On April 27, 2016 Hitachi Chemical Co., Ltd. was charged by the Antitrust Division in a one-count Information alleging that the company (through predecessor companies) engaged in a conspiracy to fix prices and rig bids of certain electrolytic capacitors in the United States and elsewhere beginning at least as early as August 2002 and continuing until at least as late as March 2010. On May 13, 2016, the government filed a “Sentencing Memorandum, Motion for Departure and Request for Expedited Sentencing.” The plea agreement with Hitachi Chemical was filed as an attachment. There are several interesting features of the Information and the plea agreement. The plea agreement calls for a fine of $3.8 million, which was based on a downward departure for substantial assistance. Hitachi’s guidelines range fine was between $3.96 million and $7.92 based on a volume of commerce $16.5 million. Without the downward departure for substantial assistance, the parties agreed that Hitachi’s fine should have been $5.1 million.

The most noteworthy provision of the agreement is that the parties will jointly recommend to the Court that Hitachi’s sentence include a three-year term of probation that requires the company to continue to develop and implement a corporate compliance program, and submit an annual report on the implementation of the program. The Antitrust Division does not normally recommend probation where a company has agreed to plead guilty. In requiring a period of probation, the sentencing memorandum noted “the parties have considered the Court’s remarks about corporate probation when it’s sentenced NEC Tokin and jointly recommend that the Court sentence Hitachi Chemical to a three-year term of probation.” NEC Tokin was the first company to plead guilty in the capacitors investigation and paid a fine of $13.8 million. While Judge Donato ultimately approved the plea agreement, he called it a drop in the bucket and stated “I have serious heartburn over this.” Also, at the NEC sentencing hearing, Judge Donato first indicated that he was going to impose probation and a compliance monitor on NEC Tokin, but he backed off after pleas by the government and NEC Tokin regarding the defendant’s cooperation. The Hitachi plea agreement, therefore, does include a term of probation.

One condition of Hitachi’s probation is that “the company continues to work toward the implementation of a compliance culture.” The plea agreement states that Hitachi will be required to continue to develop and implement “an effective compliance program.” The plea agreement does not lay out specifics of the compliance program but states “[t]he compliance program must be consistent with the goals and methods described in [the sentencing] guidelines section 8B2.1.” The plea agreement further states at Paragraph 9(c) “as a condition of probation, that Hitachi Chemical conduct periodic trainings, have high-level personnel communicate the company’s commitment to the compliance program, and submit annual written reports to the Department of Justice Antitrust Division and the Probation Office describing its implementation progress.”

The plea agreement does not call for a compliance monitor. In fact, the parties attempt to dissuade the Court from imposing one. The “government and the defendant agree that a compliance monitor is not an appropriate condition of probation in this case. Further, the government urges the Court not to impose a monitor. Monitors are not routine in antitrust cases; a monitor has been imposed only once before on a criminal antitrust defendant.” AU Optronics had a compliance monitor imposed upon it as part of its sentence after it went to trial and lost and otherwise failed to show remorse or implement a bona fide compliance program. The government urged that compliance monitors should be reserved for the worst offenders, which is how the government characterizes AU Optronics. Hitachi Chemical, however, cannot back out of the plea agreement if Judge Donato does impose a compliance monitor as a term of the probation.

The Antitrust Division recently has had a number of “firsts” in relation to compliance programs. As noted, AU Optronics was the only time the Division has requested and had granted, a sentence that included the imposition of a compliance monitor. Also, in two recent cases, the Division has granted credit and accepted a reduced fine for “forward looking” compliance programs. In the Barclays (Forex investigation) and in KYB Corp (auto parts) plea agreements the Division gave credit where the company took substantial steps to implement a robust compliance program and changed the culture of the organization. The Division refers to this as “forward looking” compliance program credit. See Cartel Capers, Brent Snyder Explains Antitrust Division Approach to Credit for Compliance Programs. Lastly, in the Hitachi Chemical plea agreement, the Division has now entered into a plea agreement calling for enhancement of a compliance program as a condition of probation.

I would expect future corporate plea agreements in capacitors to contain a similar condition of probation because all corporate pleas in this investigation will go before Judge Donato. My guess, however, is that the inclusion of probation will be limited to the cases before Judge Donato, and not be an ongoing policy of the Division [unless more judges indicate that a term of probation is appropriate]. Of more interest is whether Judge Donato will accept the recommendation of the government that no compliance monitor be imposed. The government’s rationale is that monitors should be reserved for the worst antitrust offenders and Hitachi by contrast had “agreed to plead guilty, accepted responsibility, recognized its wrongdoing, improved its compliance program, and cooperated against its co-conspirators.” On the other hand, in other areas of corporate crime, compliance monitors are not as rare as they are in price-fixing cases. And Hitachi is pleading guilty to almost 8 years of participating in an international cartel. The parties have asked for an expedited sentence on June 9, 2016. A $3.8 million fine will hardly be noteworthy but other aspects of the sentencing may be.

There are a number of other interesting aspects of the plea agreement that I’ll cover in a future post. The case is US v. Hitachi Chemical Co., Ltd., Case 4:16-cr-00180-JD (N.D. Cal.)(sentencing memorandum filed 5/13/16).