The US Department of Justice Antitrust Division (Antitrust Division) issued new policy guidance on July 11 that provides companies with the opportunity to receive credit for adopting and maintaining a robust corporate compliance program at the charging stage, including the possibility of deferred prosecution and reduced potential penalties for antitrust violations. Companies should review and update their antitrust compliance programs to ensure consistency with the new guidelines.
The Antitrust Division has obtained more than $5.5 billion in criminal fines in the last five years from corporations convicted for price-fixing, bid rigging, customer allocation or other per se unlawful antitrust violations, and numerous executives have been sentenced to prison terms in connection with prosecution of the same conduct. Unlike other criminal prosecuting components of the DOJ, the Antitrust Division has never credited the existence of an effective antitrust compliance policy in making charging decisions and has rarely provided credit for these programs at the sentencing stage. The Antitrust Division’s position has historically been that its corporate Leniency Program—which allows the first company to self-report a criminal antitrust violation to avoid criminal convictions, criminal fines, and incarceration of executives—provides sufficient incentive for companies to invest in robust antitrust compliance policies, and that the inability of a company to secure leniency was evidence of an insufficient compliance program. In a major policy development announced on July 11, this has now changed.
Under the Antitrust Division’s new policy, for the first time the Antitrust Division will consider the merits of a company’s compliance program at both the charging and sentencing stage of criminal antitrust investigations and cases. The new policy also recognizes that companies may be considered for deferred prosecution agreements in limited circumstances – another major policy change. The Antitrust Division also amended its Justice Manual and issued policy guidance directing prosecutors to consider the strength of corporate compliance programs, as well as the candor and good faith of the company, at the charging stage of a criminal antitrust case.
Companies should review existing antitrust compliance programs to ensure they are tailored to meet the new elements in order to prevent and detect potential antitrust conduct and enhance the likelihood of qualifying for compliance credit if it becomes necessary. This LawFlash provides an overview of the new DOJ policy for effective compliance programs for antitrust matters.
The Prior Policy Rarely Resulted in Compliance Credit at the Sentencing Stage and Never at the Charging Stage
The Antitrust Division’s new policy represents a major shift from prior policy, which we summarized in a November 2014 LawFlash. Over the past few decades, cartel enforcement has been designed around the Leniency Program. In fact, Antitrust Division views leniency as providing “the ultimate credit for having an effective compliance program” Under the Leniency Program, the first company or individual to report criminal conduct and satisfy the program requirements avoids criminal prosecution. With the Leniency Program as the centerpiece of cartel enforcement, compliance program efforts for companies that did not qualify for leniency were largely disregarded. This was consistent with the Antitrust Division policy to create a “race for leniency” to encourage the first to self-report to obtain the benefits from leniency, including non-prosecution.
For about a quarter of a century, the prior policy was also characterized by two “hard truths” related to whether a compliance program was determined to be truly “effective.” First, at the charging stage, the Antitrust Division presumed that a corporate “compliance program almost never allow[ed] the company to avoid criminal antitrust charges” since “a truly effective compliance program would have prevented the crime in the first place or resulted in its early detection.” Under this stringent view, companies could not receive credit for their compliance efforts even where the cartel conduct was isolated or violated the company policy. In fact, prior policy expressly stated “that the Antitrust Division would not give credit at the charging stage for a compliance program.”
As a second hard truth, at the sentencing stage companies were rarely recommended to “receive credit at sentencing for a preexisting compliance program” since companies (other than leniency applicants) did not self-report before an investigation had commenced or self-reporting occurred after a significant passage of time. In practice, the prior Antitrust Division policy established a strict presumption against sentencing credit for compliance programs.
In contrast, the Sentencing Guidelines have long recognized that sentencing mitigation may be credited for “the existence of an effective compliance and ethics program,” and other divisions within DOJ provided sentencing credit to companies based on their compliance programs for non-antitrust crimes. Yet in applying the second of the two “hard truths,” compliance credit was rarely considered at sentencing in antitrust cases. Under Antitrust Division’s view, after the leniency applicant, “[n]o other company is likely to satisfy the requirements of the Sentencing Guidelines for an effective compliance program.” The result has been that the Sentencing Guidelines standards were largely inapplicable in antitrust cases.
New Compliance Program Policy Elements and Guidance
Instead of applying a presumption that any antitrust violation suggests that the compliance program was ineffective, the new policy now expressly recognizes that “no compliance program can ever prevent all criminal activity by a corporation’s employees.” Under the new policy, the Antitrust Division will now take a more holistic view in its charging and sentencing assessments, considering the elements of the corporate compliance policy and program as well as the candor and good-faith efforts of the violator in addressing the violation.
The Antitrust Division emphasized, however, that companies with robust compliance programs do not receive a free pass. The Antitrust Division will scrutinize the effectiveness and adequacy of the compliance program, as well as whether the violator acted in good faith, to determine whether the violator is eligible for a credit at charging. For example, the Antitrust Division indicated that a violator must promptly self-report antitrust violations to the government, cooperate fully with the Antitrust Division investigation, and take voluntary remedial action (e.g., improving compliance programs, terminating wrongdoers, or paying restitution), to receive a charging credit. This aligns the policies of the Antitrust Division with other parts of DOJ.
The announcement and guidance provides the framework for measuring the adequacy and efficacy of a compliance program in criminal antitrust cases. An overview of the new policy highlights the elements in which a company may receive credit for an effective compliance program:
A. Charging Stage Elements
All prosecutors initially consider the Principles of Federal Prosecution and the Principles of Federal Prosecution of Business Organizations. As a threshold matter, the antitrust policy draws on three “fundamental” questions under these principles, which apply in all criminal cases:
- Is the corporation’s compliance program well designed?
- Is the program being applied earnestly and in good faith?
