Last week the Supreme Court decided a case interpreting the Bank Secrecy Act, Bittner v. U.S., 598 U.S. __(2023).  Justice Ketanji Brown Jackson joined Justice Neil Gorsuch’s opinion for the majority in a 5-4 decision. The case revolved around what constitutes a violation of the act: Each unreported foreign account? Or: Only the report which failed to list the foreign accounts? If Bittner is fined per report, he owes $50,000. If he’s fined per account, he owes $2.72 million. That’s a big difference to Bittner but what difference does it make for the per se rule? The case caught my eye because Justice Jackson joined Justice Gorsuch in a section of the opinion (Section C) finding in favor of the defendant based on the rule of lenity.

The Rule of Lenity

            The case turned on interpretation of the text of the Bank Secrecy Act. Notably, Justice Brown joined Gorsuch’s ruling interpreting the Bank Secrecy Act in favor of the defendant, relying in part on the rule of lenity. In baseball, a tie goes to the runner (or in football, a close call goes to the Chiefs).  The rule of lenity states: “the law is settled that penal statutes are to be construed strictly,”’ and an individual ‘“is not to be subjected to a penalty unless the words of the statute plainly impose it.”’ Bittner, slip opinion at 14, citing, Commissioner v. Acker, 361 U.S. 87, 91 (1959).

            Defense lawyers have been making frequent challenges to the use of the per se rule in criminal antitrust cases but to date have been beaten back by ample precedent in every circuit upholding the per se rule.  But, if eventually the Supreme Court takes a per se rule challenge, could the rule of lenity help cement a majority to overturn the per se rule?

Is the Per Se Rule Vulnerable?

            One attack on the per se rule is textualism. The Supreme Court has stated: “the problem presented by the language of Section 1 of the Sherman Act is that it cannot mean what it says.”^[1]  That would seem to pose a problem under the rule of lenity.  If the text cannot mean what it says is the solution to: a) allow the Supreme Court to rewrite it by creating the per se rule, or b) find in favor of the defendant who is facing up to ten years in prison if an individual? Justice Gorsuch has explained that, “If a statute needs repair, there’s a constitutionally prescribed way to do it. It’s called legislation.”[2]

            Besides a textualism challenge, the per se rule has been challenged on constitutional grounds. To date, the Supreme Court has dealt with its view that the Sherman Act cannot possible mean that it says by rewriting Section One: “Given its generality, our enforcement of the Sherman Act has required the Court to provide much of its substantive content.”[3] The Supreme Court has held that these three words “restraint of trade” have “created two substantive rules of law—the rule of reason or the per se rule.’” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988).  Circuit courts have accepted the government’s interpretation of the per se rule: “It is as if the Sherman Act read: “An agreement among competitors to rig bids is illegal.’”^[4]  To date, this interpretation of the Sherman Act has been successful in defending it against the constitutional due process challenge that the per se rule takes away from the jury, by judicial legislation, the requirement that the government prove every element of the offense in a criminal case beyond a reasonable doubt, including the fundamental element of whether the agreement restrained trade.

            Recent Supreme Court cases, however, show the Court being more accepting of defense arguments regarding due process constitutional protections, see e.g.,  Ruan v. United States, 142 S. Ct. 2370, 2376–77 (2022)(mens rea “knowingly or intentionally” required for conviction) and open to textualist arguments to limit long-standing government enforcement powers. See e.g.,  AMG Capital Management, LLC v. FTC, 141 S. Ct 1341, (2021)(FTC lacks authority to seek equitable monetary relief  under Section 13(b) of the FTC Act ).  The rule of lenity provides another opportunity to attract a Justice to overturn the per se rule, particularly since the per se rule it was established when price fixing was a misdemeanor and is now a felony carrying a ten year prison sentence.

What If Section One of the Sherman Act Did Mean What It Said?

P.S.   I do not agree that Section One of the Sherman Act “cannot possibly mean what it says.” Section One only prohibits agreements that restrain trade and it is incorrect to believe that every agreement restrains trade.  Do we believe every merger restrains trade? Of course not.  As Justice Brandies correctly observed nearly a century ago, “[t]he true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.”[5]  In a criminal case, therefore, the jury, not the court, should decide whether the agreement restrained trade.

When lobbying for ten-year maximum prison sentences for a Sherman Act conviction, which it achieved, the Antitrust Division stated, “the [criminal] cases that we are charging, and prosecuting are unmistakable fraud.”[6] The best thing the per se rule has going for it is that it is a great tool for prosecutors against cartels, which are “the supreme evil of antitrust” (but not that evil as far as supreme evils go).  Even without a per se rule, as long as the Antitrust Division sticks to hard core cartels in criminal case selection, requiring the government to prove beyond a reasonable doubt that the cartel restrained trade should have limited negative consequences for criminal enforcement.

Bob Connolly    [email protected]

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[1]  National Soc’y of Prof. Engineers v. United States,  435 U.S. 679, 687 (1978).

[2]  Perry v. Merit Systems Protection Board, 137 S. Ct 1975, 1990  (2017) (Gorsuch dissenting).

[3]  Arizona v. Maricopa County Medical Society, 457 U.S. 332, 354 (1982).

[4]  See United States v. Brighton Building & Maintenance Co., 598 F.2d 1101,1114 (7th Cir. 1979).

[5] Bd. of Trade of City of Chicago v. United States, 246 U.S. 231, 238 (1918).

[6]   Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public/ testimony/209071.pdf.

            In the Charlie Brown Halloween Special, when the Peanuts gang looks into their goody bag, Lucy says: “I got five pieces of candy.”  Sally says: “I got a chocolate bar.” Pigpen says, “I got a quarter.” Charlie Brown says: “I got a rock.”  As the night went on, all poor Charlie Brown ever got was a rock. YouTube.  When it comes to whistleblower legislation, the Antitrust Division must feel the same way.  The SEC got Dodd-Frank, the IRS got the IRS Whistleblower Office and just recently, financial fraud prosecutors got the Anti-Money Laundering Whistleblower Improvement Act (AML).

