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Investigations

Initiating an investigation

Who can initiate an investigation of potential cartel conduct?

The Department of Justice (DOJ) and other US competition authorities receive information regarding potentially anti-competitive conduct from a wide variety of sources: newspaper accounts, private antitrust litigation, grand jury investigations into non-antitrust crimes, merger reviews and other civil investigations, competitor or customer complaints, complaints from disgruntled existing or former employees, government agencies, state attorneys general and leniency applicants. In addition, DOJ staff economists monitor local and regional price movements in selected industries.

If an investigation is initiated by complainants or third parties, what rights (if any) do they have?

US law provides no specific rights to complainants. However, depending on the nature of the reported conduct, an individual may have rights (eg, the ability to recover under the False Claims Act for fraud in government procurement and grant awards or protection from retaliation for whistleblowing) under various non-antitrust statutes.

What obligations does a company have on learning that an investigation has commenced?

On learning that an investigation has commenced, a company likely has an obligation to preserve all documents and information relating to the subject matter of the investigation. If a company has received a grand jury subpoena or search warrant, the DOJ will rigorously examine the company’s diligence in preserving relevant documents and information. Companies that issue publicly traded securities may have disclosure or other obligations under the securities laws.

What obligations does a company have if it believes that an investigation is likely?

If a company believes that an investigation is likely, it likely has an obligation to preserve all documents and information relating to the subject matter of the investigation.

What are the potential consequences of failing to act or delaying action?

Failure to preserve documents and other information could subject the company and its employees to criminal penalties (including imprisonment of individuals) for obstruction of justice and other process-related crimes and to monetary and other penalties in subsequent civil actions.

Formal stages of investigation

What are the formal stages of and approximate timeframe for investigations?

DOJ staff will typically gather and review publicly available documents and information before requesting authority to begin a grand jury investigation. Thus, before an industry learns about an investigation, the government probably will have already been working on it for several months.

If authority is granted to begin a grand jury investigation, the DOJ may then seek from a grand jury either a subpoena duces tecum, which requires the recipient to submit documentary materials to the grand jury, or a subpoena ad testificandum, which requires an individual to appear before the grand jury to testify. A subpoena must provide a “reasonable” time to respond ‒ usually approximately 30 days.  Extensions are typically available. 

The DOJ may also use search warrants if it determines that there is a “substantial basis” for doing so.  Such a basis may be provided by a concern that documents will be destroyed, concealed or fabricated.  To obtain a search warrant, the government must demonstrate to a magistrate judge that there is probable cause to believe that a crime has been committed and that evidence of that crime is likely to be at the location to be searched. Lawyers from the Antitrust Division of the DOJ or agents of the Federal Bureau of Investigation (FBI) may also conduct drop-in witness interviews.

Investigations often extend for many years, but unless a target of an investigation agrees to toll the running of the statute of limitations, the DOJ must file charges within five years from the last act in furtherance of the conspiracy. Some investigations are closed for lack of evidence of a criminal violation within the statutory limitations period. The DOJ may negotiate an agreement for a target to plead guilty to specified charges in exchange for the DOJ’s recommendation of a particular sentence. To prosecute targets that decline to agree to plead guilty, the DOJ must ask the grand jury to indict the company or individual.

Before asking a grand jury to return an indictment, the DOJ will offer defence counsel an opportunity to persuade it not to do so. Counsel may choose to present oral argument, fact or expert witnesses, and a written ‘white paper’ memorandum. If the government nevertheless decides to proceed, the conclusion of the investigation will be marked by the return of an indictment specifying the charges. Indictment begins the formal prosecution process that culminates with a trial. 

Investigative powers

What investigative powers do the authorities have?

The DOJ may apply to a magistrate judge for a search warrant, which allows federal agents to search a company’s facilities and seize documents and data. The DOJ may also obtain subpoenas duces tecum and subpoenas ad testificandum, and conduct drop-in interviews. The DOJ may use undercover agents and secretly cooperating individuals to obtain evidence covertly, for example, by introducing an FBI agent as a new member of the cartel or by gaining the consent of a cooperating individual to record or videotape meetings among suspected cartel participants. With court approval, the DOJ may also conduct non-consensual taping of suspected cartel communications.

