Seven years after the law was enacted, the US Government Accountability Office (GAO) has released its report to Congress on the effects of the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA)1 on criminal cartel enforcement. The report reveals previously undisclosed DOJ statistics on the number, type and role of leniency applications in criminal cartel cases, opening a previously shuttered window on this growing area of antitrust enforcement. However, the report’s results on ACPERA’s success are mixed.

While the DOJ is unsurprisingly pleased with the marked increase in the amount of criminal penalties obtained and jail sentences imposed on offenders, the total number of leniency applications is up only a modest 4 percent in the six years since ACPERA’s enactment compared to the previous six year period. The GAO also examined the opinions of key stakeholders on whether the leniency program should be augmented with a reward or bounty for whistleblowers. While there was little consensus on whether the advantages of a bounty system would outweigh its disadvantages, the GAO did recommend that Congress consider adding a civil remedy for whistleblowers who face retaliation for cooperating in a government investigation.

DOJ Antitrust Enforcement and ACPERA

The DOJ’s Antitrust Division investigates and prosecutes criminal cartel activity that poses a threat to competition in the US economy. Yet, criminal cartel activity takes place behind closed doors, under the radar of prosecuting authorities. Recognizing the elusive nature of these offenses, the DOJ has relied upon its leniency program to encourage violators to self-report illegal cartel conduct. The leniency program allows a successful applicant to avoid criminal liability on the part of the company as well as all of its employees, current and former. Only the first applicant to reveal cartel activity can take advantage of the DOJ’s offer; the other cartel members face DOJ prosecution, armed with the information provided by the leniency applicant. However, while successful leniency applicants might escape criminal liability, prior to the passage of ACPERA they still faced the almost certain prospect of follow-on civil litigation. With the threat of treble damages and joint and several liability, the consequences of confessing to participation in a criminal cartel remained significant. 

Recognizing the difficult decision faced by potential leniency applicants, Congress passed ACPERA in 2004 to increase criminal penalties for antitrust violations and provide additional incentives for companies and individuals to apply for leniency. ACPERA’s major reforms included:

  1. an increase in the maximum fines from US$10 million to US$100 million for corporations, and from US$350,000 to US$1 million for individuals;
  2. an increase in the maximum jail term for individuals from 3 years to 10 years; and
  3. eliminating treble damages and joint and several liability for successful leniency applicants that provide "satisfactory cooperation" to civil claimants.

In 2010, Congress reauthorized ACPERA’s detrebeling provisions for another 10 years, and amended the act to require that leniency applicants provide "timely" cooperation to civil claimants. The reauthorization also required the GAO to prepare a report on the effectiveness of ACPERA in cartel enforcement. The GAO’s report was released on July 25, 2011.

ACPERA’s Effect on DOJ Cartel Enforcement and Participation in the Leniency Program:

Leniency Applications

When originally enacted, ACPERA’s goal was to increase participation in the DOJ’s leniency program. Congress hoped that the law’s provisions would make the leniency program a more attractive option, encourage more violators to self-report, and ultimately allow the DOJ to bring a higher number of criminal cartel prosecutions. However, an analysis of the DOJ data reveals that ACPERA has had limited impact on increasing the number of leniency applications:

  • In the six years before and after ACPERA was passed, there was little change in the total number of leniency applicants. For the six years before the Act, 78 applications were submitted, compared with 81 applications during the six year period following the act’s passage.2
  • According to defense attorneys who represent leniency applicants, removing the threat of treble civil damages has had a "slight positive effect" on the decision of leniency applicants to come forward. Instead, it is the threat of jail time and criminal fines that are the most significant factors in an applicant’s decision to report illegal cartel conduct, both before and after ACPERA was enacted.

However, while the overall number of leniency applications has remained relatively stable, there has been a measureable shift in the type of leniency applications pre and post-ACPERA. The DOJ program provides for two types of leniency: (1) Type A leniency for cartel conduct that the DOJ is not currently aware of; and (2) Type B leniency for cartel conduct that is already the subject of an ongoing DOJ investigation. Before ACPERA, Type B applications were by far the most common type of leniency application. Since ACPERA’s enactment, Type A leniency applications have doubled and now account for the majority (59 percent) of successful leniency applications.

While the DOJ values these applications for obvious reasons, the Department’s increased reliance on self-reporting to police cartel behavior could mark the beginning of a potentially troubling trend for cartel enforcement. As the Department relies less and less on its own independent investigation to uncover illegal conduct, prosecuting cartel activity will become more and more a game of chicken among cartel members. Cartels may only be prosecuted in those instances where a cartel member feels compelled to self-report. In those instances where cartel members are more disciplined, and do not fear independent detection by the government, there is an increased chance that the illegal conduct will go undetected. Absent a credible threat of detection and prosecution, the old defense counsel adage of "nobody talks, everybody walks" may come back into favor.