            The Antitrust Division “got a rock” or more precisely, an anti-retaliation whistleblower protection provision under the Criminal Antitrust Anti-Retaliation Act (CAARA). The “Interim final rule; request for comments” provisions for filing a complaint with the Occupational Safety and Health Administration of the Department of Labor were just published on February 20, 2023 (here).

            Under CAARA, a person who believes that they have been discharged or otherwise retaliated against in violation of the Act (complainant) may file a complaint with the Secretary of Labor (Secretary) within 180 days of the alleged retaliation. Upon receipt of the complaint, the Secretary must provide written notice to the person or persons named in the complaint alleged to have violated the Act (respondent) and to the complainant’s employer (which in most cases will be the respondent) of the filing of the complaint, the allegations contained in the complaint, the substance of the evidence supporting the complaint, and the rights afforded the respondent throughout the investigation. The Secretary must then conduct an investigation, within 60 days of receipt of the complaint, after affording the respondent an opportunity to submit a written response and to meet with the investigator to present statements from witnesses.

         This antitrust anti-retaliation provision may not be a “rock,” but it is unlikely to incentivize any individual to come forward and “blow the whistle” on an international or major cartel. Perhaps I am overly cynical, but a potential criminal antitrust whistleblower is not going to be put at ease knowing she can file a retaliation complaint with OSHA if her post-whistleblower life turns to hell.

            I’m writing again about the need for a criminal antitrust whistleblower statute because the AML Improvement Act was just passed, showing that there can be bi-partisan support for whistleblower legislation when Congress’ attention can be focused.  The motivation behind the AML Improvement reform was the desire to incentivize Russian sanctions-evader whistleblowers, a goal with admittedly more urgency than a desire to bust international price fixing cartels.  But if criminal antitrust whistleblower legislation can be weighed on its own merits,  stripped away from more ambitious but controversial large scale antitrust reform (such as Senator Klobuchar’s sweeping antitrust legislation which does contain within it a whistleblower provision), a criminal antirust whistleblower statute, standing alone, should get bipartisan support.  Even in today’s crazy political world, being pro-cartel is not popular.

              The AML Improvement Act significantly strengthens the existing Anti-Money Laundering statute by establishing a funding source for whistleblowers who provide information that leads to the successful enforcement of an AML action with a monetary sanction exceeding $1 million.  Before the amendment, while there was an Anti-Money Laundering Whistleblower provision, there was no funding for actually making a monetary award to successful whistleblower.  Without the ability to obtain a monetary award, there were no/few whistleblowers.  It is a huge financial and emotional risk to become a whistleblower.   This equation holds true almost universally:  NO POTENTIAL WHISTLEBLOWER AWARD = NO WHISTLEBLOWER. A whistleblower reward mechanism not only provides a financial incentive to balance the risk of being a whistleblower, but it also enables the whistleblower to hire an attorney on a contingent fee basis.  You cannot, or at least should not, be a criminal antitrust whistleblower without competent legal representation.

            Is there a need for a whistleblower statute?  It depends.  If you think large domestic or international cartels have been deterred out of existence, then the lack of cartel prosecutions is a deterrence success story.  But, if you believe that deterrence is not the complete answer and that corporate leniency, the reigning cartel whistleblower program champ, has lost its vigor (for many reasons), then a new cartel busting tool is warranted.  Whistleblower legislation has generated spectacular results for the SEC, CFTC, IRS, etc.….  Why not for consumers– with a criminal antitrust whistleblower statute?

            Over the next couple of weeks Cartel Capers will publish several posts arguing in favor of a criminal antitrust whistleblower statute.  These may be a mix of prior writings or something new.  Posting a blog entry feels like putting a message in a bottle; you have no idea who is going to read it, or if the right person is going to read it.  But, like a message in a bottle—you never know….

         PS.          If a criminal antitrust whistleblowers statute was modeled on the AML Improvement Act, that would be just fine.  Key provisions of that legislation are:

• The amendment was needed so that successful whistleblowers who report violations of sanctions requirements or money laundering will now qualify for mandatory financial rewards between 10% and 30% of any sanction, fine, or penalty triggered by the disclosure.The previous AML Act was toothless because, like for cartel crimes currently, it had no provision to financially reward whistleblowers.
• AML whistleblowers can report violations anonymously and confidentially. Since cartel investigations are often resolved with plea agreements without a trial, a whistleblower has a decent chance of remaining anonymous.
• An AML whistleblower does not have to be a US citizen to qualify for financial rewards. This would be an equally important provision in whistleblower legislation designed to undercover, destabilize, and prevent international price fixing cartels.

            There would be more details to iron out, but a criminal antitrust whistleblower act could rejuvenate antitrust cartel enforcement the way the 1993 Corporate Leniency Program did for decades.

      Thanks for reading.

Bob Connolly             [email protected]

One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.”

― Carl Sagan, The Demon-Haunted World: Science as a Candle in the Dark

I have long been a devotee of the Chicago School (at least on the limited level at which I understand it), but the FTC and Antitrust Division’s recent aggressive civil enforcement actions have me questioning whether I’ve been bamboozled.  The FTC’s latest action, FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition, FTC Press Release, January 5, 2023, is a case in point.  While I question whether the FTC has the authority to enforce the proposed rule, I think I like it, despite the procompetitive arguments that can be made in favor of non-competes.

Two days ago I had a conversation with a friend about this proposed rule.  We discussed a real life, current situation where a young salesperson is being asked to sign a non-compete clause.  He was concerned.  To refuse to sign might mean losing his at-will position.  To sign might mean that if he was later laid off, he’d have a hard time getting another job in the field due to the scope of the non-compete clause he was being asked to sign.  The relative bargaining power of the employer/employee was lopsided to say the least.  And this was a young man who was alert enough to realize the implications of what he was being asked to sign.  I’m sure many people sign such contracts simply because the boss said so without understanding the rights they have signed away.

