Cartel Capers

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100 Blawg Honoree

A Practical Look at Why A Criminal Antitrust Whistleblower Statute is Needed

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            Below is an updated version of a previous blog post I ran about the need for a criminal antitrust whistleblower statute.  Revised with new typos:

            I have been advocating for some time that cartel whistleblower legislation be passed.  Whistleblower legislation has been phenomenally successful for the SEC and other agencies and there is no reason criminal cartels shouldn’t face threat of a whistleblower.  For covert financial crimes, it usually takes an “insider” to blow the whistle.  Discussions about whistleblower statutes often overlook the practical difficulties faced by a potential criminal antitrust whistleblowers. The Antitrust Division has had an Individual Leniency Policy for decades but Division statistics show that since 2010 it has only been used three times.

There are three Individual Leniency letters, consisting of 12 pages, that have been issued in this 14-year timeframe. The letters are available at the following location: https://www.justice.gov/ atr/redacted-leniency-letters. The filenames and Bates Numbers on the webpage are as follows:

            To illustrate why an individual whistleblower is highly unlikely to come forward without any financial incentive, I’ve written a story about Hypothetical Whistleblower Bill.

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            Hypothetical Bill is the US sales rep for a foreign manufacturer of Widget Company.  There are five main players in the industry.  Bill had heard whispers of a cartel and after a recent promotion, Bill has been assigned to attend “working group” meetings.  The “top guys” set price targets, but the working group has the more detailed task of implementing the prices by region, accounting for exchange rates, maintaining relative allocations, and host of other issues that can derail a cartel.  Bill understands that it is none too smart for him to be going to these meetings—especially as an American who will likely go to prison if caught.  He confides in a friend who is a lawyer; a lawyer who knows about criminal law.  The lawyer tells Bill he can hire an attorney and go to the government and he will likely be able to negotiate an Individual Leniency immunity/cooperation agreement (but no guarantees).  But, this lawyer will be expensive if she is an experienced antitrust lawyer.   The negotiations with the government will take time and likely require multiple trips by Bill and his lawyer to visit the prosecutors for interviews–at Bill’s expense.  Widget Company will not be paying for Bill’s travel, lawyer fees and travel, etc. If Bill can secure an Individual Leniency non-prosecution/cooperation agreement, it will last for the duration of the investigation and any possible trials; in other words, his cooperation obligation will be slightly shorter than the Hundred Years War.  The Antitrust Division will ask Bill for documents to corroborate his story—travel records, emails, etc.  Bill may even be called upon by foreign competition commissions to appear for interviews.  Besides the time and expense of cooperation, Bill’s attorney friend tells him he will likely be fired by his company (if he hasn’t already left) when they learn of his cooperation.  After all, he is a confessed criminal and they are shocked that Bill was talking to competitors. Under new DOJ policy, Bill’s company may even get a fine reduction if they sue him and claw back his salary.  Bill’s attorney friend gives an honest but sobering assessment: “Bill, going to the government will likely bankrupt you, make you forever non-employable in your industry and drag you and your family through hell for many years.  What would you like to do?”

            Unless Bill is nuts (not a good quality in a witness), Bill will almost certainly not expose the cartel. He will remain quiet. He could go to the company’s compliance counsel but since the CEO is involved in the illegal activity he’s fearful that he, not the CEO, will regret his internal reporting.  At best, Bill will leave his job, get out the situation and keep quiet. But maybe Bill will think of how he needs the job and the money the new promotion brought (kids/college etc.), and stay in the job and keep quiet.  After all, even if the cartel gets exposed, isn’t there a chance he could get immunity then?  And, if Bill is a bit delusion, he may think “The company will take care of me” if anything happens.  Whatever Bill decides, it almost certainly be to expose the cartel.

          Now, imagine this scenario.  An SEC-style whistleblower regime has been passed for price fixing/bid rigging whistleblowers. Bill’s lawyer friend tells him that he has the option of being a whistleblower. Bad things can still happen to a whistleblower but they are tempered by the potential of escaping prosecution and recovering perhaps millions of dollars if Bill cooperates with the government. Bill is happy when he hears he can get an experienced lawyer who he doesn’t have to pay.  Bill’s lawyer will work on a contingency basis.  The government will likely grant Bill immunity in return for his full cooperation, perhaps even asking Bill to record conversations.  And, the government will grant Bill a whistleblower reward of between 10-30% of fines if a successful prosecution results. The more Bill cooperates, the higher the likely award. There is, however, no reward, unless guilty pleas and fines are imposed so Bill has an incentive to cooperate fully.

            With an SEC style criminal antitrust whistleblower statute, Bill decides to cooperate and become a whistleblower.  In this hypothetical, Bill gives the Antitrust Division all they need to execute a search warrant on Bill’s company.  Search warrant in hand, the Antitrust Division asks for a meeting with Widget Company’s US counsel.  At the meeting, government lawyers explain that Widget Company has 48 hours to get a Leniency Marker before the investigation goes public and search warrants (and perhaps dawn raids in other parts of the world) are executed.  Widget Company folds and starts the leniency process. Bill’s cooperation as a whistleblower is never known, except by his banker.  As a whistleblower, Bill’s credibility is fair game, but if he ever as to testify he now becomes one of many witnesses under Widget Company’s leniency coverage.  A cartel that may never have been exposed, now falls like dominos (or auto parts, LCDS, graphite electrodes, vitamins and any number of successful cartel cases that have seemed to disappear.).

            The above hypothetical would be the best case scenario for whistleblower Bill but given the history of hard core cartel prosecutions and the ratio of plea agreements vs. trials, it is not an unrealistic scenario. This hypothetical uses an international cartel where there are often numerous corporate conspirators and each corporation has numerous employee conspirators.  In other words, as for most cartel cases, there are many fish in the whistleblower pond, and granting whistleblower status to one culpable individuals will still leave many to be prosecuted.  If Bill were the President of the company seeking whistleblower status, the government may rebuff him simply by refusing to grant non-prosecution status.  Other options for a very culpable whistleblower may include an agreement that only the whistleblower’s attorney fees be paid (no part of the recovery), and/or require a plea agreement.  Details like this would have to be worked out in the new legislation.  If the statute did not produce any whistleblowers, nothing is lost.  But I believe a whisltblwer statute could reinvigorate criminal antitrust enforcement the way the 1993 revised Corporate Leniency Policy did.

                        Note:  Where the government is a victim of fraud, a whistleblower can currently bring a suit under the False Claims Act, but whistleblower legislation would make the process much more attractive.   

Thanks for reading.  Bob Connolly  I’d love to hear your thoughts on the subject.  [email protected]