The DOJ may also seek the issuance of an Interpol red notice. The red notice operates as an international ‘wanted’ notice that, in some Interpol member countries, serves as a request, should a fugitive individual enter their jurisdiction, to arrest the subject with a view toward extradition. The DOJ can request that a foreign jurisdiction extradite a fugitive defendant located in that jurisdiction to the United States.

What is the geographic reach of public enforcement actions?

Although US antitrust law extends to extraterritorial conduct under certain circumstances, the DOJ’s investigatory powers are largely territorial in scope. The DOJ Antitrust Division Manual (available at www.justice.gov/atr/file/761166/download) cautions that efforts to obtain evidence outside the United States present special considerations and are conducted in coordination with the Foreign Commerce Section of the Antitrust Division. The DOJ may obtain information located abroad from letters rogatory. The DOJ may also obtain information from other competition authorities through:

  • antitrust cooperation agreements;
  • antitrust mutual assistance agreements; and
  • mutual legal assistance treaties.

The geographic reach of the US civil antitrust litigation process is broader. In the discovery process, a corporate defendant must often produce materials from outside the United States. In at least one case, the DOJ served subpoenas on parties in private litigation to obtain documents in their possession that a foreign company had produced.

When is court approval required to invoke these powers?

Court approval is required to issue letters rogatory, but otherwise is not required.

Are searches of business and personal premises authorised? If so, which bodies carry out searches and will they wait for legal advisers to arrive?

On a showing of probable cause to believe that a crime has been committed and that evidence is likely to be found at particular locations, a magistrate judge may issue a search warrant authorising the search of business and personal premises. FBI agents and DOJ attorneys will execute the search and may seize evidence found at the described locations. A company may ask for a short delay in executing the warrant to wait until its legal advisers arrive; the officers executing the warrant have discretion as to how long to wait, if at all.

What level of cooperation with the authorities is required and what are the consequences for failing to cooperate?

A company or an individual may not interfere with a government investigation. Interference (eg, blocking access to a location described in a valid search warrant or destroying or modifying documents or other information) may lead to prosecution for obstruction of justice. Notwithstanding, companies and individuals have no duty to cooperate. The general practice is to provide ‘passive’ cooperation, such as directing agents to locations described in the warrant and providing network passwords so that server files can be accessed, but to avoid actively assisting the agents conducting the search. Once federal agents present a search warrant, a search cannot be stopped unless the warrant is invalid.

Is in-house legal advice or attorney work product protected by the law of privilege? Does this extend to the advice of in-house counsel?

The DOJ respects privilege with respect to both attorney-client communications and attorney work product. This includes advice by in-house counsel.

Are any other limitations imposed on investigatory powers in order to safeguard the rights of those under investigation?

An invalid search warrant may be challenged either informally with the individuals executing the warrant or by request to the issuing court. An individual has the right to:

  • remain silent and decline to answer government questions;
  • set a limit on what he or she will discuss with a government agent;
  • have counsel present during any interview with a government agent; and
  • terminate an interview and leave at any time unless arrested or otherwise lawfully detained.

What is the process for objecting to an authority’s exercise of its claimed powers?

A facially defective search warrant may be challenged with the officers executing the warrant or with the issuing court. If an invalid search warrant is executed or evidence is otherwise seized improperly (eg, because it is beyond the scope of the warrant), a defendant may file a motion to suppress the use of that evidence. However, Federal Rule of Criminal Procedure 41(h) permits a defendant to bring a motion to suppress only after the government has filed an indictment and if there is a basis on which to claim certain property was illegally seized.

Publicity and confidentiality

What information about investigations will be made publicly available and at which stage(s) of the process?