I’m pretty familiar with the arguments in favor of non-compete clauses.  Employers will be reluctant to invest in training employees if they can then jump ship and go to a competitor. Former Labor Secretary Gene Scalia is quoted as saying “It [the proposed non-compete rule] would also, by the FTC’s own account, reduce capital investment, worker training and possibly job growth….” , Gus Hurwitz, Truth on the Market, January 13, 2023 (quoting a Wall Street Journal article.)  And that makes some sense to me.  But given the way the vast majority of non-competes are used in the real world, is that really what will happen if the FTC rule is adopted?  The FTC statement further says,  “Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, Director of the Office of Policy Planning. The FTC “estimates the rule could increase workers’ earnings by nearly $300 billion per year.”  What do you think?  The FTC has an open comment period for the new rule until Mach 20, 2023.

So, have I been bamboozled by Chicago School into thinking non-competes are pro-competitive? (and efficiency savings in mergers are passed on to consumers?, etc.)  I don’t claim to be an expert or have studied the issue in great detail but this is where I come down: there are situations where a non-compete can be pro-competitive, but those situations can be dealt with by less restrictive means; perhaps a longer post training employment contract to keep the employee from “free riding” on training. Non-disclosure clauses are another way to protect intellectual property where employees truly have access to sensitive proprietary information.  According to the FTC press release: “The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements.” The instances where the non-compete is pro-competitive seems (to me) to be dwarfed by the ubiquitous use of non-competes against workers for the purpose primarily of suppressing worker mobility in pursuit of better/higher paying jobs.  Given the imbalance in negotiating power and the less restrictive means for employers to recoup training costs, I come out in favor of the FTC’s proposed non-compete clauses.

Was I bamboozled by the Chicago school?  Am I being bamboozled by the FTC now?  I’m not 100% sure but I love the word bamboozle so I decided to write this blog post.  In William Shakespeare’s Hamlet, Polonius said: “Neither a bamboozler nor a bamboozlee be.”  (Well, no he didn’t.)  Maybe there is no bamboozle here.  Just honest differences of opinion.  That’s what makes antitrust such an interesting and important field.

PS:     I remember the first time I was bamboozled. By the Pope no less!  As a young lad in an Irish Catholic household I studied to be altar boy on what was hoped to be my first step to sainthood–or at least the priesthood.  I had to learn to serve Mass in Latin—no easy feat for a kid that just wanted to play stickball.  And no sooner had I “graduated” altar boy school, the Pope changed the Mass to English, which was not much easier for me to learn than Latin.

Thanks for reading.

Bob Connolly   [email protected]

      Two items recently in the cartel news caught my eye because they have something in common: the chicken parts criminal price fixing prosecution failures and Donald C. Klawiter’s article calling for A Really New Leniency Program: A Positive, Cooperative, and Enthusiastic Partnership for Effective Antitrust Enforcement, Antitrust, Vol. 36, No. 3, Summer 2022. What they have in common is a sharp and unfortunate turn by the Antitrust Division to not welcoming input from the antitrust criminal defense bar before making important decisions. The antitrust/cartel bar is a well-respected group of attorneys that are either former Antitrust Division prosecutors, seasoned antitrust trial veterans, experience white collar defense lawyers and often all of the above.  As outlined below, the antitrust bar is clearly not always correct in their assessment of matters but listening to their opinions is well worth the time expended and can only assist the Antitrust Division in the analysis of potential cases/policy.

Allow Defense Counsel a Preindictment Meeting

            The Antitrust Division’s failures in the chicken parts criminal price fixing investigation was a thorough rout. Recently the Antitrust Division dropped the indictment against the last two remaining individual defendants. Price-Fixing Charges Against Chicken-Industry Executives Are Dismissed, Wall Street Journal, Dave Michaels, October 17, 2022. The investigation is now concluded with a scorecard of a total of 14 people charged with participating in the scheme without a single conviction. The Division obtained just one guilty plea from the companies it accused of being involved.

            I believe the case(s) got off on the wrong foot when the Antitrust Division secured indictments against the individuals without first advising them that they were targets of the investigation. “No-notice indictments,” as these have come to be called, preclude the opportunity for defense counsel to request a preindictment meeting with the prosecting staff. It is my understanding that the chicken parts case was not the only case where no-notice indictments were returned. Even in some of the no-poach criminal indictments, where the Division was brining first-of-their-kind case, defense counsel were not given the opportunity to argue to the Division why their case was not a viable prosecution. Preindictment meetings are critically important to give a prospective defendant an opportunity to present facts or law that may change the prosecutors’ mind. Preindictment meetings can also be critically important to the prosecutors to get a preview of what the defense perceives as flaws in the case. I’ve written more about this in a previous blog post:

Don’t Be Chicken to Meet:  The Case For Preindictment Meetings,  Cartel Capers, July 12, 2022.

            There are, of course, times when a preindictment meeting would not be appropriate: “While under no obligation to notify a target prior to indictment, the government typically does so, only refraining in the rare case where, “notification…might jeopardize the investigation because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the end of justice.”  JM 9-11.153-Notifcation of Targets. But thinking that you have nothing to learn by listening to defense counsel is not a good reason to shun a preindictment discussion.

            Prosecutors don’t get to the point of seeking an indictment without believing in their case. But prosecutors should do best to avoid this trap: “Most people do not listen with the intent to understand; they listen with the intent to reply.” Stephen R. Covey. Listening to defense counsel’s pitch, should they choose to make one, with an open mind may prompt some thoughts among staff along the lines of, “Perhaps we’ve overlooked something,” “Or fell overly in love with our witnesses [documents]”, “Or we need another witness.” To be clear, listening to why you shouldn’t indict is not seeking permission. As Hubert Humphrey said, “The right to be heard does not automatically include the right to be taken seriously.”

