India is becoming an even more important player on the world stage, including as a country with a strong competition enforcement agency.  Avinash Amarnath is a member of the competition team at Vinod Dhall and tt&a, New Delhi.  Avinash regularly keeps us informed of developments in India and offers the insights of a seasoned  “on the ground” competition lawyer.   Here is his most recent post.

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Hello from India to all readers. The CCI has come out with two interesting decisions on the cartel front recently and these are analysed below.

Insurance cartel

The CCI recently issued an order imposing a penalty of USD 105.7 million (approx.) on 4 public sector (owned by the Government of India) insurance companies for indulging in bid rigging. The case was initiated by the CCI on its own motion based on an anonymous letter alleging that the 4 public sector insurance companies (National Insurance Co, New India Assurance Co, Oriental Insurance Co and United India Insurance Co) had indulged in bid rigging in a tender floated by the government of the State of Kerala for selecting the insurance provider for a welfare scheme (health insurance for below poverty line families) in 2010-11.

The evidence found by the CCI showed a relatively straightforward case. The representatives of the 4 companies had met a day before the bid was to be submitted specifically to discuss the bid. Minutes of the meeting were prepared and the minutes showed that it was decided that United India Insurance Co would quote the lowest premium and if it was successful, the business would be shared with the other 3 companies. The minutes were admitted to be authentic by all 4 companies. On further investigation, the CCI found that the decision was actually implemented i.e United India Insurance Co quoted the lowest premium and ended up winning the bid; pursuant to which a business sharing arrangement was entered into with the other 3 companies.

The CCI also found that this arrangement was repeated year after year. The initial tender for 2010-11 was supposed to continue for 3 years. However, at the end of the 1^st year, United India Insurance Co asked the state government for an upward revision of the premium citing losses. When the state government turned down the request, United India Insurance Co invoked the exit clause in its contract forcing the government to issue a fresh tender. This was repeated year after year till 2013-14 when a private company (Reliance) was able to win the tender. Each year, the same pattern was followed with United India Insurance Co winning the tender and then entering into business sharing agreements with the other 3 companies. Further, the premiums quoted by the 4 companies steadily increased in each tender. The CCI found that the behaviour of the companies in the subsequent years was also due to a pre-determined arrangement. The CCI found internal notes of the companies in subsequent years referring to meetings between them and joint decision making.

The CCI found no rational business justification for this behaviour particularly as Reliance who won the tender for 2013-14 had quoted a much lower premium than what the 4 companies had been quoting for the past 3 years and the same price was continued for 2014-15. Reliance had stated during the investigation that it was not incurring any losses at this premium level.

The 4 companies amongst other arguments argued that they constituted a single economic entity as they were all 100% owned by the Government of India and their management and affairs were controlled by the Ministry of Finance. Therefore, there was no question of a cartel between them. The CCI examined the regulatory history of the insurance sector and found that the Government had intended for these 4 companies to act independently. Further, despite being under overall supervision of the Government each company had placed a separate bid in the tender. Finally, the companies themselves had admitted during the investigation that all decisions relating to submission of bids, determination of bid amounts, business sharing arrangements, etc. were taken internally at the company level without any ex ante approval/ directions from the Ministry of Finance. Therefore, the CCI concluded that the 4 companies operated as independent economic entities and the Ministry of Finance exercises no de jure or de facto control over them.

While deciding on the penalty, the CCI considered the fact that the tender related to a welfare scheme for the poor as an aggravating factor and the peculiarities of the insurance sector particularly the importance of an insurer’s solvency for consumers as a mitigating factor. Keeping these factors in mind, the CCI decided to impose a penalty at the rate of 2% of the average turnover.

Whilst on the merits, this case appears to be reasonably straightforward it does highlight a very important issue for Indian competition law i.e. whether public sector enterprises constitute a single economic entity. Despite the liberalisation and privatisation drive post 1991, government owned enterprises continue to operate and compete with private enterprises in several sectors of the Indian economy. In many sectors such as insurance (as discussed above) and oil and natural gas, there are more than one government enterprises operating and competing with private enterprises. Whilst these government enterprises have a reasonable amount of autonomy granted to them in day to day operations, they are under the overall supervision of the government and the level of autonomy varies from sector to sector. There is no denying that the determination of this issue would have to take place on a case by case basis. The CCI’s reasoning in this case appears to be quite sound. It remains to be seen how the CCI would deal with a similar question in other sectors of the economy.

