to the Antitrust Division during its investigation.

As of now, over 80 jurisdictions across the globe have developed leniency programs, including nine so far in Latin America.  These programs have changed the landscape of antitrust enforcement throughout the Americas.

 One area where we are taking steps to improve is to protect against the imposition of duplicative penalties.  We hope to ensure that each jurisdiction imposes penalties that reflect the specific harm to its own markets and consumers.  One simple way to achieve this goal is for enforcers to have open discussions about our methodologies for calculating fines in specific cases. These dialogues not only may help prevent overlapping fines and decrease unnecessary burdens on parties, but also can ensure that penalties cover the full scope of the harm caused by the cartel.  

Corporate Compliance Programs

One option [to credit robust compliance programs] would involve formally recognizing that even a good corporate citizen with a comprehensive compliance program may nevertheless find itself implicated in a cartel investigation. While we have credited extraordinary prospective commitment to corporate compliance before, we are also considering how to credit robust compliance programs at the charging stage, even when efforts to deter and detect misconduct were not fully successful in this particular instance.

The Antitrust Division long has been home to the ultimate credit for an effective compliance program that detects and allows prompt self-reporting—leniency.  Going forward, however, leniency will no longer be the only benefit.

 Whatever the exact nature of our policy changes, the Division will move away from its previous refrain that leniency is the only potential reward for companies with an effective and robust compliance program.  In line with the Department of Justice and its other components, we can and must do more to reward and incentivize good corporate citizenship.

https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-american-bar-association

Some Thoughts on These Potential Developments

The Criminal Division of the Department of Justice recently released guidelines for the Evaluation of Corporate Compliance Program (April 2019) here.  These guidelines do not cover the Antitrust Division but are still helpful in understanding factors that may result in credit for antitrust compliance programs.

Mr. Delrahim quoted Mexican film director Alejandro Gonzalez Inarrutu who said, “To question your own process is a necessity.  If you don’t question yourself, it’s impossible to improve.”   I encourage the Antitrust Division to question whether sweetening the pot for corporate whistleblowers is the only way to strengthen the Corporate Leniency Policy and increase cartel enforcement.  It’s time for a whistleblower provision to reward individuals, not just companies, who come forward.  Kimberly Justice (Freed Kanner London & Millen) and I have had careers as prosecutors in the Philadelphia Field Office of the Antitrust Division.  We are now in private practice and deal with potential whistleblowers.  We have written two articles that more fully explain how and why a cartel whistleblower statute would work: The Political Stars Align for a Criminal Antitrust Whistleblower statute,  February 8, 2019, Antitrust Law Daily, available at http://business.cch.com/ald/ALD_Criminal-Antitrust-Whistleblower-Statute_20190208.pdf; and It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute, Antitrust Law Daily April 5, 2018, available at http://business.cch.com/ald/ALD_Criminal-Antitrust-Whistleblower-Statute_04-05-2018_final_locked.pdf.

Two points I’d like to address here, because I believe they are misunderstood, is that an individual whistleblower program:

1) would enhance, not undermine, the Corporate Leniency Program; and

2) a cartel individual whistleblower statute would also enhance, not undermine, corporate compliance programs.

1.  Individual Whistleblowing Incentives Will Lead to Increased Corporate Leniency Applications

Whether one believes that leniency applications are down (at least for major international cartels), or whether leniency applications are in line with historical norms, there is no reason that the Corporate Leniency Program should not be improved.  A cartel whistleblower statute will increase, not decrease, the effectiveness of the corporate leniency program.

Type A Leniency

There are no public statistics but anecdotally attorneys suggest that some companies that discover cartel issues are not coming forward with Type A leniency because the costs of cooperation and civil damage suits outweigh the benefits of sitting back and hoping the cartel is never discovered.[1]  The discussion in the corporate board room about what to do with a discovered cartel problem will be quite different if the company has to worry about an individual whistleblower having incentives to report the wrongdoing.  Currently, a company may (and some allegedly have) bet that another cartel member won’t go in for Type A leniency because that company faces the same enormous collateral consequences of exposing the cartel.  An individual whistleblower, of course, faces enormous blowback from being a whistleblower, but a possible financial reward may overcome these disincentives.  In terms of destabilizing cartels and promoting Type A leniency, the wildcard of a possible individual whistleblower certainly moves the cost/benefit analysis of seeking Type A leniency towards self-disclosure.

 Type B Leniency

Individual whistleblowers will also help generate Type B leniency applications.  Type B leniency is available even after an investigation has begun as long as the “[t]he Division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction.”[2]  A whistleblower, therefore, does not preclude the granting of a leniency application in the investigation.

Here are couple of realistic scenarios where an individual whistleblower, if protected from retaliation and compensated for the enormous financial cost of exposing a cartel, might come forward, either to start an investigation or greatly advance an existing investigation:

Whistleblower Illustration 1: A sales representative who is assigned to attend working group meetings.  Once there is word of an investigation, this type of whistleblower may come forward.  Type B Corporate Leniency would still be available to one company and once an investigation obtains credibility/inevitability, the odds of a company breaking ranks and seeking that one leniency are high.

Whistleblower Illustration 2: An estimator who is told to give bid prices to a competitors.  When the authors were in the Philadelphia office, we started numerous grand jury investigations that were far from sure things.  We would be doing cartwheels in the hall if this type of whistleblower came forward when subpoenas were served. In all likelihood, however, we would need more witnesses and documents before the indictable evidence threshold was reached and  leniency was unavailable.  With an insider cooperating, the likelihood of a company seeking Type B leniency is high.