Criminal Penalties

On the other hand, both criminal penalties and jail sentences in cartel cases have risen significantly since ACPERA’s enactment:

  • The total amount of jail time imposed on all defendants convicted in cartel cases increased by approximately 56 percent in the six years since ACPERA was enacted.
  • The median jail sentence per individual defendant sentenced to jail increased by 86 percent.
  • A larger percentage of defendants convicted in cartel cases have been sentenced to jail since ACPERA was passed. In the six years before ACPERA, about 44 percent of individual defendants received a jail sentence. In the six years after, approximately 74 percent of the defendants were sentenced to jail.
  • Total fines increased approximately 51 percent in the same six year period.
  • Median fines per case increased by a dramatic 81 percent over this same period.

While the increase in criminal fines correlates with the passage of the Act, DOJ officials cannot directly attribute these higher penalties to the Act. The DOJ attributes the higher fines that have been imposed to the Division’s focus on larger multistate and international cartels rather than the increased statutory maximums allowed by the Act. However, the Division did acknowledge that the increase would make it easier to obtain higher fines in the small percentage of cases that go to trial.3 DOJ prosecutors can seek fines under the Sherman Act up to the statutory maximum or they can seek fines under the Alternative Fine Statute which allows for fines twice the pecuniary gain from the illegal cartel conduct or twice the loss to the victims. This provision has allowed the DOJ to negotiate fines well above the statutory maximum both before and after ACPERA. However, proving the amount of pecuniary gain or loss imposes a significant burden on the government at trial. The higher statutory maximum makes it easier to obtain larger fines without the added burden of proving gain or loss, and enhances the government’s negotiating position for those cases that are settled and do not go to trial.

Increasing fines for companies and jail terms for individuals should be kept in mind when evaluating the risks and benefits of reporting a potential cartel violation through the leniency program.

ACPERA’s Effect on Civil Cases

Under ACPERA, to receive the full benefit of the leniency program and avoid treble damages, a leniency applicant must cooperate with civil plaintiffs in related private suits. To satisfy its cooperation obligations, leniency applicants must provide plaintiffs with a full account of relevant facts, and provide all relevant documents and other items that are within the applicant’s possession.

Not surprisingly, plaintiffs’ attorneys bringing civil suits in cartel cases reported that ACPERA’s cooperation provision has had a positive impact on their civil cases. Receiving information from the leniency applicant enhances the plaintiff’s case and eases the burdens imposed by discovery. Notably, according to the GAO report, plaintiffs’ attorneys have reported that the cooperation helps overcome defense motions to dismiss in face of the heightened pleading requirements imposed by the Supreme Court in Bell Atlantic v. Twombly.4 Plaintiffs’ attorneys also report that they are able to reach higher settlements with the other defendants in cases with a cooperating leniency applicant.

However, plaintiffs’ attorneys and defense attorneys representing leniency applicants have significantly different views of what exactly "cooperation" under the Act entails and when the defendant must start cooperating with the plaintiff’s case. The statute only provides that cooperation must be "satisfactory" as determined by the court; further, there is little case law to guide attorneys on what constitutes "satisfactory cooperation." It is too soon to tell what impact the 2010 amendment to ACPERA — that cooperation be "timely" — will have on future cases. Defense and plaintiffs’ attorneys will likely continue to disagree on just when "timely" cooperation is required until the courts provide further guidance.

Support for Whistleblower Protection against Retaliation:

While the DOJ provides leniency for self-reported violators, innocent third-party whistleblowers who witness a violation do not receive monetary rewards for information that leads to a successful antitrust prosecution. The stakeholders interviewed by the GAO, which included plaintiff and defense counsel, academics and representatives from the Antitrust Division, were divided on whether a whistleblower reward program would enhance the DOJ’s enforcement efforts or hinder their ability to successfully prosecute an offense. Supporters of a reward program suggested that a reward would provide an incentive for a wider group of individuals to report criminal cartel activity, which could lead to greater cartel enforcement by the agency. Others noted that the mere offer of a whistleblower reward could deter cartel activity, by increasing members’ concerns that their activity will be reported.

Interestingly, Antitrust Division representatives identified a number of disadvantages to instituting a bounty or rewards system. DOJ officials stated that cases could be jeopardized because a paid whistleblower might not be regarded as a credible witness at trial. In addition, the prospect of a reward could increase the number of reported claims that lack merit and waste limited government resources. The Antitrust Division’s views on rewards for whistleblowers puts them at odds with the SEC, IRS and the DOJ’s Civil Division which has whistleblower rewards programs.

By contrast, the stakeholders interviewed generally supported the addition of a whistleblower protection provision that would provide a civil remedy for retaliation. Although laws protecting whistleblowers exist in other contexts, there is no comprehensive federal whistleblower protection. The only current protection for whistleblowers is an existing criminal statute that could expose employers to criminal penalties for retaliating against a cooperating informant. However this provision requires that the DOJ pursue a retaliation case and provides no remedy for the whistleblower to bring their own private action. The GAO recommended that Congress consider an amendment to ACPERA to provide a civil remedy for retaliation.

Conclusion

While the results of the GAO report are mixed, the report does reveal a dramatic increase in criminal fines, jail sentences, and in the number of cases filed that are dependent on the cooperation of a leniency applicant. Because the leniency program rewards the first self-reporter, companies and counsel should familiarize themselves with the contours of the leniency program before an antitrust issue arises.