The full decision of the CCI can be accessed here.

Film association case

In another decision, the CCI has imposed penalties on the Kerala Film Exhibitors’ Association (KFEA) and the Film Distributors Association, Kerala (FDAK) for collective boycott. The KFEA is an association of cinema hall owners in the state of Kerala. The FDAK is an association of film distributors. The complaint was brought by the Kerala Cine Exhibitors Association (Informant), a rival cinema hall owner association alleging that their member cinema halls were not being given any fresh releases of movies due to an anti-competitive agreement between KFEA, FDAK and the Kerala Film Producers Association (KFPA), an association of film producers in the state of Kerala.

The CCI found that there had been a written agreement between KFEA, FDAK and KFPA to limit the number of cinema halls where fresh releases would be allowed to 70 based on certain specified infrastructure criteria. If any other cinema halls satisfied these infrastructure criteria, a joint decision would be taken by the 3 associations on whether to allow fresh releases in these cinema halls. This agreement had been applied in a discriminatory fashion and several cinema halls of the Informant association had not been given fresh releases despite satisfying the infrastructure criteria. The CCI found that KFEA and FDAK had each violated the cartel prohibition by implementing this agreement in a discriminatory manner resulting in the denial of fresh releases to the members of the Informant association. FDAK attempted to argue that it had been under pressure from KFEA to deny fresh releases to the members of the Informant association. The CCI found that this did not absolve FDAK of liability and could at best, constitute a mitigating factor while deciding on penalty. The KFPA was exonerated even though it had signed the agreement as it had not been actively involved in implementing the agreement to the detriment of the Informant. In fact, KFPA, in its submissions before the CCI had claimed that it was opposed to the practices of the FDAK and KFEA in denying fresh releases to the members of the Informant association.

This case raises an interesting fact pattern whereby two trade associations were found to have violated the cartel prohibition by implementing a tripartite agreement among trade associations at different levels of the market. The tripartite agreement itself was not held to be a violation. This was presumably because of two reasons: a) the tripartite agreement was signed before the Competition Act came into force; and b) it would not have constituted a horizontal agreement between competitors. Rather, the implementation of this agreement by each trade association was held to be a horizontal agreement to collectively boycott the members of the Informant association.

The CCI also made some observations on the role of trade associations in general which are worth noting. The CCI observed:

“Undoubtedly, the trade associations are for building consensus among the members on policy/ other issues affecting the industry and to promote these policy interests with the government and with other public/ private players. The activities of any Association(s) should not be intended to restrain competition or to harm consumers. Neither the Association nor any of its committees or activities should be used for the purpose of bringing about or attempting to bring about any understanding or agreement, written or oral, formal or informal, express or implied, between and among competitors with regard to practices of limiting or controlling production, supply, markets etc. The trade associations provide a forum for entities working in the same industry to meet and to discuss common issues. They carry out many valuable and lawful functions which provide a public benefit e.g., setting common technical standards for products or interfaces; setting the standards for admission to membership of a profession; arranging education and training for those wishing to join the industry; paying for and encouraging research into new techniques or developing a common response to changing government policy. However, when these trade associations transgress their legal contours and facilitate collusive or collective decision making, with the intention of limiting or controlling the production, distribution, sale or price of or trade in goods or provision of services by its members, it amounts to violation of the provisions of the Act. This has happened in the instant case.”

The full decision of the CCI can be accessed here.

Thank you for reading,

Avinash

avinash.aba@gmail.com

I want to share a blog that may be of interest.  The blog covers compliance and ethics (here) and is published by Emtrain.  Emtrain provides online compliance and other training courses in many areas including FCPA (Mike Koehler–The FCPA Professor) and Corporate Ethics (Sally March)  (Full disclosure: I am an Antitrust Contributor for Emtrain).

Emtrain republished my last post on the recently opened DOJ investigation of possible airline collusion and the raft of civil class action suits that immediately followed.  When Emtrain reposted my blog, they added nice graphics and other presentation upgrades.  It was a treat for me to see what the post looked like (here) when someone with more talent than your humble blogger presented the material.

Thanks for reading.

There are two recent cases that got me thinking a bit, and for what its worth, I’ll pass along those thoughts.

