Assistant Attorney General Makan Delrahim gave a talk on Friday, May 10, 2019 at an ABA Antitrust Section of Law conference in Buenos Aires, Argentina. The full remarks can be read here.

Mr. Delrahim made reference to two policy changes that are in the works involving two key Antitrust Division policies : 1) Corporate Leniency; and 2) Credit for Compliance Programs.  This talk did not indicate what changes may be in store, but Mr. Delrahim’s remarks are worth noting (in italics below):

Leniency Policy

The Antitrust Division has several important tools for detecting cartels, but the leniency program has proven to be our most effective tool by far.  Under the Antitrust Division’s Corporate Leniency Policy, the company (and any cooperating employee) that first reports its involvement in illegal activity can qualify for a complete pass from criminal prosecution in exchange for providing comprehensive cooperation to the Antitrust Division during its investigation.

As of now, over 80 jurisdictions across the globe have developed leniency programs, including nine so far in Latin America.  These programs have changed the landscape of antitrust enforcement throughout the Americas.

 One area where we are taking steps to improve is to protect against the imposition of duplicative penalties.  We hope to ensure that each jurisdiction imposes penalties that reflect the specific harm to its own markets and consumers.  One simple way to achieve this goal is for enforcers to have open discussions about our methodologies for calculating fines in specific cases. These dialogues not only may help prevent overlapping fines and decrease unnecessary burdens on parties, but also can ensure that penalties cover the full scope of the harm caused by the cartel.  

Corporate Compliance Programs

One option [to credit robust compliance programs] would involve formally recognizing that even a good corporate citizen with a comprehensive compliance program may nevertheless find itself implicated in a cartel investigation. While we have credited extraordinary prospective commitment to corporate compliance before, we are also considering how to credit robust compliance programs at the charging stage, even when efforts to deter and detect misconduct were not fully successful in this particular instance.

The Antitrust Division long has been home to the ultimate credit for an effective compliance program that detects and allows prompt self-reporting—leniency.  Going forward, however, leniency will no longer be the only benefit.

 Whatever the exact nature of our policy changes, the Division will move away from its previous refrain that leniency is the only potential reward for companies with an effective and robust compliance program.  In line with the Department of Justice and its other components, we can and must do more to reward and incentivize good corporate citizenship.

https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-american-bar-association

Some Thoughts on These Potential Developments

The Criminal Division of the Department of Justice recently released guidelines for the Evaluation of Corporate Compliance Program (April 2019) here.  These guidelines do not cover the Antitrust Division but are still helpful in understanding factors that may result in credit for antitrust compliance programs.

Mr. Delrahim quoted Mexican film director Alejandro Gonzalez Inarrutu who said, “To question your own process is a necessity.  If you don’t question yourself, it’s impossible to improve.”   I encourage the Antitrust Division to question whether sweetening the pot for corporate whistleblowers is the only way to strengthen the Corporate Leniency Policy and increase cartel enforcement.  It’s time for a whistleblower provision to reward individuals, not just companies, who come forward.  Kimberly Justice (Freed Kanner London & Millen) and I have had careers as prosecutors in the Philadelphia Field Office of the Antitrust Division.  We are now in private practice and deal with potential whistleblowers.  We have written two articles that more fully explain how and why a cartel whistleblower statute would work: The Political Stars Align for a Criminal Antitrust Whistleblower statute,  February 8, 2019, Antitrust Law Daily, available at http://business.cch.com/ald/ALD_Criminal-Antitrust-Whistleblower-Statute_20190208.pdf; and It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute, Antitrust Law Daily April 5, 2018, available at http://business.cch.com/ald/ALD_Criminal-Antitrust-Whistleblower-Statute_04-05-2018_final_locked.pdf.

Two points I’d like to address here, because I believe they are misunderstood, is that an individual whistleblower program:

1) would enhance, not undermine, the Corporate Leniency Program; and

2) a cartel individual whistleblower statute would also enhance, not undermine, corporate compliance programs.