            Listening has its limits. During my years as Chief of the Antitrust Division’s Philadelphia Field Office, I never refused (as best as I can recall) a meeting with defense counsel. But that didn’t mean defense counsel automatically got a second meeting going up the chain with the front office in DC. I can only recall one instance where defense counsel persuaded us not to seek a criminal indictment (the case had a troublesome vertical aspect) but I can recall many instances where a meeting with defense counsel caused us to tighten up a loose end, call another grand jury witness or otherwise sharpen our focus at trial. I also recall preindictment meetings where the government spoke, defense counsel listened and a preindictment plea agreement resulted.

The Leniency Policy Updates

            Another area where there is a frosty relationship between the defense bar and the Antitrust Division is the recent updates to the Corporate Leniency Policy. As mentioned, Donald Klawiter,[1] one of the most experienced and respected names in the antitrust bar, and someone who had several positions including management within the Antitrust Division during his career has written an outstanding article, A Really New Leniency Program: A Positive, Cooperative, and Enthusiastic Partnership for Effective Antitrust Enforcement, Antitrust, Vol. 36, No. 3, Summer 2022. Mr. Klawiter reports that, “There was an immediate outpouring of criticism from the Antitrust Criminal Defense Bar [to the April 4, 2022, “updates”], arguing that the Antitrust Division’s updated statements regarding promptness and restitution, as well as the rewritten FAQs, further complicated the leniency application and did not provide any sense of partnership or offer of collaboration.” Id. at 52. One of Klawiter’s recommendations going forward is for the Antitrust Division to consult with a diverse group of experienced members of the antitrust and white collar bar.

In all of the Antitrust Division’s explanations and commentary about the leniency “updates,” there is no reference to any consultation with the Antitrust Criminal Defense Bar, formally or informally. By contrast, there are several references to consultation with the Merger Defense Bar regarding revisions of the Merger Guidelines. This is a fundamental departure from the long history of cooperation and candid discussion between the Antitrust Division and the Antitrust Criminal Defense Bar. It is also a serious oversight, or snub, that is not at all helpful to future relationships between the Bar and the Antitrust Division.

There is a long and productive tradition of consultation between the Antitrust Division leadership and the leadership of the Antitrust Criminal Defense Bar. Unlike many other areas of practice, there has been an openness and trust between prosecutors and defense counsel that has developed over many, many years. This process is even more productive because a large percentage of today’s Antitrust Criminal Defense Bar either began their careers or spent several years as lawyers in the Antitrust Division. Id. at 56.

A Hope for the New DAAG (and anyone listening)

            As the Antitrust Division selects a new Deputy Assistant Attorney General for Criminal Enforcement, my hope is that she/he will be an active listener and seek out a wide range of perspectives. Listening is an essential skill of an effective leader: “I remind myself every morning: Nothing I say this day will teach me anything. So if I’m going to learn, I must do it by listening.” Larry King. The wealth of experience in the antitrust bar is well worth listening to. Antitrust lawyers (at least all that I know) believe in the antitrust laws—particularly criminal enforcement against cartels. The cartel bar wants the Antitrust Division to be successful—just not against their client!

            So, if you’re listening, I echo Mr. Klawiter’s call for more engagement with defense counsel. Assistant Attorney General Jonathan Kanter has stated numerous times that enforcers will not shy away from difficult cases. That attitude is to be applauded but does not preclude first listening to defense counsel tell you why your case (or policy) actually stinks. Consider what you’ve heard and then make the call– as you see fit.

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[1]  Donald C. Klawiter is a partner at Sterlington, PLLC and has practiced antitrust criminal law for 47 years. He began his career at the Antitrust Division of the U.S. Department of Justice where he served in several trial and leadership positions. In 2005-2006, Mr. Klawiter had the honor to serve as Chair of the American Bar Association (ABA) Section of Antitrust Law. Prior to that, he served as Co-Chair of the Section’s Department of Justice (DOJ)/ABA Criminal Working Group, Co-Chair of the Section’s International Cartel Task Force, as well as organizer, co-chair, and speaker at the Section’s International Cartel Workshops from 1997 to 2018.

Thanks for reading.  If you have any feedback, I’m listening.

Bob Connolly [email protected]

In U.S. v. Topco Associates, Inc., 405 US 596, 610 (1972): Justice Thurgood Marshall famously stated  that “[a] ntitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise.” My shorter, less eloquent version is “Free Enterprise = Free People.” But how do we keep markets free? If you want to be part of that great debate there is no better place to be than the Antitrust Division, United States Department of Justice.

Below is information for the USDOJ Recruiting Event for Law Students ad Recent Grads. This is an online event. Click here for registration information:

DOJ Antitrust Division Diversity Committee invites you to learn about the 2022 Recruiting Event for Law Students & Recent Graduates.

About this event

The Antitrust Division Diversity Committee invites current law students and recent graduates to a panel discussion about criminal and civil job opportunities in law and public service, with a particular focus on the Honors Attorney Program. Come with questions about the Antitrust Division, public service careers, career development, transitioning from law school to work, and simply being successful in a dynamic workplace where employee diversity is celebrated and supported.

To learn about the mission and work of the Antitrust Division, please visit: https://www.justice.gov/atr. 

For any questions or to request a reasonable accommodation, please contact us at [email protected]. Please submit requests for reasonable accommodations no later than three business days before the event.

I hope you can make it. Registration information here.

Bob Connolly  [email protected]

The Antitrust Section of the American Bar Association’s 14^th International Cartel Workshop took place over June 27-29, 2022 in Lisbon, Portugal. By all accounts the conference was a success and well attended. The only thing missing was, um, any international cartel cases to talk about.