7^th Circuit Affirms Downward Departure to Sentence of Probation

The first case is a sentencing case in the Seventh Circuit, U.S. v Warner, No. 14-1330 (7^th Cir. July 10, 2015). Warner, the billionaire creator of Beanie Babies, evaded $5.6 million in U.S. taxes by hiding assets in a Swiss bank account. He pled guilty to one count of tax evasion, made full restitution, and paid a $53.6 million civil penalty. Warner had a plea agreement with an agreed upon level of 23 with a range of 46-57 months.   Each side was free to argue for an appropriate sentence. The government sought incarceration in excess of a year and a day. But the district court judge gave Warner a more lenient sentence: two years’ probation with community service, plus a fine. The district court found, among other findings, that “Mr. Warner’s private acts of kindness, generosity and benevolence are overwhelming.” Moreover, many of them took place long before Warner knew he was under investigation; the court found they were “motivated by the purest of intentions” and “without a view toward using [them] at sentencing.” The government appealed, arguing the sentence was unreasonable because there was no term of incarceration to reflect the seriousness of the offense and to avoid sentencing disparity.

The Court of Appeals upheld the sentence imposed by the district court finding that the District Court followed the appropriate sentencing procedure and made the required findings. The other question was whether the district court findings were reasonable and supported by the evidence. The Seventh Circuit noted that the advisory guidelines range is but a starting point. The appellate decision is lengthy, discussing at length the requirements of 18 USC Section § 3553(a) factors to be weighed in determining a sentence that is “sufficient but not greater than necessary.” The Court concluded: “District courts enjoy broad discretion to fashion an appropriate, individualized sentence in light of the factors in 18 U.S.C. § 3553(a). The court here did not abuse its discretion. Rather, it fully explained and supported its decision and reached an outcome that is reasonable under the unique circumstances of this case. We therefore affirm Warner’s sentence.”

District courts are often receptive to argument for departure from draconian, mechanical guidelines sentences that take no account of the individuals characteristics of the defendant. I wold file this decision and use as an excellent roadmap to follow for any defense lawyer seeking a below guideline range, particularly if it is a significant departure requesting no incarceration.

The Spiderman Case Discussion of Antitrust Precedent

In Kimble v. Marvel Entertainment  the sole question presented was whether the Supreme Court should overrule a patent/royalty precedent. “Adhering to principles of stare decisis, we decline to do so.”  The Court noted that stare decisis would have received less deference had the issue been application of the Sherman Act, noting that Congress “intended [the Sherman Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” As a result, the Court has “felt relatively free to revise our legal analysis as economic understanding evolves.” The dissent agreed, saying, “we have been more willing to reexamine antitrust precedents because they have attributes of common-law decisions.” My fellow blogger, Steve Cernak, wrote an article, “Three Antitrust Precedents Ripe for Overturning,” identifying three antitrust precedents that may no longer merit deference: 1) baseball’s antitrust exemption; 2) the per se rule as applied to tying cases; and 3) Philadelphia National Bank’s holding that merger is presumptively anticompetitive if it results in an undue share of the market and significant increase in concentration.  Steve has written an interesting article (but subscription required).

The Supreme Court spoke more at length about the antitrust precedent and the per se rule in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), where the Court overturned 100 years of precedent in ruling that vertical price-fixing was to be judged under the rule of reason instead of being condemned as per se illegal. In Leegin the Court said:

Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act. Khan, supra, at 20 (“[T]he general presumption that legislative changes should be left to Congress has less force with respect to the Sherman Act”). From the beginning the Court has treated the Sherman Act as a common-law statute. See National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688 (1978); see also Northwest Airlines, Inc. v. Transport Workers, 451 U. S. 77, 98, n. 42 (1981) (“In antitrust, the federal courts . . . act more as common-law courts than in other areas governed by federal statute”). Just as the common law adapts to modern understanding and greater experience, so too does the Sherman Act’s prohibition on “restraints] of trade” evolve to meet the dynamics of present economic conditions.