1.  Individual Whistleblowing Incentives Will Lead to Increased Corporate Leniency Applications

Whether one believes that leniency applications are down (at least for major international cartels), or whether leniency applications are in line with historical norms, there is no reason that the Corporate Leniency Program should not be improved.  A cartel whistleblower statute will increase, not decrease, the effectiveness of the corporate leniency program.

Type A Leniency

There are no public statistics but anecdotally attorneys suggest that some companies that discover cartel issues are not coming forward with Type A leniency because the costs of cooperation and civil damage suits outweigh the benefits of sitting back and hoping the cartel is never discovered.[1]  The discussion in the corporate board room about what to do with a discovered cartel problem will be quite different if the company has to worry about an individual whistleblower having incentives to report the wrongdoing.  Currently, a company may (and some allegedly have) bet that another cartel member won’t go in for Type A leniency because that company faces the same enormous collateral consequences of exposing the cartel.  An individual whistleblower, of course, faces enormous blowback from being a whistleblower, but a possible financial reward may overcome these disincentives.  In terms of destabilizing cartels and promoting Type A leniency, the wildcard of a possible individual whistleblower certainly moves the cost/benefit analysis of seeking Type A leniency towards self-disclosure.

 Type B Leniency

Individual whistleblowers will also help generate Type B leniency applications.  Type B leniency is available even after an investigation has begun as long as the “[t]he Division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction.”[2]  A whistleblower, therefore, does not preclude the granting of a leniency application in the investigation.

Here are couple of realistic scenarios where an individual whistleblower, if protected from retaliation and compensated for the enormous financial cost of exposing a cartel, might come forward, either to start an investigation or greatly advance an existing investigation:

Whistleblower Illustration 1: A sales representative who is assigned to attend working group meetings.  Once there is word of an investigation, this type of whistleblower may come forward.  Type B Corporate Leniency would still be available to one company and once an investigation obtains credibility/inevitability, the odds of a company breaking ranks and seeking that one leniency are high.

Whistleblower Illustration 2: An estimator who is told to give bid prices to a competitors.  When the authors were in the Philadelphia office, we started numerous grand jury investigations that were far from sure things.  We would be doing cartwheels in the hall if this type of whistleblower came forward when subpoenas were served. In all likelihood, however, we would need more witnesses and documents before the indictable evidence threshold was reached and  leniency was unavailable.  With an insider cooperating, the likelihood of a company seeking Type B leniency is high.

In either of these situations, not only would a whistleblower be able to start/enhance a credible grand jury investigation, but the opportunity might exist for search warrants, consensual monitoring and other investigative techniques that can greatly collapse the time and resources needed to uncover, prosecute and extinguish a cartel.

2)  An Individual Whistleblower Program Would Have a Positive Effect on Corporate Compliance Programs

Concern has been expressed that an individual whistleblower program would undermine corporate compliance programs because an individual could go directly to the government and financially benefit from exposing an existing a cartel instead of first bringing it to the attention of the corporation.  We agree that antitrust compliance programs are a positive part of a corporate culture but we disagree that an individual whistleblower statute would discourage effective corporate compliance programs. We believe a cartel whistleblower statute would make antitrust compliance programs even more necessary because the risk of getting caught would be increased.

The need for a corporate compliance program is related in part to the possibility of wrongdoing being exposed.  The words of “Not Quite A Crazy As he Used To Be ‘Crazy Eddie’” might be the lead in to every antitrust compliance program if there was a cartel whistleblower statute:

            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.[3]

Also, as noted, even with a credible whistleblower coming forward, the Antitrust Division still has a corporate leniency in its cooperation arsenal.  Both authors, when we were with the Antitrust Division, successfully used affirmative amnesty—approaching a subject corporation, making a reverse proffer of their involvement in a cartel and giving a deadline for coming forward with a corporate leniency application.  If a whistleblower comes forward, the Division can learn what type of compliance program that company had and make a decision about whether an affirmative amnesty approach may be justified.  Of course, it may be the whistleblower did not report the matter internally because the CEO was involved directly. Or perhaps the whistleblower did complain internally and was shut down.  Or maybe the company had a good compliance program and this was a mid-level hatched conspiracy.  In any event, the existence of a whistleblower does not rule out the possibility of leniency for the whistleblower’s company. Moreover, even if the company does not obtain the leniency, the Antitrust Division has other ways of rewarding a robust—but ultimately unsuccessful whistleblower program.

