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:

• _ATR/FOIA-676 to ATR/FOIA 723 (Bates # 676-679 & 695-698)
• _ATR/FOIA-769 to ATR/FOIA 813 (Bates # 810-813).

            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]

            At the recent American Bar Association’s National Institute on White Collar Crime, Deputy Attorney General Lisa O. Monaco and Assistant Attorney General Kenneth A. Polite gave major talks outlining further developments inDepartment of Justice’s Corporate Criminal Enforcement Policy. The new policies are designed to further the DOJ goal of rewarding companies for compliance programs designed to prevent wrongdoing and detect and report wrongdoing promptly if it does occur. A major theme of these initiatives is individual accountability: “Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.”  The latest rollout is a three-year Pilot Program on Compensation Incentives and Clawbacks (Pilot Program), which will require corporations who enter into criminal resolutions with DOJ’s Criminal Division to include “compensation-related criteria” in their corporate compliance programs and “offer fine reductions to companies that seek to clawback compensation from culpable individuals in appropriate cases.” DAG Monaco concluded her remarks by stating: “Let me close on what will always remain the most important priority in corporate enforcement: individual accountability.”

            There are laudable elements to the program, particularly encouraging compensation systems that reward compliance and encouraging a strong document retention policy, including considering the company’s policy on encrypted and ephemeral apps. One aspect of the policy, however, may have unintended consequences if applied in the context of criminal antitrust enforcement: fine reductions for companies who seek to claw back compensation from corporate wrongdoers. Has an overemphasis on holding individuals accountable led to a dearth of cooperating witnesses and successful criminal antitrust prosecutions? It is a possibility worth considering. The paradox is that an overzealous effort to hold every culpable individual accountable may well mean no culpable individuals or companies are held accountable.

            Individual accountability has long been the dominant theme of the Antitrust Division’s criminal enforcement program. When I started in the Division in1980 the emphasis of criminal antitrust enforcement was not only to hold individuals accountable, but also to impose jail time on individuals convicted. The Sherman Act had become a felony in 1974 and we had just begun prosecuting cases that qualified as felonies. The Antitrust Division had a focus not only on holding individuals accountable but convincing courts that this “gentlemen’s crime” was worthy of imposition of jail sentences for those convicted. It is fair to say that the Antitrust Division has been successful both in holding individuals accountable and in securing prison terms for most individuals convicted of price fixing/bid rigging. Individual accountability remain front and center.

            But, (there’s always but) at least with price fixing and bid rigging offenses, there is a competing interest that should also be weighed. It’s important to remember that, at least for criminal antitrust conspiracies, while it is true that [typically] uninvolved shareholders “play no role in the misconduct” that is not to say that shareholders don’t enjoy economic benefits from the cartel misconduct. There is substantial economic literature, reflected in the Sentencing Guidelines, that price fixing and bid rigging increase prices, harm consumers and financially benefit the corporate conspirators involved.  In January 2023, Professors John M. Connor and Robert H. Lande published a paper on SSRN (forthcoming in the book Research Handbook on Cartels, edited by Peter Whelan) in which they discuss the economic impact of price-fixing cartels: “Our empirical results demonstrate that cartels are almost always substantially under-deterred even in the United States, the jurisdiction that imposes the most severe sanctions. A fortiori, the overall levels of cartel sanctions should be increased dramatically worldwide.” If there is underdeterrence of convictedcorporations, it is logical to assume that the underdeterrence is substantially greater if a corporation is not convicted and fined. And while civil suits, especially class action price fixing suits, are a part of the “deterrence package,” civil suits are more difficult against companies that have not been charged.

            There is some conflict in the two major themes in recent DOJ criminal enforcement policies. To corporations: “We want you to come in early.” But with respect to individuals: “We are going to hold you accountable.” Cartels are a covert conspiracy crime. It is difficult for a corporation to “promptly and completely report the wrongdoing’ without the cooperation of insiders—individuals who were part of the conspiracy. If companies cannot induce culpable individuals to “promptly and completely report the wrongdoing” then there may be no uncovering of some cartels.

              Was there an overemphasis on holding individuals accountable in the Antitrust Division’s long running but now ended chicken price fixing investigation? Individuals were held “accountable” by being indicted and tried (in some cases several times) but were not convicted. Only one corporation was convicted in the entire investigation: “In the end, its years-long effort to bring industry executives to trial ends with a single guilty plea, five acquittals, and 11 defendants who had all of their charges dropped….  Pilgrim’s Pride pleaded guilty to price-fixing charges in 2021, agreeing to pay a $107 million criminal fine.”(here). Not to beat a dead chicken, but it was an unusual, and not successful strategy, for the Antitrust Division to charge so many individuals while obtaining just one corporate plea and fine.

            Individual accountability should remain a primary goal of criminal antitrust enforcement, but it should be tempered by the need to also hold corporations accountable. This will sometimes mean that individuals who should be criminally charged are given non-prosecution protection in return for full cooperation. Cartels typically are comprised of many co-conspirators from numerous companies. There is a balancing act—when to “give up” a culpable individual to gain testimony against other individuals and the corporations that benefitted from the cartel (“Big Fish, little fish”). In cartel investigation after investigation such as auto parts, Liquid Crystal Displays (LCDs), and graphite electrodes, the Antitrust Division gave non-prosecution agreements to numerous individuals who could have been prosecuted (whether successfully is another question). As we all know, the first company in may qualify for leniency for itself and cooperating executives. But even after leniency, companies could negotiate non-prosecution for some (but not all) of their cooperating executives as the Antitrust Division built successful prosecutions against more cartel members—both corporate and individual. Was this a failure to hold individuals accountable? Not if you look at the scoreboard at the end of the investigations where record fines for corporations and prison sentences (and extraditions) on many executives were imposed.

            The new clawback policy is not a major development but seems like just one more deterrent to individual cooperation. The uncertainty created around whether individuals will be covered under Type B Leniency is a more significant roadblock for encouraging individual cooperation. While corporations are required to “promptly report wrongdoing,” imagine an Upjohn warning during the internal investigation something like: “It would be of great help to the company if you would tell us everything you know about the cartel but the DOJ has made prosecuting people like you their highest priority.” The executive may ask: “But the company will take care of me if I come forward, right?” Answer: “Well, about that….. Besides firing you, and helping the DOJ to convict you, the DOJ would like us to clawback your salary for the last several years.”

            It is fair to point out, that at least for price fixing and bid rigging offenses, while shareholders may not have been personally involved in the wrongdoing, the economic benefit they reaped should be fair game in the hunt for a more perfect deterrence mix. That may require giving culpable individuals a non-prosecution agreements for timely and complete cooperation as part of a strategy to obtain guilty pleas (or convictions at trial) against other, hopefully more culpable individuals and guilty pleas and fines paid by corporations to disgorge at least some of the profit they may have realized from the wrongdoing. A policy encouraging early cooperation from actual cartel insiders, i.e. culpable individuals, may lead to more successful Corporate Leniency applications which historically have propelled major successful cartel prosecutions against more culpable individuals and the companies that profited from charging consumers inflated rigged prices.

Thanks for reading.

Bob Connolly             [email protected]

            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]