How does this relate to cartels?  I’d add one other antitrust precedent that maybe due for a tweaking: the per se rule in criminal antitrust cases. Recently I wrote an article that was published in ANTITRUST magazine titled: Per Se “Plus:” A Proposal to Revise the Per Se Rule in Criminal Antitrust Cases.  (ABA subscription required). The basic theme of the article is that the penalties for a criminal violation of the Sherman Act have escalated so dramatically that the per se rule is no longer a fair standard of culpability. When the per se rule was first articulated in United States v. Socony Vacuum, the most severe penalty imposed on any of the individual defendants was a fine of $1,000. The Sherman Act was a misdemeanor (up to 6 months) but until modern times, jail was merely a theoretical possibility. Today, individual defendants are subject to up to ten years in prison (and the Antitrust Division has strongly argued for this sentence in several cases.) Also, indicted foreign defendants are placed on Red Notices and subject to arrest, detention and possible extradition anywhere in the world. There are also severe immigration consequences that limit an international business executives’ ability to remain employed. Despite the severe sanctions, juries are still charged that “good intentions” and even “good results” are irrelevant if the jury finds an agreement to fix prices was reached. Further, ignorance of the law is no defense. In the article I argue that the per se rule should be modified in a criminal case so that the government must prove beyond a reasonable doubt that the defendants in someway deceived or misled customers into believing there was competition when in fact there was an agreement to fix prices. This deception proves a “bad” intent. What makes price-fixing an unreasonable restraint of trade is not the price level, but an agreement that deceives customers (or sellers) into believing market forces set prices, when in fact secret collusion was at work. Price is the “central nervous system” of the economy, and when buyers do not know that the price was set by collusion, the free market is restrained.   (Where buyers know of the restraint i.e. an open joint venture, the agreement may restrain competition, but the agreement is judged under a rule of reason standard.)

It may well be that the per se rule against price-fixing, even in a criminal case, will be the one per se rule endures for as long as the Sherman Act does. But, I think the issue is worth considering. If you don’t subscribe to ANTITRUST and would like a copy of the article, please email me at Robert.connolly@geyergorey.com, or give me a call at (215) 219-4418. This is an area of continued interest to me and I would greatly appreciate any feedback or other comments.

Thanks for reading.

At a recent trade association conference in Miami of the International Air Transport Association (IATA), multiple airline executives spoke publicly about their plans to be “disciplined” in their approach to pricing and adding extra flights on popular routes.  These event followed in short order thereafter:

1)  The Antitrust Division of the United States Department of Justice confirmed that it had begun an investigation into whether certain major air carriers (United, American, Southwest and Delta) have colluded to limit the expansion of seat capacity—a form of price-fixing (here). The airlines will have to turn over internal documents for review and depositions may follow.

2)  Within hours of the DOJ confirmation of the investigation, the first class action civil suit seeking treble damages was filed.  Since that time four other class action treble damage suits have been filed and more will likely follow.

Did the airline executives needlessly bring this antitrust turbulence upon themselves? A couple of observations:  These airlines are public companies. They have investors who want to know what the future plans are for profitability.  It is not illegal for an airline to restrict capacity growth, or even to cut capacity–if it is a unilateral business decision.  It would, however, be illegal for two or more airlines to agree to restrict capacity.  And the agreement not need be express. It can be inferred from circumstances and conduct.

Red Flags/Risk Factors

It is the “inferred agreement” issue that should have given airline executives pause about multiple airlines making similar statements at a trade association event.  The airline industry currently is operating in a high “antitrust risk” environment with red flags such as:

• There have been a series of recent mergers that have dramatically consolidated the airline industry and given some people concern over possible collusion.
• In fact, the DOJ sued to block the recent American Airlines/US Air merger, citing serious concerns over possible collusion in the resulting even more highly concentrated market. The DOJ dropped the suit after receiving some concessions, but for many, the tacit collusion concerns remained.
• Maybe most importantly, fuel costs have plummeted. This, of course, is well-known to the flying public who reasonably expected a drop in airfares.  The fact that airfares have not followed suit, and may have in fact increased slightly, makes for a very unhappy public.
• If you travel, you also know that nearly every seat on every flight is sold out (and priced at a premium if you want “extra” leg room). The flying experience has never been less comfortable.
• There is a history of collusion in the airline industry—at a time when it was less concentrated than it is today.

Given this background, it would have been difficult for the DOJ to decline a request (made by Senator Blumenthal of Connecticut, who has extensive antitrust experience) to investigate given the public statements of the airline executives. It is entirely possible, even likely, that the DOJ investigation will not turn up enough evidence to warrant the filing of the suit. But, it could, depending upon what the internal documents show. And, even if the DOJ closes its investigation without taking any action, the civil lawsuits will continue…and continue.   If no further evidence is uncovered, there may be settlements for nuisance value, but what an expensive nuisance!

