For only the second time the Antitrust Division of the Department of Justice has recommended that a corporate defendant receive a fine reduction for the implementation of an effective compliance programme. On October 5 2015 the department filed a sentencing memorandum and motion for a downward departure in its case against Kayaba Industry Co, Ltd (KYB), a Tokyo-based company that pleaded guilty in September 2015 to conspiring to fix the prices of shock absorbers sold to manufacturers of cars and motorcycles.(1) In the sentencing memorandum the department recommended giving KYB credit for instituting an effective compliance programme under Section 3572(a)(8) of the Sentencing Guidelines. In making its recommendation, the department provided a non-exhaustive account of the steps taken by KYB to implement an effective compliance programme. In particular, the department identified several "hallmarks of an effective compliance policy".(2)
The identification of these hallmarks appears to be the Department of Justice's next step in a series of recent compliance-related developments. In May 2015, 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' compliance programme or the credit provided in relation to that compliance programme have been made public to date. In June 2015 Deputy Assistant Attorney General Brent Snyder publicly addressed the topic of compliance credit, distinguishing between 'backward-looking' and 'forward-looking' compliance efforts. While he reaffirmed the department's longstanding position that existing compliance programmes (ie, those programmes in place at the time when the unlawful conduct occurred) do not merit a fine reduction, he stated that the department will consider recommending downward departures for effective forward-looking compliance programmes (ie, those programmes implemented after the unlawful conduct has been uncovered) that reflect "genuine efforts to change a company's culture".(4)
In its sentencing memorandum in KYB the Department of Justice set out several hallmarks of an effective forward-looking programme, including the following:
- 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 individualised instruction for personnel employed in high-risk positions. The effectiveness of the training was monitored by subsequently testing employees.
- Anonymous reporting – KYB set up 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.
- Disciplinary procedures against violators – KYB quickly disciplined the employees involved in the conspiracy. Two high-ranking employees who were personally involved in the conduct or who 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 department for its compliance programme improvements, it is impossible to quantify the credit given to KYB. Due to KYB's substantial cooperation(5) and effective compliance, the department recommended a $62 million fine – a 40% reduction on the low end of KYB's guideline range of $103.68 million to $207.36 million. The department 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 KYB the department did not provide an accounting of how it calculated the fine or credited KYB's compliance programme.
The Department of Justice's sentencing memorandum in KYB is significant, in that it provides for the first time detailed guidance on the type of programme that may qualify for compliance credit from the department going forward. This is the first time that the department has addressed antitrust compliance in such a detailed manner since its articulation of the minimum elements required for AU Optronics Corporation's (AUO) corporate antitrust compliance programme following AUO's conviction in the thin-film-transistor liquid-crystal display investigation. In AUO, as part of its request for a corporate monitor, the department provided detailed guidance as to the minimum elements required for AUO's compliance programme.(6) At the time, there was much speculation as to whether the elements outlined by the department would be sufficient for a company to qualify for compliance credit in a plea agreement context. The department's recent description of KYB's compliance programme, although explicitly non-exhaustive, appears generally consistent with the elements outlined in AUO in 2012.
Therefore, corporations looking to develop new or improve existing compliance programmes should consider using the elements provided in AUO, as well as the new hallmarks of an effective compliance programme set out in the Department of Justice's sentencing memorandum in KYB, as a framework. Any company under investigation for cartel conduct should consider implementing compliance programme changes similar to those outlined in KYB in order to potentially qualify for sentencing credit.
For further information on this topic please contact Kathryn Hellings or Daniel Shulak at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email (email@example.com or firstname.lastname@example.org).The Hogan Lovells US LLP website can be accessed at www.hoganlovells.com.
(3) Barclays PLC Plea Agreement ¶ 13, available at www.justice.gov/file/440481/download.
(5) The sentencing memorandum contains all of the characteristics of a typical recommendation for a downward departure for a corporation that has been highly cooperative in a Department of Justice antitrust investigation. KYB cooperated quickly and fully, recognised and accepted responsibility, conducted a thorough internal investigation, produced relevant documents from the United States and abroad with translations, and made company witnesses available to the department.
(6) Among other elements, the Department of Justice listed senior management oversight, board-level reporting, extensive training, availability of anonymous reporting and appropriate disciplinary and termination procedures. See Exhibit C to Declaration of Dr Keith Leffler Regarding AUO's US Volume of Commerce for Sentencing Hearing, available at www.justice.gov/sites/default/files/atr/legacy/2012/10/18/286934_7.pdf
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