The Department of Justice (DOJ) made several significant criminal antitrust policy statements this week relating to corporate compliance and cooperation.
Both Bill Baer, Assistant Attorney General (AAG) for the Antitrust Division (Division), and Brent Snyder, the Deputy Assistant Attorney General (DAAG) for Criminal Enforcement at the Division, addressed compliance programs this week. While it is evident that the Division is not going to provide significant guidance on compliance prevention, this week’s statements reflect a new openness on the issue of corporate compliance and demonstrate at least some willingness to engage the defense bar on the issue.
A. Hallmarks of an effective compliance program
In his 10 September keynote address at the Georgetown Global Antitrust Enforcement Symposium (Georgetown Symposium), AAG Baer provided guidance on effective compliance programs, marking the first time the Division has addressed this issue in more than a decade. While not significantly detailed, AAG Baer outlined several basic hallmarks of an effective compliance program. He started with the premise that an effective compliance program “starts at the top,” stressing the importance of directors and senior officers in setting the tone for compliance at a company. He explained that these senior executives and officers should “ensure that the company’s entire managerial workforce not only understands the compliance program but also has the incentive to actively participate in its enforcement.” He stated that an effective compliance program should include provisions that encourage employees to report potential criminal conduct. The program should also protect these employees from retaliation. Additionally, there should be “appropriate disciplinary measures” in place for employees that engage in criminal conduct or fail to take reasonable steps to prevent criminal conduct. While this guidance is limited, and critics undoubtedly will continue to call for more, it is significant that the Division addressed the issue. At a minimum, companies should ensure that their existing compliance programs include the provisions discussed by AAG Baer.
During a subsequent panel discussion at the Georgetown Symposium, DAAG Brent Snyder stated that in-house counsel and outside counsel are best positioned to create and implement effective compliance programs, and thus the Division would not ”sponsor a model compliance program…at any point in the near future.” Nevertheless, in recognition of the fact that an effective compliance program both prevents and detects criminal conduct, he expressed a willingness to provide guidance on detection. He said that he will consider providing a primer on “lessons learned” from past cartel investigations, perhaps identifying, from past investigations, red flags and common characteristics of cartel conduct, as well as suggesting ways to ferret out criminal conduct. The mere fact that the Division is contemplating providing cartel detection guidance is a significant and welcome shift in position. Companies should closely watch for such guidance in the future.
B. Penalties and rewards for compliance
Historically, corporate defendants have received no credit from the Division for corporate compliance, either under the U.S. Sentencing Guidelines (Guidelines) or otherwise. Similarly, DOJ has never requested probation or a corporate monitor for a pleading company, even in those cases where a company has pled guilty in two or three separate investigations. It is clear from DOJ’s statements this week, however, that the Division will employ both a reward and a penalty for compliance moving forward.
Potential penalty for compliance program deficiencies
On 9 September 2014, DAAG Snyder, in a speech prepared for the International Chamber of Commerce, announced that, under the Guidelines, every company that is convicted of a cartel offense must have an effective compliance program, and any company that fails to implement an effective compliance program “is a likely candidate for probation.” Moreover, corporate defendants in antitrust cases will risk probation, including the possibility of a corporate monitor, if culpable employees are retained in key management positions. The following day, DAAG Snyder further explained that the Division, in crafting this policy, is primarily focused on carve-outs that refuse to accept responsibility and plead guilty. In short, under the announced policy, probation will likely be pursued in those cases where a corporate defendant continues to employ a carved-out executive in a key management role despite the fact that the carved-out executive has failed to accept responsibility for his criminal conduct.
AAG Baer further discussed this policy during his speech on 10 September. In support of the policy, he stated that it “is hard to imagine how companies can foster a corporate culture of compliance if they still employ individuals in positions with senior management and pricing responsibilities who have refused to accept responsibility for their crimes and who the companies know to be culpable.” He said that if a company retains the culpable employee in a key managerial position, “the division will consider seeking court-supervised probation as a means of assuring that the company devises and implements an effective compliance program.” AAG Baer cited the use of a corporate monitor in United States v. AU Optronics Corporation – the only criminal case in which the Division has sought a corporate monitor - as an example of the penalty companies might face moving forward if an effective compliance program is not implemented. And, according to later comments by DAAG Snyder, the Division will consider probation, including a corporate monitor, in the plea agreement context, not only after trial.