It would have been wise for airline executives to consult with their antitrust counsel about the best way to give legitimate guidance to the investment public that they intended to exercise “capacity restraint” to protect profit. Not making statements about price/capacity “discipline” at a trade association event attended by competitors may have been advised. Or a statement emphasizing the unilateral nature of the decision may have helped. Of course, nothing can be done to completely immunize your company from an unfounded antitrust investigation or suit, but communication can be shaped in away to minimize such an event or help defend if sued.

The word “disciple” preceded by pricing and or capacity is a loaded word in the antitrust world. A person can unilaterally exercise discipline around a diet or spending and have success. Pricing and or capacity discipline, however, only works in an industry if competitors show similar restraint. Mutual public declarations of “discipline” can be seen as signaling tacit collusion. To be sure, it alone is not proof of an agreement. But, combined with other industry characteristics, it can be the trigger that leads to a DOJ investigation followed by civil lawsuits.

Speaking of consulting with antitrust counsel, here is a quick plug for a program that I am presenting with my friend ‪Barbara Sicalides of Pepper Hamilton for ‪Society of Corporate Compliance and Ethics (SCCE) titled: “CEO’s Say the Darndest Things: Training to Prevent Hot Antitrust Documents.” The program is Wednesday, July 15th at 1:00 pm. (EST).

Thanks for reading.

Bill Baer, Assistant Attorney General for the Antitrust Division, US Department of Justice gave a speech yesterday in London, England.  The title of the speech was “Politicization of Competition Policy: Myth or Reality?” Baer definitely came down on the side of “Myth.”  And he has a unique vantage point from which to offer an opinion.  Mr. Baer has had leadership positions in the Antitrust Division, the Federal Trade Commission and the defense bar in his long and distinguished career.  (No, I’m not pitching for a job :-)).

The speech outlined the philosophy of US antitrust policy in both Republican and Democrat administrations:

• “Competition policy and competition enforcement succeed where they are based on an unwavering commitment to the competitive process and to protecting consumer welfare. Enforcement decisions need to be fact-based, analytically sound, and legally grounded.”
• “We must not wield our substantial enforcement powers to protect or advance certain competitors or industries. We must call it like we see it, without undue influence from any quarter.”
• “[T]his commitment to sound antitrust enforcement must be paired with transparency and due process. If we don’t explain our analysis to the parties we are investigating, how will they have confidence that our enforcement decisions are indeed based on the facts and sound economic analysis?”
• “Antitrust officials – whether Republican or Democrat, whether at the Department of Justice or the Federal Trade Commission – have pursued fact-based and analytically sound enforcement, and demonstrated a commitment to transparency and fair process.”

I agree with this assessment based on my career with the Antitrust Division.  While I don’t have a cite handy, (and would appreciate if someone knows where I could find it), I once read that the year with the most criminal case filings occurred during the Reagan administration.  And one of the most important events in the development of international cartel enforcement occurred when Democrat appointee Anne Bingaman was Assistant Attorney General for the Antitrust Division and Gary Spratling was the Deputy for Criminal Enforcement.  Archer Daniels Midland was charged in the international lysine cartel.  The company was fined a then record $100 million and two of its executives were sentenced to jail.  The criminal prosecution of ADM, a company widely seen as very politically connected, showed our international partners that U.S. cartel enforcement would not show favoritism to domestic companies.  (And I have no doubt that the ADM case would have been prosecuted just the same if it had come up under any Republican appointee in charge of the Antitrust Division.)

The Antitrust Division’s revolutionary 1993 Corporate Leniency Policy was adopted under a Democratic administration.  But, in 2004, under a Republican administration, with Hew Pate in charge of the Antitrust Division, the Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”) was passed. ACPERA bolstered the Corporate Leniency Program by raising criminal penalties and encouraging leniency applicants to cooperate with private plaintiffs.  Leniency, and the prosecution of criminal cases developed pursuant to leniency (or otherwise), has been a bi-partisan effort.

And, if one is inclined to think that Democrats were more pro-enforcement in the criminal arena, file this under “Be careful what you ask for.”  It was a Democratic administration that closed four Antitrust Division field offices that did primarily criminal work.  (Full disclosure: I was Chief of one of the closed office–but officially, I’m not bitter :-)).

Baer did note that there might be differences among reasonable people about cases at the margins. I think this applies in civil cases.  My observation (and there is nothing original about this) is that as a general rule, Republicans are more concerned about “false positives” (challenging an agreement as anticompetitive when it isn’t).  Republican administrations have confidence that the market will correct any mistakes in non-enforcement.  Democrats, on the other hand have more confidence that they will get it right, and are more troubled by the consequences to consumers during the time it might take for the market to fix “non-enforcement” mistakes.

