I’m freshly back from Washington, DC and the ABA Antitrust Section’s annual Spring Meeting. Each year it seems that the agencies try to break at least some news during the week of the Spring Meeting (I recall at least one highly anticipated merger closing statement, for example). If there was any truly big news this year, I missed it, but there was at least one new statement of criminal enforcement policy from the Assistant Attorney General for Antitrust, Bill Baer.
In a statement officially released Friday, and in comments during the annual enforcers round table that morning, Baer tells us that the agency is changing the way in which it handles “carve-outs” from corporate plea agreements.
Before we get into the merits of the new policy, we should probably talk a little about how plea agreements work in general. As you may recall, DOJ operates what has been a very successful amnesty program for cartel conduct. That means most, if not nearly all, of DOJ’s cartel cases begin when one member of a price fixing conspiracy turns itself in to try to avoid criminal penalties for itself and its employees. When cases start that way, it becomes somewhat difficult for other cartel members to defend themselves. Off the top of my head, I can think of only two instances in recent years of companies choosing to go to trial over criminal price fixing allegations. One was successful, the other was not. As it turns out, it just gets exponentially harder to try to defend a case when multiple others have already confessed. After all, you’re going to have to convince either DOJ or a judge or jury that even though the whistle-blower confessed, you really didn’t do anything illegal.
That happens sometimes, as the incentives that a party seeking amnesty faces encourage a degree of over-reporting (because if you’re going to confess, you want to be the first to confess it all), but often times an amnesty application leads to each of the co-conspirator companies agreeing, one-by-one, to plead guilty to price fixing. Beginning with the second conspirator that agrees to cooperate, each member of the cartel ends up negotiating to plead guilty and attention turns to factors that influence the severity of the penalty, and, importantly, to which employees are subject to individual prosecution.
Let’s take a moment to consider that point, because as I’m trying to explain it, it occurs to me that this may be a bit counter-intuitive. The Sherman Act provides for both corporate and individual criminal culpability for “hardcore” antitrust offenses. That means that not only can a company that agreed with its competitors to fix prices be prosecuted, so can the individual company employees that engaged in the illegal conduct. The result is that part of every corporate plea agreement covers how DOJ will treat company employees. Generally speaking, companies don’t want their employees prosecuted criminally and perhaps jailed, so DOJ offering to agree not to seek to do so is another powerful incentive that it can use to encourage cooperation. At the same time, DOJ wants to hold culpable individuals responsible, because as any Scott Hammond speech will tell you, DOJ believes that individual criminal liability is a stronger disincentive to corporate malfeasance than fining a company.
To do so, DOJ will insist that certain individuals be “carved-out” of corporate plea agreements. Those individuals will not be covered by the government’s agreement not to seek further prosecution for the conduct that is the subject of the plea agreement. A quick look at paragraph 17(a) of DOJ’s model plea agreement (which will presumably be changed) shows how that document anticipates that one or more individuals would be listed as not covered by the governments non-prosecution representations.
With all of that background out of the way, we can finally get to the changes announced on Friday. Until now, DOJ has sought to carve-out employees for one or more of four reasons: (1) DOJ believed that the individual was culpable, (2) the individual refused to cooperate in the investigation, (3) DOJ was still developing information about that individual’s involvement, or (4) the individual was believed to have relevant information but could not be located (e.g., a former employee).
The announcement from Friday says that only #1 will continue to apply, and DOJ will no longer seek to carve out employees other than for culpability reasons. From now on, the only way you aren’t going to be covered in the corporate agreement is if the government thinks you were involved in the illegal conduct.
It’s hard to tell from the outside, but I rather suspect that this has effectively been the practice anyway. Perhaps there has been an individual or two about whom DOJ was uncertain of culpability that were carved-out because of the other three factors, but in general my guess would be that those factors were almost always coupled with some suspicion of culpability.
In a related move, the Baer statement also says that the names of individuals carved-out from corporate plea agreements will no longer be listed in the text of the agreement and instead will be included in an appendix filed with the court under seal. According to the statement, this change flows from the policy of only carving-out the culpable because it is “ordinarily not appropriate to publicly identify uncharged third-party wrongdoers.”
There is certainly some sense in that, as DOJ naming someone as a potential criminal in the absence of indictment or other due process does seem problematic. But there may also be other advantages for DOJ.
If you spend some time digging around the Antitrust Division’s website and comparing corporate plea agreements to individual prosecutions/plea agreements, you will discover something that should be at least a little embarrassing for DOJ: lots of listed carve-outs have never been prosecuted.
There are a variety of scenarios that might lead to individuals being carved out but not prosecuted. The primary reason that so many carved-out individuals are never prosecuted is that much of DOJ’s cartel enforcement activity has been focused on international cartels, including individuals who are not U.S. nationals and who reside outside the U.S. DOJ has a number of tools that it uses to make those individuals’ lives more difficult (more in a later post), including the potential for extradition from countries that also have criminal antitrust enforcement, but when it comes down to it, many individuals outside the U.S. have ultimately had the option of staying in their own country and avoiding prosecution. These factors are largely outside DOJ’s control (although they’ve been trying), and perhaps these failures to prosecute aren’t a good basis for critique of DOJ’s criminal prosecution practices.
But other reasons for non-prosecution of carve-outs may raise questions. Obviously, if the individual was carved out for the latter three of the reasons listed above, it could be that DOJ ultimately decided that the individual was not culpable and shouldn’t be prosecuted. It might also be that DOJ eventually decided that the carved-out individual would be more valuable as a witness against other co-conspirators. In either case, why could it not make that determination before publicly listing the individual’s name in the plea agreement?
I don’t know whether anyone has ever actually tried to go through all of the plea agreements to find out what the rate of prosecution of carved-out individuals is, but such an exercise could provide some margin of accountability for DOJ criminal prosecutors. I have some minor heartburn that Friday’s announcement deprives us of that accountability.