On April 12, 2013, William J. Baer, Assistant Attorney General for the Department of Justice’s Antitrust Division, announced two changes to the Division’s policy regarding “carve-outs” in corporate antitrust plea agreements. While these changes will significantly alter the Division’s current practices regarding public identification of “carved-out” individuals, the impact of the policy change on the number and identity of potential “carveouts” is far less clear.
Corporate plea agreements for antitrust violations typically provide a guarantee of future non-prosecution to both the company signing the plea agreement and current and former employees who cooperate with the Division’s investigation.1 However, the Division’s non-prosecution assurances typically do not apply to all employees. Rather, the Division often excludes one or more individuals (known as “carve-outs”) from the non-prosecution protections afforded by the company’s plea agreement. Although the Division reserves the right to prosecute these individuals, the fact that an individual is “carved out” does not necessarily mean the government ultimately will seek to indict that person.
Under its prior policy, the Division typically insisted on identifying “carved-out” individuals by name in publicly filed plea agreements. No distinction was made between “carve-outs” so identified; some were putative criminal defendants. In some other cases, “carve-outs” were persons about whom the government harbored suspicion, but had not or could not develop evidence sufficient to proceed with prosecution. The Division defended its practice by arguing that publicly identifying carve-outs served three important policy interests: (1) the public’s right of access to filed plea agreements; (2) the need for contractual clarity for the employees of the corporate defendant; and (3) the right of victims to access plea agreements, as conferred by the Crime Victims’ Rights Act of 2004.2
Critics of the Division’s policy of publicly identifying “carve-outs” in corporate plea agreements, however, noted the significant reputational injury that could be inflicted on a “carve-out” from public identification, as well as the fact that the policy was plainly inconsistent with those of other DOJ prosecuting divisions. Indeed, the U.S. Attorney’s Manual cautions that “federal prosecutors should remain sensitive to the privacy and reputation interests of uncharged third parties … [and] in the absence of some significant justification, it is not appropriate to identify … a third-party wrongdoer unless that party has been officially charged with the misconduct at issue.”3
The Antitrust Division’s Policy Changes
Last week, the Division amended its “carve-out” policies in two respects. First, “carved-out” individuals will no longer be named publicly in plea agreements.4 Instead, the Division will list the names of those individuals in a separate appendix, which it will then ask the court to file under seal. In explaining its rationale for the change, Assistant Attorney General Baer acknowledged that “[a]bsent some significant justification, it is ordinarily not appropriate to publicly identify uncharged third-party wrong-doers.”5
The second policy change announced by the Division concerns the categories of individuals who may be “carved out” of corporate plea agreements. Previously, the Division reserved the right to “carve out” the “highest-level culpable individuals,”6 as well as “employees who refused to cooperate with the division’s investigation, employees against whom the division was still developing evidence and employees with potentially relevant information who could not be located.”7 Moving forward, however, the Division will no longer “carve out” employees solely because they fall into one or more of the non-culpability related categories. However, Assistant Attorney General Baer emphasized in his announcement that the Division will “continue to demand the full cooperation of anyone who seeks to benefit from the non-prosecution protection of a corporate plea agreement, and will revoke that protection for anyone who does not fully and truthfully cooperate with division investigations.”8
Implications of the Policy Changes Going Forward
The Division’s decision to cease public identification of “carve-outs” is a long overdue and welcome change as it ameliorates the significant privacy and reputational concerns associated with the Division’s prior policy, and brings its policies more in line with the other prosecuting divisions of the DOJ. The impact of the Division’s policy change regarding the categories of “carved-out” individuals remains to be seen, however. Practically speaking, many potential “carve-outs” will arguably fall within the Division’s newly articulated standard of “employees who we have reason to believe were involved in criminal wrongdoing and who are potential targets of our investigation.”9
Indeed, we read the concluding part of Assistant Attorney General Baer’s announcement demanding “full cooperation of anyone who seeks to benefit from the non-prosecution protection of a corporate plea agreement” to signal no change with respect to current policy toward individuals with any degree of potential culpability. We believe that the Division will likely continue to expect those individuals to provide full cooperation with the Division’s investigation in order to avoid “carve-out” treatment, notwithstanding the removal of non-cooperation as a stand-alone ground for being “carved out.”
That said, the new policy does offer opportunities to argue for increased rigor in “carve-out” decisions. For persons against whom the government’s evidence is limited or persons who are merely the object of unresolved suspicion, the new policy could offer a strengthened hand. The government’s interest in obtaining those persons’ cooperation in the investigation may outweigh any benefit from placing such persons in carve-out status, particularly as the new policy removes the punitive effect of public identification without charges.
Only time will tell whether the Division’s announced policy changes will alter the negotiating dynamic at play between company counsel and the Division as it relates to the number and identity of “carved-out” individuals in corporate plea agreements.