In his speech Baer discussed a couple of cases that would make an interesting discussion on this point:  United States v. Apple and United States v. Amex.  Baer explained in his speech why the Division pursued these cases and the benefit to consumers.  But, I think it would be an interesting debate to consider whether a Republican administration would have brought either of these cases.  And if not, why?  Only 10 months until the next ABA Antitrust Spring meeting.  Can we get a panel on this?

Thanks for reading.

Reading to the end bonus!  This footnote is in the text of Baer’s written remarks:

RICHARD A. POSNER, ANTITRUST LAW ix (2d ed. 2001) (“Almost everyone professionally involved in antitrust today—whether as a litigator, prosecutor, judge, academic, or informed observer—not only agrees that the only goal of the antitrust laws should be to promote economic welfare, but also agrees on the essential tenets of economic theory that should be used to determine the consistency of specific business practices with that goal.”).

It was not that long ago that the Antitrust Division had a very black and white position on compliance programs. They were important to keep a company from violating the Sherman Act.  And, if a company was involved in a cartel, the Corporate Leniency Program could be used to reward a company, if through its compliance program, it was the first company to detect and report the violation and cooperate in the investigation. But, after that, regardless of the circumstances: “No credit for you!”  The door was opened a crack in a speech given by Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement in a September 9, 2014 speech “Compliance Is A Culture, Not Just A Policy” when Snyder indicated the Division was open to rewarding a company for a compliance program and was looking for the proper situation.

The Division recently found that opportunity in its May 20, 2015 plea agreement with Barclay’s, a bank fined in the Forex investigation.  In the Barclay’s plea agreement (here), the company agreed to pay a fine of $650 million for its illegal conduct in the Forex market. But, the plea agreement also called for a $60 million penalty for the company’s rate rigging activity in Libor. In 2012, Barclay’s entered into a non-prosecution agreement with the Criminal Division in relation to the Libor rate rigging.  Barclay’s Forex conduct was ongoing during the time the two-year term Libor non-prosecution agreement prohibited the defendant from committing any other violations.  As a result, Barclays’ was dinged for an additional $60 million in the Forex plea agreement. The Barclay’s plea agreement was notable, however, in that for the first time, the Division publicly gave credit to a corporation for implementing and/or improving a compliance program. Paragraph 13 of the Barclay’s plea agreement said only: “The parties further agree that Recommended Sentence is sufficient, but not greater than necessary to comply with the purposes set forth in 18 U.S.C. §§ 3553(a), 3572(a), in considering, among other factors, the substantial improvements to the defendant’s compliance and remediation program to prevent recurrence of the charged offense.”

Yesterday, Brent Snyder made public remarks at a conference in Chicago about “credit for compliance.” As reported in Law 360, Snyder said:

“Credit will require action and results, not just mere promises of future action…. It’s senior executives who lead by example and hold themselves accountable … that bring about culture change. It’s senior executives who create a zero-tolerance compliance environment that bring about culture change. And it’s companies that make responsible decisions about the roles of … culpable employees that do not accept responsibility that bring about culture change. That is what we will be looking for.”

The basis for the compliance credit was quite different from a company seeking credit for an effective compliance program that was violated by a “rogue employee.” Snyder has previously stated that: “The ‘lone rogue cartel offender’ is a little like Big Foot, often talked about, rarely seen.” In fact, arguing that a lone rouge employee committed a cartel offense can work against a company because it may seem like the company is looking for a scapegoat instead of admitting broader employee conduct in the cartel. I will say from my own experience, it is rare that a company can get involved in a cartel offense with a single employee. In cases where it has happened, it is usually a small company and the President is the “rogue employee.” Larger conspiracies generally involve multiple layers of company employees to carry out. In my experience, the best way to argue for a reduced sentence with the Antitrust Division is by providing extraordinary cooperation (which can cost a great deal of time and money) and now, a real commitment to changing the corporate culture through a serious upgrade in an effective corporate ethics and compliance program.