In either of these situations, not only would a whistleblower be able to start/enhance a credible grand jury investigation, but the opportunity might exist for search warrants, consensual monitoring and other investigative techniques that can greatly collapse the time and resources needed to uncover, prosecute and extinguish a cartel.

2)  An Individual Whistleblower Program Would Have a Positive Effect on Corporate Compliance Programs

Concern has been expressed that an individual whistleblower program would undermine corporate compliance programs because an individual could go directly to the government and financially benefit from exposing an existing a cartel instead of first bringing it to the attention of the corporation.  We agree that antitrust compliance programs are a positive part of a corporate culture but we disagree that an individual whistleblower statute would discourage effective corporate compliance programs. We believe a cartel whistleblower statute would make antitrust compliance programs even more necessary because the risk of getting caught would be increased.

The need for a corporate compliance program is related in part to the possibility of wrongdoing being exposed.  The words of “Not Quite A Crazy As he Used To Be ‘Crazy Eddie’” might be the lead in to every antitrust compliance program if there was a cartel whistleblower statute:

            In the two decades I was deeply involved in the Crazy Eddie fraud, the only threat made us lose sleep at night was the possibility of a whistleblower blowing the lid on our crimes. Consistent studies by the Association of Certified Fraud Examiners have shown that most frauds are exposed by whistleblowers, far ahead of frauds exposed by any other source. The SEC will be handing a gift to white-collar criminals if it reduces whistleblower bounties.

Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon.[3]

Also, as noted, even with a credible whistleblower coming forward, the Antitrust Division still has a corporate leniency in its cooperation arsenal.  Both authors, when we were with the Antitrust Division, successfully used affirmative amnesty—approaching a subject corporation, making a reverse proffer of their involvement in a cartel and giving a deadline for coming forward with a corporate leniency application.  If a whistleblower comes forward, the Division can learn what type of compliance program that company had and make a decision about whether an affirmative amnesty approach may be justified.  Of course, it may be the whistleblower did not report the matter internally because the CEO was involved directly. Or perhaps the whistleblower did complain internally and was shut down.  Or maybe the company had a good compliance program and this was a mid-level hatched conspiracy.  In any event, the existence of a whistleblower does not rule out the possibility of leniency for the whistleblower’s company. Moreover, even if the company does not obtain the leniency, the Antitrust Division has other ways of rewarding a robust—but ultimately unsuccessful whistleblower program.

Let’s Have A Criminal Cartel Whistleblower Roundtable—Please

 The Antitrust Division has commendably held roundtables on a number of potential policy issues/changes.  A roundtable on this issue “Should there be a whistleblower award for individuals who expose criminal antitrust cartels?” would be a great way to get divergent views on whether and how individual cartel whistleblowers should be rewarded.

[1]  One contributing factor to the apparent decline in leniency applications may be a dramatic reduction in “hot documents” that cartel members—particularly foreign members –are creating.  After a decade of being put in jail in the United States and hunted down with Red Notices and border watches, it is likely that cartel members have gotten the message that they (and their records) are not beyond the reach of the US antitrust laws.  Hopefully, this has resulted in a reduction in the formation of cartels.  It most assuredly has led to a decrease in the amount of explicit cartel emails/documents/travel records that are created.  The lack of “hot documents” must also factor into a companies’ decision about whether to seek Type A leniency.  The fewer hot documents are being created, the greater the need for individuals to come forward.

[2] Antitrust Division Corporate Leniency Policy (1993), available at https://www.justice.gov/atr/file/810281/download.

[3] Mr. Antar was commenting on why he thought it was a bad idea for the SEC to put a cap on the dollar amount of whistleblower award.  Wall Street Journal, June 29, 2018, SEC Seeks Right to Cut Whistleblower Bounties, available at https://www.wsj.com/articles/sec-proposes-whistleblower-awards-for-smaller-cases-1530212390.

Thanks for reading.  Due to technical difficulties (and blog owner IT incompetency), the comment link on this blog is not working.  Please feel free to contact me at

bob@reconnollylaw.com

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Turning to the role of state-owned-enterprises, over the past few decades, SOEs have increasingly played a more prominent role in international commerce.  In fact, some of the largest companies in the world are SOEs, including numerous Chinese companies.  To the extent those companies engage in anticompetitive commercial behavior that harms the United States market, the Antitrust Division will challenge such behavior and subject foreign SOEs “to the U.S. antitrust laws to the same extent as the activities of privately owned firms.”  As Assistant Attorney General Makan Delrahim said last year, in the United States state-owned enterprises that are engaged in commercial activity are not immune from the antitrust laws and “where competitors come together to engage in collusive or anticompetitive behavior, we will bring all our enforcement tools to bear.”

Anyone who has ever worked in the Antitrust Division, U.S. Department of Justice has described it as the best job they ever had.  I’m included in that group.  So when I noticed what looked like an unusually large number of experienced attorney job positions being advertised, I thought I’d pass on the USA jobs link here.

There are various positions being advertised on both the civil and criminal side.  If you’re interested, good luck.   If you have any questions, I might be able to help answer them.

Bob Connolly

bob@reconnollylaw.com.