Let’s Have A Criminal Cartel Whistleblower Roundtable—Please

 The Antitrust Division has commendably held roundtables on a number of potential policy issues/changes.  A roundtable on this issue “Should there be a whistleblower award for individuals who expose criminal antitrust cartels?” would be a great way to get divergent views on whether and how individual cartel whistleblowers should be rewarded.

[1]  One contributing factor to the apparent decline in leniency applications may be a dramatic reduction in “hot documents” that cartel members—particularly foreign members –are creating.  After a decade of being put in jail in the United States and hunted down with Red Notices and border watches, it is likely that cartel members have gotten the message that they (and their records) are not beyond the reach of the US antitrust laws.  Hopefully, this has resulted in a reduction in the formation of cartels.  It most assuredly has led to a decrease in the amount of explicit cartel emails/documents/travel records that are created.  The lack of “hot documents” must also factor into a companies’ decision about whether to seek Type A leniency.  The fewer hot documents are being created, the greater the need for individuals to come forward.

[2] Antitrust Division Corporate Leniency Policy (1993), available at https://www.justice.gov/atr/file/810281/download.

[3] Mr. Antar was commenting on why he thought it was a bad idea for the SEC to put a cap on the dollar amount of whistleblower award.  Wall Street Journal, June 29, 2018, SEC Seeks Right to Cut Whistleblower Bounties, available at https://www.wsj.com/articles/sec-proposes-whistleblower-awards-for-smaller-cases-1530212390.

Thanks for reading.  Due to technical difficulties (and blog owner IT incompetency), the comment link on this blog is not working.  Please feel free to contact me at

[email protected]

or LinkedIn

Turning to the role of state-owned-enterprises, over the past few decades, SOEs have increasingly played a more prominent role in international commerce.  In fact, some of the largest companies in the world are SOEs, including numerous Chinese companies.  To the extent those companies engage in anticompetitive commercial behavior that harms the United States market, the Antitrust Division will challenge such behavior and subject foreign SOEs “to the U.S. antitrust laws to the same extent as the activities of privately owned firms.”  As Assistant Attorney General Makan Delrahim said last year, in the United States state-owned enterprises that are engaged in commercial activity are not immune from the antitrust laws and “where competitors come together to engage in collusive or anticompetitive behavior, we will bring all our enforcement tools to bear.”

Anyone who has ever worked in the Antitrust Division, U.S. Department of Justice has described it as the best job they ever had.  I’m included in that group.  So when I noticed what looked like an unusually large number of experienced attorney job positions being advertised, I thought I’d pass on the USA jobs link here.

There are various positions being advertised on both the civil and criminal side.  If you’re interested, good luck.   If you have any questions, I might be able to help answer them.

Bob Connolly

[email protected].

On Thursday March 28th the Antitrust Division issued the press release below with a link to its annual newsletter:

Bob Connolly  [email protected]

             I have been very interested in constitutional challenges to the per se rule in criminal Section 1 Sherman Act prosecutions.  I have reluctantly come to the conclusion that the per se rule is unconstitutional.  I say “reluctantly” because I do believe that cartels are “the supreme evil of antitrust” and I offer some fixes to still maintain a robust cartel enforcement program.

I have two versions of the article.  I posted the full version on the SSRN website (here)  and very much appreciate any comments for those that are interested.  I have a shorter version on Law 360 (here) but this is behind a firewall.  If you don’t have Law 360, you can email me and I’ll send a copy.

This is the opening paragraph of the article on Law 360:

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The per se rule for horizontal price-fixing and bid-rigging has been entrenched in  Supreme Court jurisprudence since at least United States v. Socony-Vacuum Oil Co., in 1940. That may change in the near future.