A couple of other notes about the Antitrust Division’s position on credit for corporate compliance. Barclays received this credit in the very same plea agreement where they had to pay an additional $60 million for Forex price fixing while still under an NPA for Libor rate rigging. It is extraordinary that in the same plea agreement where Barclays was penalized for recidivism, Barclays received credit for beefing up its compliance program.  The two are not mutually exclusive and it demonstrates the Division is really open to fact based arguments.  (Unfortunately, there is no guidance on what specifically Barclays did to earn this credit.) Also, besides the credit for compliance carrot, the Division has recently wielded a very heavy stick—seeking and getting external corporate monitors in situations (AU Optronics and Apple) where the Division felt the company did not take compliance efforts seriously, even after being found to have violated the law.

This is an important change in the Antitrust Division’s policy towards compliance programs. Credit goes to the Division to being open to this change, and also to commentators such as Joe Murphy and defense attorneys who have long argued that the Division should be open to such a change. It remains to be seen how this change plays out in future cases.

Stay tuned. Thanks for reading.

Canada’s Corporate Compliance Program

The Canadian Competition Commission has become a leading voice on the importance of competition compliance programs.  Canada had previously acknowledged that in certain circumstances, companies could get credit for having a compliance program, even if a breach in the program has led to a violation (here). Last week Canada updated its Corporate Compliance Bulletin with this announcement giving guidance in establishing an effective compliance program. The announcement states:

This bulletin seeks to help businesses of all sizes in the development of a credible and effective compliance program, but the updated bulletin pays special attention to small and medium‑sized businesses. It is designed to help businesses get the solid information they need to reduce their risk of contravening the law.

Commission Pecman, Canadian Commissioner of Competition, issued this statement:

“The updated Corporate Compliance Programs bulletin provides Canadian businesses with the guidance needed to play by the rules and avoid the pitfalls of anti‑competitive behaviour. Fair competition makes for a strong economy. Canadian businesses and consumers reap the benefits of a competitive and innovative marketplace.”

I’d add that compliance programs add value in other ways: increased investor confidence; ability to attract ethical employees and positive “branding” with the consuming public.  The Canadian Corporate Compliance Program bulletin has many links and is an important source of information for those interested in antitrust/competition compliance programs.

My Own Thoughts On Compliance Credit

As mentioned, Canada leads the way in providing an incentive for companies to implement an effective ethics and compliance program by allowing the possibility for credit, even if some employees didn’t take the message to heart and a violation occurred. Leading commentators have urged the United States and EU to take a similar approach. I’ve added a slightly different approach—adding a stick to the carrot. In a letter I’ve written to the United State Sentencing Commission, I advocated that there be an upward adjustment in an individual’s sentence if he had the authority to institute an effective antitrust compliance program (as defined in the Sentencing Guidelines) and failed to do so. Many antitrust defendants are sufficiently high in the corporation (the c-suite) that they have some responsibility for training. And many of these individuals, if they commit the company to a price-fixing/bid rigging scheme, direct subordinates to implement the scheme.  If an individual is an antitrust defendant it is obvious he didn’t adhere to an ethics and compliance program. But, to me, it is an aggravating factor if that individual was high enough in the company to have instituted a compliance program and didn’t to do so. Such an executive failed their employees by not providing subordinates the training needed to perhaps resist involvement in the criminal activity.  And, no compliance program means subordinates don’t have access to “whistle-blower” mechanisms to report illegal activity they may be directed to engage in.  In many cases I prosecuted, subordinates usually had a notion that price-fixing was wrong–but maybe had no idea it carried a ten-year jail sentence.  When the boss said “Go to this meeting; they went.”  And if they had misgivings, there was no compliance program mechanism in the company through which they could voice their concerns.  I always felt the senior executives who failed to give subordinates proper training deserved an extra measure of culpability.

This proposal of course has limitations. A defendant cannot have a sentence “enhanced” unless he has been convicted personally of an antitrust violation. This “stick” does not apply to senior executives or Board of Directors who did not violate the law. The stick, however, could also be an enhancement for corporate defendants who are convicted of antitrust violations, but had no compliance program.

One Last Note

The Antitrust Division did take a step forward on the compliance issue by publicly giving credit to a corporate defendant, Barclays, for beefing up a compliance program during an investigation (here).  The Division has not spoken publicly about this recent development. My partner, Hays Gorey Jr., is a panelist at the Sixth Annual Chicago Forum on International Antitrust Issues conference in Chicago this week where Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement is also a speaker.  There is a good chance Mr. Snyder will address the issue at the conference.

Stay tuned.

Thanks for reading.