The Department of Justice (DOJ) recently made several significant criminal antitrust policy statements relating to corporate compliance and cooperation.
Both Bill Baer, assistant attorney general for the Antitrust Division, and Brent Snyder, deputy assistant attorney general for criminal enforcement at the division, addressed compliance programmes. While it is evident that the division will not provide significant guidance on compliance prevention, the statements reflect a new openness on the issue of corporate compliance and demonstrate at least some willingness to engage the defence bar on the issue.
Hallmarks of an effective compliance programme
In his September 10 keynote address at the Georgetown Global Antitrust Enforcement Symposium, Baer provided guidance on effective compliance programmes, marking the first time that the division has addressed this issue in more than a decade. Baer outlined several basic hallmarks of an effective compliance programme. He started with the premise that an effective compliance programme "starts at the top", stressing the importance of directors and senior officers in setting the tone for compliance at a company. He explained that these senior executives and officers should "ensure that the company's entire managerial workforce not only understands the compliance programme but also has the incentive to actively participate in its enforcement". He stated that an effective compliance programme should include provisions that encourage employees to report potential criminal conduct. The programme should also protect these employees from retaliation. "Appropriate disciplinary measures" should also be in place for employees who engage in, or fail to take reasonable steps to prevent, criminal conduct. While this guidance is limited, and critics will undoubtedly continue to call for more, it is significant that the division has addressed the issue. At a minimum, companies should ensure that their existing compliance programmes include the provisions discussed by Baer.
During a subsequent panel discussion at the Georgetown symposium, Snyder stated that in-house counsel and outside counsel are best positioned to create and implement effective compliance programmes, and thus the division would not "sponsor a model compliance programme…at any point in the near future". Nevertheless, in recognition of the fact that an effective compliance programme both prevents and detects criminal conduct, he expressed a willingness to provide guidance on detection. He said that he will consider providing a primer on "lessons learned" from past cartel investigations, perhaps identifying red flags and common characteristics of cartel conduct, as well as suggesting ways to ferret out criminal conduct. The mere fact that the division is contemplating providing cartel detection guidance is a significant and welcome shift in position. Companies should watch closely for such guidance in the future.
Penalties and rewards for compliance
Historically, corporate defendants have received no credit from the division for corporate compliance, either under the US Sentencing Guidelines or otherwise. Similarly, the DOJ has never requested probation or a corporate monitor for a pleading company, even in those cases where a company has pled guilty in two or three separate investigations. However, it is clear from the DOJ's statements that the division will employ both a reward and a penalty for compliance moving forward.
Potential penalty for compliance programme deficiencies
On September 9 2014 Snyder – in a speech prepared for the International Chamber of Commerce – announced that under the guidelines, every company that is convicted of a cartel offence must have an effective compliance programme and any company that fails to implement an effective compliance programme "is a likely candidate for probation". Moreover, corporate defendants in antitrust cases will risk probation, including the possibility of a corporate monitor, if culpable employees are retained in key management positions. The following day, Snyder further explained that the division, in crafting this policy, is primarily focused on carve-outs that refuse to accept responsibility and plead guilty. In short, under the announced policy, probation will likely be pursued in those cases where a corporate defendant continues to employ a carved-out executive in a key management role despite the fact that the executive has failed to accept responsibility for his criminal conduct.
Baer further discussed this policy during his speech on September 10. In support of the policy, he stated that it:
"is hard to imagine how companies can foster a corporate culture of compliance if they still employ individuals in positions with senior management and pricing responsibilities who have refused to accept responsibility for their crimes and who the companies know to be culpable."
He said that if a company retains the culpable employee in a key managerial position, "the division will consider seeking court-supervised probation as a means of assuring that the company devises and implements an effective compliance programme". Baer cited the use of a corporate monitor in United States v AU Optronics Corporation – the only criminal case in which the division has sought a corporate monitor – as an example of the penalty that companies might face moving forward if an effective compliance programme is not implemented. According to later comments by Snyder, the division will consider probation, including a corporate monitor, in the plea agreement context, not only after trial.
The division is expected to request probation, or at least reserve the right to request probation, in more cases moving forward. Pursuant to the policy statements, it is unlikely that companies will be able to plead guilty in multiple division investigations without facing compliance programme scrutiny and probationary sentences. Moreover, the division will likely seek probation for cooperating companies that fail to terminate or transfer from key positions carved-out employees who refuse to cooperate with the the DOJ's investigation.
