The United States Department of Justice’s Antitrust Division (the Division) has tightened up the requirements for those seeking leniency1 through its wildly successful amnesty program, which allows applicants to self-report criminal antitrust violations and cooperate in a government investigation of the disclosed activity in exchange for not being prosecuted. On November 19, the Division released new model conditional leniency letters for both corporate and individual applicants, as well as a detailed Frequently Asked Questions document (FAQ) that attempts to explain the changes to the leniency letters, and also – for the first time – sets out in one place many of the policies that have taken shape over the past decade as the leniency program has expanded and evolved.
Most notable among the changes to the leniency letters are two provisions spawned by the Division’s messy 2003 revocation of shipper Stolt-Nielsen’s conditional leniency: one requires the amnesty applicant to waive any right to pre-indictment review of the Division’s revocation of its conditional leniency, and the second limits the timeframe of the amnesty in cases where there is a significant lag between the date the company discovered the illegal conduct and the date it reported that conduct to the Division. Also of interest to anyone considering an amnesty application are statements in the FAQ of the Division’s policies on privilege waiver, “ringleader” status, and restitution/ damages.
The Division’s Amnesty Program
The Division’s corporate leniency program has six essential requirements:
- At the time the corporation comes forward, the Division has not received information about the activity from another source.
- Upon the corporation’s discovery of the activity, the corporation took prompt and effective action to terminate its participation in the activity.
- The corporation reports the wrongdoing with candor and completeness and provides full, continuing, and complete cooperation to the Division throughout the investigation.
- The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials.
- Where possible, the corporation makes restitution to injured parties.
- The corporation did not coerce another party to participate in the activity and clearly was not the leader in, or the originator of, the activity.2
Over time, the Division has developed a “marker system” for leniency applicants whereby a party may approach the Division when it first becomes aware of potentially anticompetitive behavior to “mark” its place at the front of the amnesty line and is then generally given 30 days to bring to the Division evidence sufficient to establish its eligibility for the program. If the applicant is successful in doing so, the Division issues a letter granting conditional leniency. Final irrevocable leniency is granted only after the Division is satisfied that the applicant has met all of its burdens, which is usually after the investigation and any resulting prosecutions of the applicant’s co-conspirators are completed.
In the Aftermath of the Stolt-Nielsen Case, the Division Increases its Control Over the Conditional Leniency Process
In 2003, for the first and only time in the thirty-year history of the amnesty program, the Division revoked the conditional leniency of a cooperating applicant, global shipper Stolt-Nielsen Ltd. (Stolt). The revocation occurred after Stolt’s executives had provided information that led to the successful prosecution of Stolt’s co-conspirator companies and a number of individuals. The Division’s stated reason for the revocation: Stolt had failed to take prompt and effective action to terminate its participation in the illegal activity.
Months after Stolt’s conditional leniency agreement was inked, and after Stolt had provided extensive and damning evidence to the Division about the international shipping cartel’s illegal activities, the Division discovered that one of Stolt’s executives attended a meeting of the conspirators between the time the company was made aware of the conduct and the date Stolt disclosed the activity to the Division. The Division abruptly notified Stolt’s counsel that it would revoke the company’s conditional leniency. Stolt sued to enjoin the Department of Justice from prosecuting the company or its executives. A district court agreed with Stolt’s position that the leniency letter, signed on January 15, 2003 and which stated that the company and its officers and executives would not be prosecuted for any conduct occurring prior to the date of the letter, barred the Division from indicting. The Third Circuit overturned, holding that the judicial branch did not have the authority to prevent an agency of the executive branch from filing an indictment, but adding in a footnote that after indictment Stolt could file a motion to dismiss based on the leniency agreement. On remand, the trial court found that Stolt had not violated the terms of the agreement as written.
The Division vowed to amend the language of its leniency agreements to prevent this problem from arising in future cases. Two significant modifications to the Division’s approach resulted, as represented in the new model letters:
- No Pre-Indictment Review
[Applicant] understands that the Antitrust Division’s Leniency Program is an exercise of prosecutorial discretion and [it] agrees that [it] may not, and will not, seek judicial review of any Division decision to revoke [its] conditional leniency unless and until [it] has been charged by indictment or information for engaging in the anticompetitive activity being reported.
