With over 50 Japanese executives charged and more than 30 Japanese companies having faced criminal charges and having paid some $4 billion in fines since 2010, you would expect that all Japanese companies and their executives would be rethinking their business practices, not only in the U.S. but abroad (where such conduct has an effect in the U.S.), as well. As attorneys who successfully represented a senior, Japanese executive in connection with the U.S. government’s auto parts investigation and obtained immunity from prosecution for him, we are able to share some of the lessons from that representation. What should we expect in the upcoming year? Certainly, more of the same of what we received in the past seven years. And, according to the Yates Memorandum, which was issued by the Deputy Attorney General, there will be an increased focus on prosecuting executives and obtaining the assistance of their corporations in that endeavor.
1. Obvious Advice: Don’t Violate the U.S. Antitrust Laws
The four principal areas where Japanese companies have been charged with violating the U.S. antitrust laws are: price fixing, bid rigging, division of customers and territories, where there have been horizontal agreements among competitors that restrict competition. These areas are considered the most severe in terms of violations of Section 1 of the Sherman Act, which generally prohibits “contracts, combinations and conspiracies in restraint of trade”. While there is certainly a cultural divide between U.S. and Japanese executives relating to dealings with competitors, where the latter might defer to “commercial rights”, such conduct nevertheless is punished as a per se violation of the Sherman Act. The minimum penalties for violating the Sherman Act are a $100 million fine for corporations and a $1 million fine and 10 year jail sentence for individuals. The maximum penalties under the Alternative Fine statute are twice the gain of the guilty corporation or twice the loss of the victims.
2. If You Should Discover That Your Corporation and/or Executives Have Violated the Antitrust Laws …
It is not a prudent business strategy to wait for the FBI to conduct one of its well-known early morning raids, taking away computers, files, documents and other sensitive corporate material. It is advisable to get ahead of the curve and for each corporation to conduct an internal investigation as if it had already been served with either a subpoena or a civil investigative demand from a law enforcement agency, the FBI, or the U.S. Department of Justice. Contrary to popular opinion, these investigations are typically initiated by competing corporations, seeking to limit their own criminal and civil legal liability. By entering into what is referred to as the Leniency or Amnesty Program, a corporation is assured of a lower criminal fine, some degree of immunity for their executives and a decoupling of their civil, antitrust liability- all predicated on the corporation’s degree of cooperation. Identifying the executives who have potential legal liability early in the process will aid the individual executive in his or her crafting of an effective defense strategy.
3. Next Step in Approaching the Department of Justice, Antitrust Division
In November 19, 2008, the Department of Justice, Antitrust Division (the Division) published a document entitled, “Frequently Asked Questions regarding the Antitrust Division’s Leniency Program and Model Leniency Letters”, which provides companies with a good starting point from which to assess their possible liability under the antitrust laws. As the Division only grants one company/corporation leniency per conspiracy, a company must realize that it is in a race with its competitors and even its own employees. Therefore, in order to hold a company’s position in line for leniency, the Division has established what is referred to as a “marker system”. This enables a company and its counsel to gather further information through an internal investigation, while its position is protected in the interim. While the marker is in effect, the company’s position is protected and prevents one of its competitors from leapfrogging over the marker applicant. While confirmation of a criminal antitrust violation is not required at the marker stage, in order to receive a marker, counsel must report that information or evidence suggesting a possible criminal antitrust violation has been uncovered.
4. Impact of the Yates Memorandum
The Yates Memorandum, issued on September 9, 2015, addresses “Individual Accountability for Corporate Wrongdoing”. In contrast to past practices, responsibility has been placed on a corporation to “provide the Department of Justice with all relevant facts about the individuals involved in corporate misconduct”. Moreover, “[I]n order for a company to receive any consideration for cooperation …, the company must completely disclose to the department all relevant facts about individual misconduct”. The Memorandum precludes a company from picking and choosing what facts to disclose about individuals. While this may not appear to be a significant departure from past Department of Justice practices, it does place a definitive obligation on a company to satisfy certain conditions before any degree of cooperation can be credited. “Carving out” individuals from the company’s non-prosecution/immunity agreement seems all the more likely under these new standards.
Time is of the essence. The Leniency Program largely affords its benefits to the first company coming forward for its particular product and competition is keen.
All companies presently in the auto parts industry should commence an internal investigation with legal counsel into its possible culpable conduct. While there are some 3,000 parts to an automobile, the Division has only concerned itself with a few dozen parts thus far. The government’s investigation into illegal agreements pertaining to additional auto parts will certainly follow.