While the division remains opposed to the provision of compliance programme credit under the guidelines, Snyder signalled that an alternative credit might be available in the future. In his September 9 speech, and again the following day, Snyder stated that the division is "actively considering ways in which we can credit companies that proactively adopt or strengthen compliance programmes after coming under investigation". Noting that the division has "not finalised our thinking in this area", he suggested on September 10 that the division is considering a fine discount, of perhaps 5% or 10%, for compliance programme improvements. Both Baer and Snyder reiterated that the greatest reward for effective compliance is either prevention of the conduct altogether or, absent that, early detection and self-reporting under the amnesty programme.
Compliance programmes are more important than ever before. By employing both a penalty for ongoing or unaddressed compliance deficiencies and a reward for compliance programme improvements, the division has further incentivised companies to develop strong compliance programmes – even in the face of criminal allegations. If a company is the subject of an investigation, it is important to quickly and effectively remedy compliance issues, thereby demonstrating to the division that a reward is justified and a penalty unnecessary.
Baer sent a clear message to all cooperators – corporations and individuals, amnesty applicants and pleading defendants: provide full and complete cooperation or risk severe penalties. In no uncertain terms, he stated that the division expects leniency applicants to expeditiously provide detailed proffers, foreign-located documents, translations of foreign-language documents and witness interviews. Employees of the leniency applicant were similarly warned to "be prepared to admit all collusive conduct they participated in or know about" and to "be prepared to be candid and credible witnesses in front of a grand jury and at trial". Moreover, Baer stated that the division expects individuals to provide full cooperation as to the full scope of criminal conduct, even as to conduct that will not be immunised. A failure to provide this level of cooperation will result in the loss of "their opportunity to qualify for leniency". In other words, cooperate fully, candidly and as quickly as possible or risk losing any benefit for cooperation.
In addition to clearly delineating the division's expectations for cooperation, Baer and Snyder clarified the division's current policy on carve-outs and the cooperation discount for early-in cooperators.
In the past, the division rewarded early cooperators with fewer carve-outs. However, in April 2013 Baer announced a change to the division's carve-out policy. Under the new carve-out policy:
- the names (and number) of carve-outs are no longer publicly released; and
- the division will carve out only potential targets of an investigation.
However, since this modification in the carve-out policy was announced, practitioners have been left wondering whether early cooperators will continue to receive preferential carve-out treatment.
On September 10, Baer cleared up this confusion, stating that while the division once "suggested that the number of carve-outs should be tied exclusively to the order in which companies come forward to accept responsibility and offer cooperation", that is no longer how the division "look[s] at things". Instead, when determining whether an individual should be prosecuted, the division will look solely to the factors set forth in the Principles of Federal Prosecution. A second-in cooperator can no longer expect that, solely as a result of early cooperation, fewer employees will be prosecuted. As a result of this policy shift, it can be implicitly understood that later cooperators will no longer have more employees carved-out and, as a result, more employees potentially prosecuted, solely because of timing. In short, companies should not expect the timing of cooperation with the division to affect carve-out decisions moving forward.
Additionally, second-in cooperators should no longer expect a virtually guaranteed 35% cooperation discount. Based upon a 2006 division speech, in which the division instructed that the typical second-in cooperator received, on average, a 35% cooperation discount, antitrust practitioners have long assumed that early-in cooperating companies could expect a 35% discount. However, due to scant publicly available information on cooperation discounts, many antitrust practitioners have questioned whether this assumption is still true. Baer has indicated that the answer is no. He unequivocally asserted that, moving forward, sentencing recommendations will be based on the value of the cooperation received by the defendant, not "simply on the order in which companies begin to cooperate".
However, this may not be bad news for cooperating defendants. Under the division's clarified policy, if the cooperation is substantial enough, a cooperating company can earn a discount that exceeds 35% regardless of timing. Of course, as Baer pointed out in his speech, a defendant is more likely to advance an investigation if that defendant comes in early, when the investigators have less evidence. However, the mere fact that a company approaches the DOJ earlier in the investigation will no longer be the sole or most important factor in determining an appropriate discount. Conversely, late cooperation will not foreclose a company from receiving a significant discount simply because of timing.
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