2008 Model Conditional Corporate Leniency Letter, Paragraph 3.
Under this new language, significant cooperation efforts may be made and an extended period of time could pass with the applicant remaining uncertain whether final leniency will be granted and unless and until the applicant is charged, it will have no recourse should the Division decide to revoke its leniency. The FAQ states that the Division’s policy in the event of a threatened revocation would be to notify applicant’s counsel in writing of its intent. Counsel would then have an opportunity to meet with the staff and the Office of Criminal Enforcement to discuss the revocation. A significant exception to this notice policy is the case of an individual about whom the Division believes there are exigent circumstances – such as risk of flight. In such a case, notice of the revocation would not be given. This exception should be of particular note to foreign citizens residing in the United States or traveling to the United States for any reason, including to perfect their cooperation with the Division.3
- Where the Time Between Discovery and Reporting of the Conduct is Significant, the Amnesty Period May Not Be Coextensive with the Date of Entry into the Conditional Leniency Agreement
If there is a significant lapse in time between the date the applicant discovered the anticompetitive activity being reported and the date applicant reported the activity to the Antitrust Division, the Division reserves the right to [immunize only up to the date the company represents that it terminated its participation in the illegal activity].”
2008 Model Conditional Corporate Leniency Letter, Footnote 2.
The second significant Stolt-inspired modification to the conditional leniency letter is that amnesty extends back from the date of the letter unless there is a substantial gap between the date of discovery of the activity and the date the activity is reported to the Division. In the latter case, the Division reserves the right to grant conditional leniency only up to the date the applicant represents that it terminated the activity. In the FAQ, the Division explains this change by saying it does not believe it would be appropriate to grant provisional leniency to a company that “discovers illegal conduct but then elects to continue engaging in [that] conduct.” A primary consideration in determining eligibility under the “prompt and efficient termination” requirement is what steps are taken by management in response to the discovery of the anticompetitive activity being reported. Examples the FAQ cites as potentially disqualifying include a company using managers or executives who were involved in the anticompetitive activity to investigate the activity, to formulate the company’s response to the discovery of the activity, or to determine the appropriate disciplinary action against employees who participated in the activity.4
Other Notable Amnesty Policy Statements from the FAQ
While Division officials have spoken about and sometimes mentioned in written addresses all of the following topics over time, formalizing these policies in the FAQ is worthy of brief mention:
- Privilege Waiver
Applicants will not be required to produce communications or documents protected by the attorneyclient privilege or by the work product doctrine as part of their cooperation. Disclosures made by counsel in furtherance of the leniency application are not construed by the Division as waivers of these privileges. The Division notes, however, that “some, after conferring with counsel, have concluded that a voluntary disclosure of privileged communications and/or documents was in [the applicant’s] best interest….” This is an important – if incomplete – policy statement in light of the ongoing controversy over the Department of Justice’s approach to privilege waiver.
- Ringleader Status
Perhaps in response to growing frustration with the Division’s grants of amnesty to companies that appear to be “ringleaders” in some of the large cartel cases, the Division has “clarified” and restated its position that to satisfy the role requirement for leniency, the applicant may not be the leader or originator of a conspiracy, but will not be disqualified simply for being a leader or originator. If there is more than one party taking any sort of a leadership role in the activity, all parties are likely eligible for amnesty. The Division will, whenever possible, interpret the program requirements in favor of accepting an applicant “to provide the maximum incentive and opportunity for companies to come forward and report illegal activity.”5 This should be reassuring for potential applicants who may be concerned about self-reporting violations in light of their substantial role in the conspiracy at issue, but disheartening for smaller players for whom this requirement offers no real protection or competitive advantage.
In the FAQ, the Division acknowledges that restitution obligations in antitrust investigations are normally resolved through civil actions with private plaintiffs, and that a leniency applicant, under the Antitrust Criminal Penalty Enhancement and Reform Act of 20046, may qualify for detrebling of damages in related civil suits if the applicant cooperates with plaintiffs in those actions. In drafting the 2008 model conditional leniency letter, the Division also explicitly recognized the holdings of F. Hoffman-LaRoche Ltd. V. Empagran S.A.7 and Empagran S.A. v. F. Hoffman-LaRoche Ltd.8 that “damages for violations of the Sherman Act do not include foreign effects, independent of and not proximately caused by any adverse domestic effect.”
The Division’s modifications to its leniency agreements are neither unexpected nor particularly onerous in the typical case. And although the specter of revocation of conditional leniency, especially following substantial cooperation efforts, may strike fear in the hearts of potential amnesty applicants, it bears repeating that out of hundreds of grants of conditional leniency, the Division has – to date – sought only once to revoke amnesty. By the same token, the clarified and restated policy positions discussed in the FAQ are not surprising, and whether one agrees with the Division’s positions on these issues or not, we welcome and applaud its efforts to make its policies and practices more transparent and readily accessible, which at a minimum encourages a betterinformed community, promotes more consistent enforcement, and potentially fosters healthy debate.