Challenges in lower courts to the per se rule have become more frequent. While these challenges have been repelled by Supreme Court precedent, the current Supreme Court may be receptive to revisiting the per se rule.

Justices Sonia Sotomayor and Neil Gorsuch, while representing so-called different wings of the Supreme Court, have taken an interest in cases where the defendant claims he has been denied the right to a jury trial. Justice Gorsuch’s bent as a “textualist” will also find support from other justices to hold that the Supreme Court improperly created the per se rule. While members of the Supreme Court will take different approaches, the per se jury instruction in criminal Sherman Act trials will fall.

In a per se case, the court, not the jury, decides whether the alleged agreement violated the Sherman Act. The jury only decides whether the charged agreement existed and whether the defendant joined the agreement. Justices Gorsuch and Sotomayor will lead a majority to hold that: (1) the per se rule is a substantive rule of law, which only Congress, not the Supreme Court can create; and (2) this substantive per se rule improperly takes away the defendant’s Sixth Amendment right to have the jury be the fact finder regarding whether the agreement charged in a Sherman Act indictment actually was a restraint of trade.

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Thanks for reading Bob Connolly   [email protected]

The End Is Near for the Per Se Rule in Criminal Antitrust Cases:

https://www.law360.com/competition/articles/1141024/how-per-se-rule-will-die-in-criminal-antitrust-cases

The End Is Near for the Per Se Rule in Criminal Antitrust Cases: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3356731

United States v. Kemp & Associates and Daniel Mannix, Case No., 2:16-cr-403 (DS). JudgeSamPerSeMemorandum

On August 17, 2016 the defendants in this case were indicted on one count of violating §1 of the Sherman Act by agreeing to allocate customers of heir location services sold in the United States.  Utah District Court Judge David Sam initially agreed with the defendants that the case should be tried under the Rule of Reason.  Judge Sam also granted the defendants’ motion to dismiss the indictment based on the statute of limitations. The Tenth Circuit issued a decision reversing the statute of limitations dismissal.  The Tenth Circuit also encouraged the court to reconsider its Rule of Reason decision.  While noting that it did not have statutory authority to overturn the district court’s decision regarding application of the Rule of Reason, the appellate court opinion highlighted Supreme Court and Tenth Circuit cases finding customer allocation schemes to be per se Sherman Act violations. United States v. Kemp & Assocs., Inc.,907 F.3d 1264, 1278 (10th Cir. 2018). Last Thursday, February 20, 2019, upon the government’s motion for reconsideration, the District Court reversed itself and held that the case would be tried under the per se rule.

This is a victory for the Antitrust Division.  The per se rule has come under attack in numerous cases, and in each case the Antitrust Division has repelled the assault by citing abundant Supreme Court and lower court precedent applying the per se rule to certain agreements among horizontal competitors (price fixing, bid rigging and market allocation). After reconsideration, Judge Sam ruled as precedent dictated he must; that the customer allocation scheme alleged in the indictment would be tried as a per se case.

While Judge Sam was bound by precedent, I believe his instincts regarding applying the rule of reason were correct.  In any criminal case, the jury should be the fact-finder determining whether the agreement in question violated the Sherman Act, i.e. was the agreement a restraint of trade?  The operative text of the Sherman Act “every contract…in restraint of trade is declared illegal” cannot be read to allow the Court to decide as a matter of law (per se) that some agreements restrain trade and are illegal, but allow the jury to decide in other cases whether the agreement restrained trade.  In a criminal Sherman Act case, the key issue is whether the defendants’ agreement/conduct restrained trade.  Under the Sixth Amendment, only the jury can make that finding.

