The U.S. Department of Justice Antitrust Division will consider individual civil enforcement actions against executives implicated in corporate wrongdoing, according to recent comments by DOJ Assistant U.S. Attorney General Bill Baer. His comments follow a September 2015 memo, "Individual Accountability for Corporate Wrongdoing," issued by DOJ's Deputy Attorney General, Sally Yates. The "Yates Memo" observed that, while corporations have been subject to criminal and civil fines and penalties for fraud and other misconduct, culpable company personnel have not always been held accountable. The Yates Memo appears intended to bridge this gap, and it puts company executives on notice that they individually may be pursued if they violate the law even on behalf of their employer. If the Yates Memo were adopted as part of antitrust policy – and there has been no announcement it will – it could bring significant changes to civil antitrust enforcement (as opposed to criminal prosecutions where the individual criminal prosecution already is the norm).
Under the Antitrust Division's criminal prosecution leniency policy, corporations and individuals who report their cartel activity and cooperate in the DOJ's investigation can avoid criminal conviction, fines, and prison sentences. In exchange for coming forward first, a company's culpable executives and other employees may be granted full immunity from criminal prosecution. Companies that lose this race to the prosecutor are ineligible for full amnesty, but antitrust corporate plea agreements often provide immunity for the majority of culpable company employees, in exchange for promises of cooperation. The most culpable employees typically are "carved out" of that immunity and may be (often are) later prosecuted criminally. (See our prior alert on individual prosecutions.
The Yates Memo implicitly recognizes that the Antitrust Division's criminal leniency policy strikes an acceptable balance between corporate and individual criminal prosecutions: "Because of the importance of holding responsible individuals to account, absent extraordinary circumstances or approved departmental policy such as the Antitrust Division's Corporate Leniency Policy, Department lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees."
It is unlikely that the Yates memo will meaningfully change the DOJ's leniency program, but it could change civil antitrust enforcement.
In recent remarks, Baer focused on the significance of the Yates memo to civil corporate matters. In his view, this aspect of the memo had gone "unreported." According to the Yates Memo:
- "Both civil and criminal attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct."
- "Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay."
- "Criminal attorneys handling corporate investigations should notify civil attorneys as early as permissible of conduct that might give rise to potential individual civil liability, even if criminal liability continues to be sought. Further, if there is a decision not to pursue a criminal action against an individual – due to questions of intent or burden of proof, for example – criminal attorneys should confer with their civil counterparts so that they may make an assessment under applicable civil statutes and consistent with this guidance."
Baer emphasized that DOJ's Antitrust Division "will be looking, going forward, at whether there ought to be individual accountability." He continued, "It doesn't mean we're going to do it, but it is I think a fair thing for the deputy attorney general to ask all components [of the DOJ] to look at [whether] there is an additional deterrent effect that comes with holding responsible the individuals who adopt a policy that is in violation of the antitrust laws or some other federal standard."
Imposing individual civil liability for employees whose conduct brings about civil antitrust violations would be a significant antitrust policy change. Civil antitrust enforcement historically has involved actions only against the company, not its responsible employees, while conduct appropriate for criminal enforcement has led to actions against both companies and individual employees. This makes sense because criminal enforcement is reserved for conduct that is inherently anticompetitive and unlawful, such as price fixing and other "per se illegal" conduct undertaken with criminal intent. In contrast, civil enforcement is used to challenge conduct for which the competitive effect may be ambiguous. That is, the conduct is not unlawful unless it is on balance more anticompetitive than procompetitive, and intent is not an element of a civil antitrust violation. This "rule of reason" standard covers all sorts of business conduct that may or may not be anticompetitive, including competitor joint ventures, mergers, and distribution restraints. (An exception may be the failure to report a transaction under the federal premerger reporting law, which is a straightforward violation.)
DOJ has not said whether or when it might bring civil enforcement actions against executives implicated in corporate wrongdoing. But it is possible to imagine facts that would support civil enforcement against individuals who, under some standard, brought about a company antitrust violation. As an extreme example, a CEO proceeds with a non-reportable merger despite being advised by outside antitrust counsel that it certainly violates U.S. merger laws (Clayton Act § 7). In a post-consummation challenge, DOJ learns that the CEO pushed forward with the deal regardless of the antitrust risks. Under the Yates Memo, would this call for a civil action against the CEO? How would DOJ evaluate an individual's culpability in determining whether to press for civil relief against the individual? Would knowing but passive acquiescence in a subordinate's conduct be enough for DOJ to impute liability to a senior manager? What would be an appropriate remedy, in the form of fines or injunction?
Bill Baer's recent comments may be a trial balloon to test reactions. But before the first individual lawsuit, it would be appropriate for the Antitrust Division first to provide guidance to the business community that company antitrust violations could have new consequences to individual employees. Otherwise, an ambiguous policy may end up deterring, rather than promoting, the procompetitive conduct it was intended to encourage, as risk-averse employees shy away from undertaking activity that raises antitrust questions but ultimately is defensible (that is, procompetitive). Furthermore, we would predict that the first of any such enforcement actions would be an easy case of obvious wrongdoing, not a close call.
At a minimum, these developments provide a good reminder about the importance of maintaining a robust and updated antitrust compliance program. If such an enforcement policy were to come about, individual personnel would make greater efforts to ensure their conduct (or their subordinates' conduct) could not lead to (or be perceived to lead to) some claim it was anticompetitive. Corporate antitrust compliance programs and policies would need to be revised to inform employees of their possible exposure for even the civil antitrust violations of their employers.
DOJ's Yates memo can be found on its website.