Bob Connolly [email protected]
[I am aware that I post often about the desirability of criminal antitrust whistleblower incentives. The blog post below relates to an article I had published recently in Law 360. Not everyone subscribes to Law 360, which I recommend, so I have excerpted a small portion in this blog post.]
There are a number of reasons to expect increased criminal antitrust enforcement in the new administration. One reason may be the activity in the pipeline from the previous administration. The Antitrust Division has reported a very robust number of active grand jury matters. The Procurement Strike Force has been underway for some time–and it takes times to see the full effect of those efforts. It can also be expected that the Antitrust Division will see a reasonable, and perhaps significant increase in funding. The antitrust reforms proposed by Senator Amy Klobuchar call for significantly greater resources for the Antitrust Division. See https://cartelcapers.com/blog/senator-klobuchar-unveils-wide-ranging-antitrust-enforcement-legislation/. And the COVID pandemic, unfortunately, may be providing temptation for collusion. As of September 1, 2020, roughly $2.59 trillion in new budgetary resources have been made available for federal agencies to respond to the pandemic. President Biden is seeking an additional $1.9 trillion. The Antitrust Division has long recognized that times of crisis can bring out the best, and worst, in companies and people. In the aftermath of Hurricanes Harvey and Irma in 2017 the Antitrust Division and FTC issued a joint statement on Antitrust Guidance that included this: “While natural disasters often bring out the best in human compassion and spirit, they can also lead to unscrupulous individuals and organizations taking advantage of those in need.”
This is an ideal time to add another tool for exposing covert conspiracies to the Antitrust Divisions’ arsenal: legislation that gives the Antitrust Division the same whistleblower incentives that has skyrocketed SEC prosecutions. I recently had an article published on Law 360, DOJ Should Take Cue From SEC On Whistleblower Incentives. The article describes a hypothetical situation facing a potential criminal antitrust whistleblower given the current situation of no potential financial reward:
But, to illustrate why a cartel whistleblower statute — bait — is needed to lure little fish, consider hypothetical Bill. Hypothetical Bill was recently hired as director of marketing for a large regional hospital system. Shortly after he started, the hospital CEO told Bill that there is an understanding with other health care providers to “stay in their lanes” in terms of patient services. This, according to the CEO, is done to provide more efficient services to patients. Bill is given a handwritten list of his counterparts and told to call and introduce himself. After making a round of calls and getting together for one meeting, Bill begins to understand that this is illegal collusion.
Bill consults a lawyer who tells Bill he can represent him and contact the government and he will likely be able to negotiate an immunity/cooperation agreement. But negotiations take time and likely require multiple trips by Bill and his lawyer to visit the prosecutors for interviews. This will be expensive. Obviously Bill’s employer will not be paying for his travel, lawyer fees, etc.
The Antitrust Division may ask Bill for emails/records to corroborate his story. Bill may be called upon by state authorities to appear for interviews. Besides the time and expense of cooperation, Bill’s attorney tells him he will likely be fired by the hospital when it learns of his cooperation — after all, it is shocked he was talking to competitors. Bottom line: “Bill, going to the government will incur hefty legal fees, possibly make you non-employable in your field and be a very unpleasant experience. What would you like to do?” Bill will almost certainly not expose the collusion. He could go to the hospital’s compliance counsel, but, since the CEO is involved in the illegal activity, Bill is guessing that he, not the CEO, will regret his internal reporting. At best, Bill will leave his job, get out the situation and keep quiet. Most likely, Bill will think of how his family needs the money from the new job, stay in the job and hope for the best. After all, even if the collusion gets exposed some other way, isn’t there a chance he could get immunity then? And, if Bill is a bit delusional, he may think, “”I was just following orders; the hospital will take care of me if anything happens.” Bottom line: Bill does not expose the cartel.
Now, imagine the Antitrust Division enjoyed SEC-like tools to encourage whistleblowers. Bill’s lawyer friend tells him that many of the bad things that can happen to a whistleblower may happen to Bill anyway, but the lawyer will work on a contingent fee basis and Bill may recover a substantial financial award if a case is successfully brought. Bill may even be able to stay anonymous throughout the entire process. The government will likely grant immunity in return for Bill’s full cooperation, which may even include asking Bill to record conversations. Since Bill’s potential award is based on the level/value of his cooperation and risk, Bill has an incentive to consider this cooperation.
In this scenario, Bill decides to cooperate and become a whistleblower. He gives the Antitrust Division what it needs to obtain a search warrant on Bill’s hospital. With a warrant in its pocket, the Antitrust Division asks for a meeting with the hospital’s counsel. At the meeting, government lawyers explain that the hospital has 3 days to get a leniency marker in before the investigation goes public and search warrants are executed. The hospital folds, the CEO, previous director of marketing and other hospital employees agree to cooperate under the leniency.
Bill’s cooperation as a whistleblower is never known, except by his banker if cases are brought and fines imposed. Of course, things may not always work out so well. The Antitrust Division will often receive nonactionable information. In some case, however, such as large international cartels with many potential whistleblowers, the results may be spectacular.
Is this an unrealistic example? I don’t think so. Senator Klobuchar’s sweeping proposals call for the establishment of antitrust whistleblower rewards. I look forward to discussion in the coming months about whether incentives for criminal antitrust whistleblowers is a good idea, and if so, what the legislation should look like.
Thanks for reading.
PS The Criminal Antitrust Anti-Retaliation Act became law at the end of 2020, but, while helpful, standing alone it will not do much to incentivize whistleblowers. See, https://cartelcapers.com/blog/an-update-on-criminal-antitrust-whistleblower-legislation/.