This, however, is not the state of the law today. Under current Supreme Court precedent, the Court is the initial fact-finder, and if the court finds the agreement fits the per se box, then the question of whether the agreement restrained trade is taken away from the jury.  In another case where the per se rule was challenged, one Ninth Circuit judge recently said, in sympathy with the argument that the jury must be the fact-finder, “I think if it’s going to get straightened out [whether the per se rule is constitutional] it’s going to have to require either an en banc panel of this court or more likely the Supreme Court itself.”[1]

Just as a mental exercise, however, suppose there was no Supreme Court per se precedent. The use of a per serule in by a trial court in a criminal antitrust case where the defendant can go to jail for ten years looks puzzling (puzzling in the sense that it is unconstitutional). Below are a few statements from Judge Sam’s recent opinion that are correct statements of law, but problematic when the Sherman Act is used as a felony criminal statute:

• “In applying the Rule of Reason, the factfinder weighs all attendant circumstances of a case, and then decides whether the practice imposes an unreasonable restraint on competition. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977).”   Memorandum and Order at 2.

            This seems correct.  The fact-finder decides whether the practice violates the law.  But there is a limitation—in a Rule of Reason case.

• “If the government can prove that such an agreement [per se] exists, then the analysis ends without inquiry into the possible economic benefits the agreement could bring. In re Cox Enters., Inc., 871 F.3d 1093, 1097 (10th Cir. 2017).”   Memorandum and Order at 3.

            This is where the per se rule goes off track.  Here, the fact-finder is the court.  And if the court finds the agreement fits into the per se box, then the jury has no role in deciding whether the government proved an element of the criminal statute beyond a reasonable doubt.

• This [the per se rule] provides an evidentiary shortcut through the Rule of Reason’s minutiae; in such cases, the Per Se approach is justified based on efficiency. Arizona v. Maricopa Cty. Med. Soc’y., 457 U.S. 332, 344 (1982).   Memorandum and Order at 3.

  Yikes!  “Mr. Defendant, the court is going to skip over all that ‘minutiae stuff’ because it’s much more efficient this way.  Hope you don’t mind.  What’s that? Yes, the statutory maximum is ten years in jail.”

• Thus,‘[i]t is only after considerable experience with certain business relationships that courts classify them as per se violations of the Sherman Act.”’ United States v. Topco, Inc., 405 U.S. 596, 607- 08 (1972) (emphasis added).   Memorandum and Order at 3.

This statement in Topco is pretty ironic.  The Supreme Court, not a jury, found the territorial allocation among Topco supermarkets to be a per se violation.  Today, most commentators would argue the Supreme Court got it wrong and the intra-brand agreements did not restrain trade, but in fact promoted inter-brand competition.  Luckily, I’m pretty sure no one went to jail in Topco.  I think part of the reason little thought was given to the defendants’ Sixth Amendment rights to have a jury decide questions of fact, was that the Sherman Act was a misdemeanor, and no one went to jail [except the occasional troublesome labor leader].  And, the Apprendi, Booker line of Sixth Amendment jurisprudence had not yet been developed.

• “Certain factors can negate application of the Per Se approach when it would be otherwise applicable. See, Nat’l Collegiate Athletic Ass’n, 468 U.S. at 103. This court must analyze whether any of these factors apply to the present case.  Memorandum and Order at 7.

            Judge Sam noted that even in horizonal agreements among competitors, there are exceptions to the per se rule.  Some cases that look like a per se violation may not be a per se violation, but the fact-finder is the court.  In a criminal case, the fact-finder should be the jury.  Can you imagine in a fraud case the Judge saying “Oh, the indictment alleges a swamp land sale in Florida to an elderly widow.”  That’s “always or almost always” going to be fraud, so let’s skip over that part and just have the jury decide “Did you sell her the land?”

       Heir Locators is a timely and interesting case for me.  To be clear, I am not criticizing Judge Sam who has correctly applied controlling precedent.  But, I have been thinking a lot about whether the per se rule is unquestioned gospel truth, but in reality, under todays’ Sixth Amendment jurisprudence only the jury can be the fact-finder on an element of a criminal offense—and the most critical one at that—did the defendant restrain trade?

I believe that the per se rule will be found unconstitutional (or perhaps I will be found to be an idiot) when a criminal antitrust case reaches the Supreme Court.  It may be sooner rather than later.

Stay tuned!

Bob Connolly    [email protected]

[1] Mlex, Joshua Sisco, January 16, 2019 “In foreclosure auction appeal, court questions applicability of per se standard, (behind firewall).