There are likely numerous reasons that international cartel cases have seemingly disappeared from the scene. First, let’s give credit to good old fashion deterrence. By now, would-be cartelists must know that the odds of getting caught have increased (thanks to international cooperation). Most importantly for executives, the odds of going to jail have increased and, if you’re a foreign executive, the odds of having a very unpleasant extradition experience have also increased. Word gets around (“Hey, did you hear who is going to jail?”).  Many hopefully, have taken that wise antitrust counsel: KNOCK IT OFF!

But it is unlikely international cartels have been completely eliminated. Effective law enforcement results in another option besides ceasing cartel conduct; being much more careful about it. Gone are the days [mostly] of explicit emails setting up cartel meetings, detailed score sheets of everyone’s volume and prices and other explicit “delete after reading” emails that are not deleted. This has made detection of cartels more difficult, both for the Antitrust Division and company counsel who may have reason to suspect collusion but perhaps today don’t have the “hot documents” binder to deliver to the Antitrust Division. Without solid documentary evidence supporting witness testimony regarding a cartel, the dance between defense counsel and the Antitrust Division for leniency becomes more difficult, very lengthy, possibly contentious and ultimately, in some counsel’s view, a risk not worth taking. There’s much more that can be said about why leniencies in international cartel cases, and overall, have diminished, but that’s not the topic of this article. The plea here is that it is time, and it has been time, to add another powerful weapon to the DOJ’s arsenal for deterring, detecting and prosecuting criminal antitrust violations—a criminal antitrust whistleblower statute.

I’ve written quite a bit about the benefit of a criminal antitrust whistleblower statute.  See e.g., Another Post About Whistleblowers and Criminal Antitrust Enforcement, Cartel Capers, February 18, 2021; Benefits of A Criminal Antitrust Whistleblower Statute, Cartel Capers, June 20, 2018; It’s A Crime There Isn’t A Criminal Antitrust Whistleblower Statute, Robert Connolly and Kimberly Justice, April 5, 2018. I won’t restate my arguments except to repeat my favorite quote from Not Crazy Anymore–Crazy Eddie:

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.

https://www.wsj.com/articles/sec-proposes-whistleblower-awards-for-smaller-cases-1530212390

Of course, one whistleblower is not going to make a cartel case. But a cartel-insider whistleblower may provide the basis for consensual monitoring, search warrants and other aggressive investigatory tactics that often induce others to come forward. Search warrants/dawn raids are often the catalyst for the old-fashion rush to be first in line for corporate leniency.

The Antitrust Division is a bit of an outlier in trying to detect and prosecute secret fraudulent agreements without the benefit of a whistleblower statute. The SEC, IRS and CFTC all have whistleblower rewards programs which have become hugely successful. Each of these programs is open to and have benefitted from non-US citizen whistleblowers. International cartels typically have many “potential” whistleblowers, from the most senior executives down to regional managers. Or, to use the language of some cartels “top guys” and “working level” conspirators. Perhaps there could be a whistleblower in this large pool?

    Senator Amy Klobuchar has already proposed criminal antitrust whistleblower legislation.  (here)

(b) Whistleblower Reward.—The Antitrust Criminal Penalty Enhancement and Reform Act of 2004 is amended by inserting after section 216 the following:

“SEC. 217.CRIMINAL ANTITRUST WHISTLEBLOWER INCENTIVES.

This proposed legislation is a part of a much more expansive package entitled S.225 – Competition and Antitrust Law Enforcement Reform Act of 2021 which deals with many contentious issues such as merger reform, burdens of proof, market definition, etc. The criminal whistleblower piece of the legislation will never see the light of day unless it is broken out and pushed as a stand-alone bill. As such, it may receive strong bipartisan support. Criminal antitrust enforcement has generally had bipartisan backing and the international cartel lobby is non-existent.

The Senate is currently considering the American Innovation and Choice Online Act that “would bar the companies [Big Tech] from prioritizing their own services over those of their rivals.”  See, N.Y. Times, Clock Running Out on Antitrust Bill Targeting Big Tech–A sweeping bill that would enact the strongest restrictions on Big Tech companies in the United States has been stalled in the Senate, by David McCabe and Stephanie Lai, August 5, 2022. Whatever the fate of this controversial bill, perhaps the criminal antitrust whistleblower statute could be low hanging fruit that all parties can get behind to add another important cartel busting tool to the Antitrust Division’s arsenal. The revised leniency program revolutionized criminal antitrust enforcement in 1993. Could a criminal antitrust whistleblower statute do the same? Let’s find out, please.

Bob Connolly  [email protected]

If you have been following the price-fixing trials against the chicken industry executives, you know that after failing to convict any of the ten defendants in two previous trials, the Antitrust Division narrowed its case by dismissing five defendants. A reportedly unprecedented third trial against the five remaining defendants ended last Friday when the jury acquitted each defendant. See, Chicken Industry Executives Found Not Guilty of Price Fixing, Bob Van Voris, Bloomberg, July 7, 2022.

After the verdict, the government issued a statement: “Although we are disappointed in the verdict, we will continue to vigorously enforce the antitrust laws, especially when it comes to price-fixing schemes that affect core staples. We will not be deterred from continuing to vigilantly pursue cases to protect the American people and our markets.” This is how it should be. But win or lose, and certainly in this case, the government should reflect on what it did right and what it did wrong. One thing it did very wrong was the failure to engage with any defense counsel in preindictment meetings. None of the individuals indicted received a target letter informing them of the government’s decision to seek their indictment and thus had no opportunity to seek a preindictment meeting. Preindictment meetings provide the staff with the opportunity to listen to defense counsel argue, both factually and/or legally, why the government’s case does not meet the Principles of Federal Prosecution standards for indictment. Also, at the government’s discretion, a preindictment meeting may be an opportunity for the government to put some of its evidence on the table in an attempt to induce a cooperation agreement with the target. The defendants who ended up being put on trial three times before finally being acquitted (as well as the five defendants who the government dropped after the second hung jury), never had this opportunity. The Antitrust Division’s decision to proceed to trial without the benefit of a preindictment meeting was mistake that I hope will not be repeated.

