For only the second time ever, the Antitrust Division of the U.S. Department of Justice (DOJ) has recommended that a corporate defendant receive a fine reduction for the implementation of an effective compliance program. On 5 October 2015, the DOJ filed a Sentencing Memorandum and Motion for a Downward Departure (Sentencing Memorandum) in its case against Kayaba Industry Co., Ltd. (KYB), a Tokyo-based company that pleaded guilty last month to conspiring to fix the prices of shock absorbers sold to manufacturers of cars and motorcycles.1 In the Sentencing Memorandum, the DOJ recommends giving KYB credit for instituting an effective compliance program under Section 3572(a)(8) of the U.S. Sentencing Guidelines. In making its recommendation, the DOJ provides a non-exhaustive account of the steps taken by KYB to implement an effective compliance program. In particular, the DOJ identifies several “hallmarks of an effective compliance policy.” 2
The identification of these “hallmarks” appears to be the DOJ’s next step in a series of recent compliance-related developments. In May, in the foreign currency exchange rate manipulation investigation, Barclays received credit for “substantial improvements to [its] compliance and remediation program;”3 however, no specific details about Barclays’s compliance program or the credit provided in relation to that compliance program have been made public to date. In June, Deputy Assistant Attorney General Brent Snyder publically addressed the topic of compliance credit, distinguishing between “backward looking” and “forward looking” compliance efforts. While he reaffirmed the DOJ’s longstanding position that existing compliance programs – those programs in place at the time the unlawful conduct occurred – do not merit a fine reduction, he stated that the DOJ would consider recommending downward departures for effective “forward looking” compliance programs – those programs implemented after the unlawful conduct has been uncovered – that reflect “genuine efforts to change a company’s culture.”4
The DOJ, in its Sentencing Memorandum in the KYB case, sets out several hallmarks of an effective “forward looking” program, including:
- Direction from top management at the company – The new compliance protocols “came straight from the top,” and senior management set the tone at the top, which made compliance with the antitrust laws a true corporate priority.
- Training – KYB mandated antitrust training for all senior management and sales personnel. Classroom training was supplemented with individualized instruction for personnel employed in high risk positions. The effectiveness of the training was monitored by subsequently testing employees.
- Anonymous reporting – KYB created an anonymous hotline for the reporting of possible antitrust violations.
- Proactive monitoring and auditing – KYB now requires prior approval for, and reporting of, any employee contact with competitors. These reports must be audited by the legal department. In addition, sales employees are now required to certify that they did not consult or exchange information with competitors when determining prices.
- Discipline of violators – KYB quickly disciplined the employees involved in the conspiracy. Two high-ranking employees who were personally involved in the conduct charged, or supervised employees who were involved in the conduct, were demoted and no longer have sales responsibilities. Additional employees may still be disciplined.
While it is clear that KYB received some credit from the DOJ for its compliance program improvements, it is impossible to quantify the credit given to KYB. Due to KYB’s substantial cooperation5 and effective compliance, the DOJ recommended a US$62 million fine, which is a 40% reduction from the low-end of KYB’s Guidelines range of US$103.68 million to US$207.36 million. The DOJ rarely provides granular details about criminal antitrust fines, leaving the precise calculation, and the components of that calculation, impossible to know. As is typical, in the KYB case, the DOJ did not provide an accounting of how it calculated the fine or credited KYB’s compliance program.
The DOJ’s Sentencing Memorandum in the KYB case is significant in that it provides for the first time detailed guidance on the type of program that may qualify for compliance credit from the DOJ going forward. This is the first time that the DOJ has addressed antitrust compliance in such a detailed manner since the DOJ’s articulation of the minimum elements required for AU Optronics Corporation’s (AUO) corporate antitrust compliance program following AUO’s conviction in the TFT-LCD investigation. In the AUO case, as part of its request for a corporate monitor, the DOJ provided detailed guidance as to the minimum elements required for AUO’s compliance program.6 At the time, there was much speculation as to whether the elements outlined by the DOJ would be sufficient for a company to get compliance credit in a plea agreement context. The DOJ’s recent description of KYB’s compliance program, although explicitly non-exhaustive, appears generally consistent with the elements outlined in the AUO case back in 2012. Corporations looking to develop new or improve existing compliance programs, therefore, should consider using the elements provided in the AUO case, as well as the new hallmarks of an effective compliance program set out in the DOJ’s Sentencing Memorandum in the KYB case, as a framework. Certainly any company under investigation for cartel conduct should consider implementing compliance program changes similar to those outlined in KYB in order to potentially qualify for sentencing credit.