Expect to see the Division request probation, or at least reserve the right to request probation, in more cases moving forward. Pursuant to the policy statements made this week, it is unlikely that companies will be able to plead guilty in multiple division investigations without facing compliance program scrutiny and probationary sentences. Moreover, the Division will likely seek probation for cooperating companies that fail to terminate or transfer from key positions carved-out employees who refuse to cooperate with the DOJ’s investigation.
While the Division remains opposed to the provision of compliance program credit under the Guidelines, DAAG Snyder signaled that an alternative credit might be available in the future. In his 9 September speech, and again the following day, DAAG Snyder stated that the Division is “actively considering ways in which we can credit companies that proactively adopt or strengthen compliance programs after coming under investigation.” Noting that the Division has “not finalized our thinking in this area,” he suggested on 10 September the Division is considering a fine discount, of perhaps 5% or 10%, for compliance program improvements. Both AAG Baer and DAAG Snyder reiterated that the greatest reward for effective compliance is either prevention of the conduct altogether or, absent that, early detection and self-reporting under the amnesty program.
Compliance programs are more important than ever before. By employing both a penalty for ongoing or unaddressed compliance deficiencies, and a reward for compliance program improvements, the Division has further incentivized companies to develop strong compliance programs, even in the face of criminal allegations. If a company is the subject of an investigation, it is important to quickly and effectively remedy compliance issues, thereby demonstrating to the Division that a reward is justified and a penalty unnecessary.
AAG Baer sent a clear message to all cooperators – corporations and individuals, amnesty applicants, and pleading defendants: provide full and complete cooperation or risk severe penalties. In no uncertain terms, he stated that the Division expects leniency applicants to expeditiously provide detailed proffers, foreign-located documents, translations of foreign-language documents, and witness interviews. Employees of the leniency applicant were similarly warned to “be prepared to admit all collusive conduct they participated in or know about” and to “be prepared to be candid and credible witnesses in front of a grand jury and at trial.” Moreover, AAG Baer stated that the Division expects individuals to provide full cooperation as to the full scope of criminal conduct, even as to conduct that will not be immunized. A failure to provide this level of cooperation will result in the loss of “their opportunity to qualify for leniency.” In other words, cooperate fully, candidly, and as quickly as possible or risk losing any benefit for cooperation.
In addition to clearly delineating the Division’s expectations for cooperation, AAG Baer and DAAG Snyder clarified the Division’s current policy on carve-outs and the cooperation discount for early-in cooperators.
In the past, the Division rewarded early cooperators with fewer carve-outs. In April 2013, however, AAG Baer announced a change to the division’s carve-out policy; under the new carve-out policy (1) the names (and number) of carve-outs are no longer publicly released and (2) the division will only carve out potential targets of an investigation. Since this modification in the carve-out policy was announced, however, practitioners have been left wondering whether early cooperators will continue to receive preferential carve-out treatment.
On 10 September, AAG Baer cleared up that confusion, stating that while the Division once “suggested that the number of carve-outs should be tied exclusively to the order in which companies come forward to accept responsibility and offer cooperation,” that is no longer how the Division “look[s] at things.” Instead, when determining whether an individual should be prosecuted, the Division will look solely to the factors set forth in the Principles of Federal Prosecution. A second-in cooperator can no longer expect that, solely as a result of early cooperation, fewer employees will be prosecuted. Of course, as a result of this policy shift, it can be implicitly understood that later cooperators will no longer have more employees carved-out, and, as a result, more employees potentially prosecuted, solely because of timing. In short, companies should not expect the timing of cooperation with the Division to impact carve-out decisions moving forward.
Additionally, second-in cooperators should no longer expect a virtually guaranteed 35% cooperation discount. Based upon a 2006 Division speech, in which the Division instructed that the typical second-in cooperator received, on average, a 35% cooperation discount, antitrust practitioners have long assumed that early-in cooperating companies could expect a 35% discount. But recently – due to scant publicly available information on cooperation discounts – many antitrust practitioners have questioned whether this assumption is still true. The answer is no. AAG Baer unequivocally asserted that moving forward sentencing recommendations will be based on the value of the cooperation received by the defendant, not “simply on the order in which companies begin to cooperate.”
But, this may not be bad news for cooperating defendants. Under the Division’s clarified policy, if the cooperation is substantial enough, a cooperating company can earn a discount that exceeds 35% regardless of timing. Of course, as AAG Baer pointed out in his speech, a defendant is more likely to advance an investigation if that defendant comes in early, when the investigators have less evidence. But the mere fact that a company approaches DOJ earlier in the investigation will no longer be the sole or most important factor in determining an appropriate discount. Conversely, late cooperation will not foreclose a company from receiving a significant discount simply because of timing.