The Antitrust Division’s new policy on preindictment meetings is baffling and a pointless self-inflicted wound. In a July 21, 2021 speech (here), Assistant Attorney General Richard Powers warned that an individual about to be indicted may not receive notice via a target letter if the Division staff believes defense counsel has not been “interested in meaningful good-faith interactions.”  While there have always been exceptions to sending a target letter based on the need for secrecy, it has, to my knowledge, never been the Antitrust Division’s policy to not issue a target letter based on what staff attorneys believe to be uncooperative conduct by defense counsel. This is too subjective a standard, improperly punishes an individual or corporation about to be indicted for the ‘sins’ of the defense attorney and is inconsistent with the Antitrust Division’s well-earned reputation for civility and fair play.

The importance of preindictment meetings (generally triggered when defense counsel receives a target letter indicating her client is seriously being considered for indictment), is more important now than ever. The Antitrust Division has taken an expansive view of per se violations, recently bringing its first ever wage-fixing and first ever no-poach cases. The Division has also publicly stated that it is considering bringing criminal Section 2 monopolization cases. Regardless of how the staff feels about a defense lawyer, the Department of Justice owes it to themselves and the taxpayer to listen to defense arguments in a preindictment meeting before committing the substantial resources to a criminal prosecution.   Before securing an indictment is the time to listen to an experienced defense counsel (often a distinguished Antitrust Division alum) argue why your case stinks. The prosecutor is not obliged to agree, but a wise prosecutor will listen.

While under no obligation to notify a target prior to indictment, the government typically does so, only refraining in the rare case where, “notification…might jeopardize the investigation because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the end of justice.”  JM 9-11.153-Notifcation of Targets. In his speech, Mr. Powers laid out a new basis upon which the Antitrust Division may decline to issue a target letter:

“Occasionally, we cannot delay our investigation for targets to be notified, and sometime situations arise where notification creates other risks we cannot bear.  Otherwise, the Antitrust Division typically takes a generous approach, particularly when a subject and counsel have engaged productively and affirmatively with staff throughout the investigation. But this process is a two-way street.  When a subject and counsel make clear they are not interested in meaningful, good-faith interactions—the kind that enhance the Division’s ability to reach a just result rather than serving as a distraction—the Division’s prosecutors are under no obligation to notify a target of its status. (emphasis added).

As the Justice Manual further provides, ‘[i]n investigations handled by the Antitrust Division, a target’s counsel is usually afforded an opportunity to meet with staff and the office or section chief regarding the recommendation being considered.’ But that is far from absolute.  If the target and counsel have declined to engage throughout the investigation, or made apparent to staff that further engagement will not be productive, then the Division will not continue to spend its valuable time and resources on pointless meetings—and if we have decided not to notify the target of its status, of course there will not be an opportunity for a meeting.” (emphasis added).

The Justice Manual does not list “productive and affirmative” engagement by defense counsel with the staff as a prerequisite for issuing a target letter. This subjective standard could be interpreted [or intended?] as an attempt to chill vigorous representation by a defense attorney of her client. Below are a few additional thoughts on why I believe target letters and an opportunity for a preindictment meeting should be afforded to an individual and a corporation, unless doing so would threaten the integrity of the investigation.

Issuing a Target Letter And Affording a Preindictment Meeting Is The Right Thing To Do

1)         Sending a target letter and granting a meeting are two different things. Even if the request for a preindictment meeting is denied, the target has been informed that indictment may be imminent. The target letter gives defense counsel an opportunity to prepare the “target” for the imminent negative publicity. Getting indicted is a traumatic event. It is important to remember that it is not the defense counsel who will be indicted–it is an individual or corporation, who at this point, is presumed to be innocent. An individual most likely will have a family who will also be severely impacted by the publicity of the indictment. A corporation will have shareholders and employees. Prior notice of indictment is an act of civility; warranted even if thought to be unearned. Mr. Powers speaks as though the Department of Justice is an ordinary litigant when he says, “But this process is a two-way street.” Prosecutors, especially when bringing criminal cases, are public servants obligated to do the right thing even if miffed at the way an attorney is defending their client.

2)         It is in the prosecutor’s self-interest to issue a target letter and grant a meeting with defense counsel if one is requested. A target letter sharpens everyone’s perception of the evidence, and positions can change. Clients’ memories sometimes improve. Clients sometimes even change defense attorneys. New arguments and positions may be advanced. Previously stated defense arguments may sound different at this stage of the investigation. It is to the prosecutors’ advantage to learn what they can in these meetings, before trial, even understanding that defense counsel will likely not be putting all their cards on the table. The Division staff lawyers may sit stone silent in this meeting simply making mental notes of how to counter these facts/arguments at trial. The prosecutor may decide that, even though there is indicatable evidence against a particular target, the chances of winning against more culpable individuals is greater if this person is not indicted. It may be beneficial to drop a prospective defendant from a multi-defendant case and perhaps put that person in the grand jury to help neutralize an expected defense. Or the prosecutor may choose to provide some feedback to a particular defendant which may possibly encourage a pre-indictment plea. And yes, the meeting may be a contentious waste of time. But the target letter and preindictment meeting are dynamic events with unpredictable outcomes. That one of those outcomes may be, or even is likely to be, a waste of time, is not sufficient reason to preclude all other possibilities.

3)         Humility should also compel a prosecutor to sit through a “don’t indict my client” pitch meeting. Indicting an individual or a corporation is a tremendous responsibility and while every Antitrust Division prosecutor I have ever known has tried their best to make the right decision, no one is infallible. Antitrust cases are unique and complex—that is why there is an Antitrust Division enforcing the Sherman Act and not the US Attorney’s office. No prosecutor is so experienced and foresighted that he can’t learn something by listening to experienced defense counsel pitch the weaknesses in a case against their client. A boring or even contentious pitch meeting is the price to pay to take every measure to ensure that the momentous decision to indict is the correct one and is in the interests of justice.