- Does the corporation’s compliance program work?
With regard to antitrust criminal prosecutions more specifically, “three preliminary questions” are considered:
- Does the company’s compliance program address and prohibit criminal antitrust violations?
- Did the antitrust compliance program detect and facilitate prompt reporting of the violation?
- To what extent was a company’s senior management involved in the violation?
These factors will not apply in every case and do not constitute “a checklist or formula.” The compliance inquiry is fact-specific. The Antitrust Division “recognizes that a company’s size affects the resources allocated to antitrust compliance and the breadth of the company’s compliance program.” As part of the investigation, an Antitrust Division prosecutor will ask “relevant compliance related questions of witnesses” even before considering a company compliance program presentation.
Core foundational components of an effective antitrust compliance program “in general are efficiency, leadership, training, education, information and due diligence.” More specifically, in criminal antitrust cases, prosecutors will consider the following elements in “evaluating the effectiveness of an antitrust compliance program”:
- The design and comprehensiveness of the program
- The culture of compliance within the company
- Responsibility for, and resources dedicated to, antitrust compliance
- Antitrust risk assessment techniques
- Compliance training and communication to employees
- Monitoring and auditing techniques, including continued review, evaluation, and revision of the antitrust compliance program
- Reporting mechanisms
- Compliance incentives and discipline
- Remediation methods
Compliance programs should be tailored to the company and circumstances and include industry considerations. For example, compliance efforts would be distinct for an ecommerce company than a manufacturing company as pricing decisions are made differently. Distinct compliance issues are raised in a bidding process as opposed to a competitive proposal process. The application of these elements is also fact-specific. In fact, “Precisely how much weight and credit to give a compliance program will depend on the facts of the case.”
B. Open to Deferred Prosecution Agreements in Appropriate Cases
Another significant change in the policy is that Antitrust Division will now consider deferred prosecution agreements (DPAs) in criminal antitrust cases. A DPA is a negotiated agreement with DOJ and filed with the court with a charging document that defers prosecution for a term of years upon the completion of specified monetary or remedial conditions. The company must typically admit to the criminal conduct, cooperate with the government in its investigation, and agree to implement compliance reforms. A corporate monitor may also be required.
Under DOJ policy, “a deferred prosecution or non-prosecution agreement can help restore the integrity of a company's operations and preserve the financial viability of a corporation that has engaged in criminal conduct, while preserving the government's ability to prosecute a recalcitrant corporation that materially breaches the agreement.” DPAs are generally considered to “occupy an important middle ground between declining prosecution and obtaining the conviction of a corporation.”
Previously, deferred prosecution agreements were rare and disfavored in antitrust cases, although the Antitrust Division entered into a DPA earlier this year. One Government Accountability Office study noted that the Antitrust Division entered into three DPAs or non-prosecution agreements (NPAs) between 1993 and September 2009. During the same period, the DOJ’s Criminal Division entered into 49 similar agreements.
For antitrust criminal cases, the Antitrust Division’s position historically has been that the potential availability of DPAs would undermine the effectiveness of the Leniency Program. For this reason, DPAs were rarely considered and entered. Under the new policy, DPAs may be considered where the compliance program elements “weigh in favor of doing so.” The policy announcement makes clear that non-prosecution agreements are disfavored for “companies that do not receive leniency because complete protection from prosecution for antitrust crimes is available only to the first company to self-report and meet the Corporate Leniency Policy’s requirements.”
C. Sentencing Stage Elements
The announcement also clarifies how and in what circumstances the Antitrust Division will credit corporate compliance programs at the sentencing stage. An effective compliance program can mitigate corporate sentencing in three significant respects: (1) reducing the Sentencing Guidelines corporate fine calculation; (2) determining the corporate fine within or below the Sentencing Guidelines fine range; and (3) deciding whether to recommend probation as part of the criminal sentence.
A compliance program may impact the Sentencing Guidelines calculation used in the sentencing process. Under the Sentencing Guidelines, an “effective” compliance program entitles a company to a three-point reduction in the company’s “culpability score,” which is used to set the guidelines range for a criminal fine. The Antitrust Division has not in the past generally been willing to provide that reduction to companies prosecuted for criminal antitrust offenses, but the new policy opens that door to such reductions.
A compliance program may also impact the determination of the corporate fine within the Guidelines Range or whether to support a fine below the Guidelines Range. The Antitrust Division’s recent guidance provides that “courts shall consider any measure taken by a company to discipline personnel responsible for the offense and to prevent recurrence of the offense.”
An effective compliance program may also help avoid a criminal probation term for companies. Pursuant to the guidance, the Antitrust Division will not request corporate probation for companies “that cooperatewith the investigation and accept responsibility, except in limited circumstances, such as when a company has left culpable individuals in positions of authority, or has received a ‘Penalty Plus’ fine adjustment for failing to report other cartel conduct at the time of a prior plea.” Probation may be considered if a company did not have a prior antitrust compliance program or does not establish one after discovering the misconduct. In some cases, the Antitrust Division may request a corporate monitor in conjunction with probation for companies found to lack an effective compliance program.
The Antitrust Division’s new policy creates added incentives for companies to establish and maintain effective compliance programs with respect to antitrust risk. While no compliance program will detect all potential conduct, a robust program that includes the elements that the Antitrust Division has identified as important could significantly reduce criminal antitrust exposure. Morgan Lewis’s antitrust lawyers have extensive experience assisting our clients in the design and implementation of compliance programs.
Companies should review current compliance programs to ensure they are tailored and meet the new guidelines. The compliance programs should reflect emerging and current antitrust enforcement issues. For example, this includes DOJ’s announcement that it would pursue criminal prosecution of companies participating in employee wage-fixing and no-poaching agreements.