The DOJ strives to keep investigations confidential until it formally files charges by information or indictment. In addition, Federal Rule of Criminal Procedure 6(e)(2)(B) imposes secrecy obligations on government attorneys, grand jurors and others for a “matter occurring before the grand jury”. This typically extends to all information collected or obtained during an investigation. However, companies or individuals may choose to disclose the existence of an investigation and have free speech rights to comment on an investigation when and as they choose. 

Once the DOJ files charges, typically only the charging documents are public. If a defendant decides to plead guilty, the plea agreement will be filed publicly and the defendant will, as part of the process of pleading guilty, testify publicly under oath as to the conduct that gives rise to the criminal charge. In the event of a trial against a company or individual defendants, evidence and testimony offered at trial is presumptively public, although the parties can ask the judge to keep secret especially highly confidential information (eg, information affecting national security). Such requests are rarely granted.

Is any information automatically confidential and is confidentiality available on request?

The DOJ generally automatically accords confidential treatment to information gathered in connection with an investigation. Counsel typically nevertheless request confidential treatment, to which the DOJ generally agrees. If an investigation results in either criminal prosecution or a civil lawsuit, there is a strong presumption in favour of information becoming public and the confidentiality enjoyed during the investigation phase may be lost.

International cooperation

Do the authorities in your jurisdiction cooperate with authorities in other jurisdictions?

The DOJ cooperates with authorities in other jurisdictions through formal cooperation pursuant to mutual legal assistance treaties, formal negotiated cooperation agreements and other bilateral or multilateral treaties or arrangements that facilitate the formal sharing of information. The DOJ also engages in extensive informal cooperation, including joint investigations and simultaneous joint searches. 

Do the relevant enforcement authorities request waivers so as to allow for increased cooperation with authorities in other jurisdictions? What are the consequences of declining to grant a waiver?

The DOJ often requests waivers to allow for increased cooperation. The decision whether to provide a waiver rests solely with the party producing information. Refusal to provide a waiver will not prejudice the outcome of an investigation. However, the DOJ may consider a company or individual’s grant or denial of a waiver when assessing the extent to which to recommend a reduction in the proposed fine or prison term as a result of the company or individual’s cooperation.

Decisions

How is a cartel investigation resolved? Are settlements, plea bargains or other negotiated resolutions available?

A cartel investigation may be resolved through a plea bargain or the indictment of an individual or company. In the event of an indictment, the prosecution will continue until the charges are resolved by motion, by plea agreement or trial. The DOJ may also close an investigation without action, although this is usually not public absent a disclosure by a subject of the investigation.

What is the process for negotiating a settlement, plea bargain or other negotiated resolution? Do such resolutions require court or other approval?

The Antitrust Division Manual describes the process for negotiating a plea agreement. A plea agreement must be approved by a district judge.

If a settlement is not reached, what is the procedure for adjudicating a charge of cartel conduct?

If a settlement is not reached, the DOJ may seek the indictment of a company or individual by a grand jury. If a company or individual is indicted and appears to face the charges, the matter is tried in a district court before at least 12 jurors. 

Which party must prove its case? What is the relevant standard of proof?

In a criminal case the DOJ must prove each element of the charged offence “beyond a reasonable doubt”. In civil cases the government or private plaintiffs must prove each element of the offence by “a preponderance of the evidence”, meaning more likely than not.

Is there a hearing? If so, what is the process for submitting evidence and testimony?

In a criminal case the DOJ must prove any charges in a criminal trial to at least 12 jurors. In civil cases a defendant may waive its right to a jury trial and juries may be composed of fewer than 12 jurors. Evidence and testimony must be introduced consistent with the Federal Rules of Evidence, either the Federal Rules of Criminal Procedure or the Federal Rules of Civil Procedure (depending on whether the case is a civil or criminal case) and all applicable local rules. In addition, all trials must comport with a defendant’s constitutional and due process rights.

What are the accused’s procedural rights?