“There is a principle which is a bar against all information, which is proof against all arguments, and which cannot fail to keep a man in everlasting ignorance – that principle is contempt prior to investigation.” William Paley [sometimes attributed to Hebert Spencer].  If the prosecution refuses to have a preindictment meeting, they will never know whether they would get what’s behind Door #1 (a waste of time) or  Door #2 (a useful preview of some of the weaknesses in the case and/or strengths of the defense) or Door # 3 (a target with whom you share information who ultimately becomes a cooperating witness).

Conclusion

            There is no dispute that target letters and preindictment meetings are not a matter of right. The perceived cooperation of defense counsel, however, should not be the basis for declining to give notice of indictment. Granting a pre-indictment meeting is a separate question, but one that should also be answered in the affirmative absent a legitimate need for secrecy. It is not only in the interest of the particular case in question, but in the long-term interest of the Antitrust Division to maintain its reputation as an institution that  conducts itself with the highest level of fairness, decency and civility.

Thanks for reading.  Bob Connolly   [email protected]

This post is an expanded/revised version of a Cartel Capers post of July 27, 2021, Why I think the Antitrust Division Should Reconsider Its Policy on No Notice/No Target Letter Indictments

It has become common for defendants indicted on criminal antitrust charges to argue that the use of the per se rule in their trial is unconstitutional.  The United States, however, has beaten back each attack with ample precedent from the relevant court of appeals fortified with long standing Supreme Court precedent (i.e. Trenton Potteries and Socony Vacuum) that hold that price fixing is a per se Sherman Act violation.

In one per se challenge before the Ninth Circuit a panel member was sympathetic to defendants’ position and noted: “I think if it’s going to get straightened out [whether the per se rule is constitutional] it’s going to have to require an en banc panel of this court or more likely the Supreme Court itself.” Joshua Sisco, Mlex, January 16, 2019 “In foreclosure auction appeal, court questions applicability of per se standard, (behind pay firewall)].  The Ninth Circuit turned back the per se challenge in that appeal and Supreme Court denied certiorari. Sanchez et al. v. United States,140 S. Ct. 2655 (2020)(cert petition denied, January 13, 2020).  Just recently the Supreme Court had another chance to review the constitutionality of the per se rule in a criminal antitrust case.  Christopher Lischewski was convicted at trial of conspiring to fix the price of canned tuna.  Lischewski preserved his objection to the per se rule in his trial; his appeal was denied by the Ninth Circuit and he filed a petition for cert with the Supreme Court. The Supreme Court again denied a cert petition challenging the constitutionality of the per se rule in a criminal trial.  Lischewski v. United States, No. 21-852 (May 2, 2022).  The per se rule lives!

More challenges lie ahead, however, for the per se rule.  On May 2, 2022 the Second Circuit released an opinion rejecting yet another challenge to the per se rule. U.S. v Aiyer, Case No. 20-3594 (2d Cir. May 02, 2022). Aiyer was convicted after trial for his participation in a conspiracy to fix prices and rig bids in connection with his trading activity in the foreign currency exchange market. The Second Circuit rejected various challenges Aiyer raised to the use of the per se rule in his criminal trial. As other defendants have, Aiyer argued that when the judge instructs the jury that the alleged agreement, if found, is a per se violation of the Sherman Act, the court takes away from the jury an element of the offense, namely whether the alleged agreement restrained trade.  Aiyer also argued that the trial court, citing the per se rule, impermissibly prohibited him from offering evidence of the procompetitive effects of the alleged agreement.

It seems likely defendant Aiyer will file a cert petition with the Supreme Court.  What are the odds the Court will review the per se rule in Aiyer’s case?  Not good I would imagine with the Court having recently rejected two similar cert petitions.  The best chance Aiyer may have for a grant of cert is that, without going into details, the FOREX market is more complicated than the real estate auction bid rigging conviction that was the subject of the cert petition in Sanchez or the garden variety price fixing agreement that was the subject of the Lischewski cert petition.

A defendant never wants to be in a position of seeking a cert petition with the Supreme Court because, first you have to get convicted in the trial court and then lose your appeal.  Many people think that labor market collusion cases may be the most likely vehicle for Supreme Court to revisit the per se rule, but so far the Antitrust Division is 0 for 2 in labor market collusion trials.  But there are more labor market collusion cases on the way so perhaps the United States will score a conviction and a case will make its way to the Supreme Court.

While losing at trial, the Antitrust Division has won judicial rulings upholding the per se rule in their first wage-fixing and labor allocation cases.  In those cases the challenges to the per se rule was focused more on an argument that the conduct in question was not the type with which the courts had sufficient experience and, thus, the per se rule should not apply.  The courts rejected those arguments, in essence holding that while they may not have had experience with labor market collusion cases, the types of agreements alleged in the indictments were agreements the court had sufficient experience with to treat them as per se violation.  Curiously enough, this line of reasoning highlights what I consider to be the constitutional flaw with the per se rule in criminal cases.  The courts are making fact-finding decisions in determining whether they have enough experience with a given type of agreement to label it as per se violation i.e. “always or almost always an unreasonable restraint of trade.”  In some opinions, we see the court deferring a ruling on whether the per se rule applies until there is further factual development in the case.  Courts are clearly making factual determinations about whether the per se rules applies-i.e., whether the alleged agreement violates the Sherman Act as a matter of law.  In 30 plus years of prosecuting criminal antitrust cases I never questioned the per se rule.  But now I find myself asking, “Shouldn’t the jury always be making the decision of whether the agreement in question is a restraint of trade?”  It shouldn’t matter how much experience a court has with a particular type of restraint and/or how comfortable the court is that the charged agreement is a per se violation in a criminal case the jury, and only the jury, should decide whether the agreement in question (if proven) is a restraint of trade. (After all, the Supreme Court has changed its mind many times regarding what constitutes a per se Sherman Act violation. Remember, vertical price fixing was once considered a per se violation. See e.g. Dr. Miles.)

In opposing cert petitions challenging the per se rule, The Department of Justice effectively cites decades of per se rule precedent at every level of the federal courts. The DOJ cert opposition can be summarized: “Nothing to see here; nothing has changed.”  But things have changed.  The per se rule was created by the Supreme Court at a time when the Sherman Act was a misdemeanor and before the Supreme Court began to focus on requiring prosecutors to prove every element of the offense.  In the 1940 case of United States v. Socony Vacuum Oil Co.,[1] the individual defendants were fined $1,000.[2]  As was customary for this then misdemeanor, no jail sentences were imposed.  Compare Socony Vacuum to Sherman Act as a felony: In 2014, Romano Pisciotti, an Italian citizen, was indicted under seal for violating Section One of the Sherman Act,[3] seized by Interpol while changing planes in Germany[4] and eventually extradited to the United States.[5] Even before conviction:

            Romano Pisciotti spent 669 days in custody. This included two hours in a police station    in Lugano, Switzerland; 10 months in  a jail in Frankfurt, Germany fighting extradition [on a Sherman Act indictment]; and eight months in a US federal prison in Folkston, Georgia, in a room with around 40 mainly Mexican inmates and a single corner toilet.” [6]

Times have changed.[7]  Fines have taken off as well. The largest corporate fine in Socony Vacuum was $5,000.  The largest corporate fine today stands at $925 million![8]  The per se rule remains undefeated in taking on all challenges and perhaps will remain so.  But the challenges will keep coming.

Thanks for reading.   Bob Connolly  [email protected]

PS.   If I am wrong, (it happens), and the per se rule is never found to be unconstitutional, this is a good issue to be wrong about.  After all, cartels are “the supreme evil of antitrust.”  It says so on my blog mast head and the Supreme Court has said so too.  Verizon Communications v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). I don’t think juries would have any difficulty finding hard core cartels are a restraint of trade, but nonetheless, the per se rule is a prosecutor’s best friend.

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[1]  United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940).

[2]  See Daniel A. Crane, The Story of United States v. Socony-Vacuum: Hot Oil and Antitrust in the Two New Deals, in ANTITRUST STORIES 107 (Eleanor M. Fox & Daniel A. Crane eds., 2007).

[3]  https://www.justice.gov/atr/case-document/file/507556/download  On March 28, 2011 Pisciotti was indicted under seal for violating Section One of the Sherman Act.

[4]  Lewis Crofts and Leah Nylen, December 9, 2015, Mlex Interview with Romano Pisciotti, available at https://mlexmarketinsight.com/insights-center/reports/interview-with-Romano-Pisciotti,  see also, Gianni De Stefano, Meet the First Extradited Businessman on Cartel Charges, 8 J.E.C.L. & Pract. 5 (2017), available at https://academic.oup.com/jeclap/article/8/5/281/3074470.

[5]  Lewis Crofts and Leah Nylen, December 9, 2015, Mlex Interview with Romano Pisciotti, available at https://mlexmarketinsight.com/insights-center/reports/interview-with-Romano-Pisciotti,

[6] Id.  See also See Plea Agreement with Roman Pisciotti, https://www.justice.gov/atr/case-document/file/507541/download, which was discussed by Renata Hess in her remarks. See also Remarks of Renata Hess,  https://www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-hesse-antitrust-division-delivers-remarks.

[7]   The increases took place in the context of the Sherman Act being elevated from a misdemeanor to a felony in 1974.  In 1994 there was an even more significant enhancement to criminal penalties, including a maximum jail sentence of 10 years.

[8]   See SHERMAN ACT VIOLATIONS RESULTING IN CRIMINAL FINES & PENALTIES OF $10 MILLION OR MORE, available at https://www.justice.gov/atr/sherman-act-violations-yielding-corporate-fine-10-million-or-more.

I am in Washington, D.C. for the ABA Antitrust Spring Meeting.  My excitement that my suit still fits was short-lived as I painfully learned that my shoes do not. I’ve done a bit of walking and developed a nice blister (graphic photo censored). I’ve learned/relearned a few other non-competition related things since I arrived:

• I lived in Palm Springs for five years where it only rains three days a year. Back East it can top that–in four days.
• I first realized I may need a hearing aid at the last ABA Spring meting before the pandemic.  I thought my hearing had gotten better though because I can hear the TV at home just fine with close captioning on.  But the problem does return a bit at certain times.
• On the plus side, kudos to the ABA for having very large print for the names on the badges. (The entire conference seems so very well run and the conferece site is spacious making it easy to catch up with old friends.)
• I am an odd fellow that would rather go back to my hotel room and start this blog post over enjoying the many festivities that go well past my bed time. (I did enjoy some early bird receptions).

I won’t say much about the panels because I could not do them justice–except to say each I’ve attended (including Tuesday’s GCR Live-Cartels) were well worth attending. The panelists are all so well prepared and excellent speakers with important facts and/or a point of view to share. There is also a diversity of backgrounds among the panelists including diversity in experience levels: from people who have worked in the field since they helped draft the Sherman Act to the new crop of leaders.

I attend only a fraction of the many panels that cover every facet of competition law, not just here in the US but around the globe.  In the area of cartels there are important debates over some criminal enforcement program policies.  That’s not a bad thing in itself and It sure makes for interesting panels.  But, there is one thing everyone agrees on which is what makes competition law a wonderful area to practice in: Free Markets = Free People.  Now, lets rumble some more over what exactly that means.

Its only Thursday morning so if you see me around please say hello. If we haven’t yet met you will see my easy to read name tag, or if that’s not visible, you may recognize me by my newly purchased footwear.

Bob Connolly   [email protected]