An accused’s procedural rights include the right to:

  • a jury;
  • constitutional due process (ie, notice and an opportunity to be heard);
  • equal treatment under the law;
  • a pre-trial hearing by a grand jury;
  • protection from unreasonable searches and seizures;
  • a speedy trial by an impartial jury;
  • be informed of the charges and evidence;
  • be present when witnesses testify against him or her;
  • call witnesses in defence; and
  • a sentence suited to the crime.

An individual defendant also has a right to an attorney and to decline to answer self-incriminating questions. Two prosecutions by the same sovereign for the same crime (‘double jeopardy’) is prohibited. In theory (but almost never in practice) the United States and an individual state could prosecute a defendant for the same conduct because the United States and a state are separate sovereigns.

Appeal process

What is the appeal process?

A convicted defendant may automatically appeal to the applicable court of appeals after judgment. Appellate review before judgment is available only in limited circumstances. There is no right to appeal an adverse decision by the court of appeals, but a defendant may file a petition for a writ of certiorari requesting the Supreme Court to exercise its discretion to review the decision.

To what extent can the appeal body review the agency’s findings of fact, legal assessment and penalties?

The appellate court accords great deference to findings of fact and will overturn those only if it determines that no reasonable jury could have made the findings based on the evidence properly admitted at trial. The appellate court will conduct a de novo review of legal determinations such as rulings regarding the introduction of evidence, jury instructions and whether the conduct was subject to US laws. The appellate court will review decisions on penalties (including fines and prison terms) for an abuse of discretion.

Penalties

Penalties for companies

What are the potential penalties for companies involved in a cartel?

The Sherman Act provides for a maximum fine of $100 million. However, 18 USC Section 3571(d) provides that a company may be fined up to twice the amount of its pecuniary gain or twice the amount of the pecuniary loss suffered by others. In practice, this significantly increases the magnitude of the potential fine. As of May 1 2017 the highest fine imposed on a company for a violation of the Sherman Act was $925 million.

Are there guidelines in place for penalties? If not, how are penalties normally calculated?

In the federal courts, the judge has discretion to determine the sentence to be imposed on a convicted cartel defendant, but must consider the US Sentencing Guidelines when exercising his or her discretion. The US Sentencing Guidelines set forth a multi-step process for determining the range of a proposed fine. 

Do the authorities take into account any penalties imposed in other jurisdictions?

The US Sentencing Guidelines do not expressly take into account penalties imposed in other jurisdictions, but the Department of Justice (DOJ) has said that it does consider such penalties in its recommendations to the judge.

How can a company mitigate its exposure to fines?

As discussed below, companies that qualify for leniency may entirely avoid any fine for a violation. Companies that do not qualify for leniency for the particular violation may reduce their fine by obtaining leniency (also known as ‘leniency plus’) for reporting a different violation. They may also reduce their fine by providing the DOJ with “substantial assistance” with its prosecution of others, which may lead to the DOJ recommending to the judge that the fine be reduced as credit for the company’s cooperation.

Penalties for individuals

What are the potential penalties for individuals involved in a cartel?

The Sherman Act provides that individuals may be fined up to a maximum of $1 million and may also be imprisoned for up to a maximum of 10 years. The DOJ has a long-standing policy of seeking terms of imprisonment in nearly all prosecutions of individuals.

Do the authorities take into account any penalties imposed in other jurisdictions?

The US Sentencing Guidelines do not expressly take into account penalties imposed in other jurisdictions, but the DOJ has said that it does consider such penalties in making its sentencing recommendation.

Is a company permitted to pay a penalty imposed on its employee?

There are no prohibitions on a company paying a financial penalty imposed on its employee.

Is a company permitted to continue to employ an employee involved in cartel conduct?

Yes. However, the DOJ may take this into account when deciding what sentence to recommend for the company. If a company continues to employ a culpable employee who has not accepted responsibility for his or her conduct (typically by agreeing to plead guilty and serve time in prison), the DOJ may recommend a term of probation and possibly the appointment of a monitor to oversee the company’s future efforts to comply with the antitrust laws.

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