Mea Culpa, Mea Culpa: The Antitrust Division Leniency Program


Mea Culpa, Mea Culpa: The Antitrust Division Leniency Program

by William Frank Carroll, Dykema Gossett PLLC


Once caught a federal criminal defendant generally finds it advantageous to cooperate with the prosecution if the evidence is sufficient for conviction. In addition to simply pleading guilty quickly, the caught defendant will often provide evidence, both documentary and testimonial, against his fellow defendants.

All of this is done in the hope of showing acceptance of responsibility and obtaining a prosecution recommendation for reduction of sentence by virtue of that cooperation in the form of a 5k.1 Motion. While generally not a get out of jail free card, this approach does have the advantage of reducing the sentence that could be imposed against the defendant.
Although the foregoing scenario is available to the guilty defendant, it does not avoid indictment, criminal proceedings and the likelihood of some form of sentence which in the federal system must generally be served in its entirety without credit for good time, donating blood or similar offsets. But for the astute “potential defendant” there is in the antitrust area of the federal system a mea culpa, mea culpa approach that may result in avoiding a criminal indictment, prosecution and sentence and even avoid certain types of civil penalties or consequences.

Before turning to the possible absolution, the desolate landscape facing the potential antitrust defendant must be appreciated. The federal antitrust laws have long contained criminal penalties for their violation. See 15 U.S. C. § 1, 2. Although modest initially, those penalties have become quite Draconian in the last several years. Today, conviction for a violation of Sections 1 or 2 is a felony punishable as to an individual by a fine up to $1,000,000 and up to 10 years in prison, and if a corporation, by a fine up to $100,000,000. The violator is also subject to a civil claim for actual damages, which will be trebled, plus attorneys’ fees. 15 U.S.C. § 15.
The serious consequences to individuals and companies convicted for being involved in such violations makes most welcome any possible escape route. For the speedy and the really repentant, there exists that truly remarkable zone of protection.

THE CORPORATE LENIENCY POLICY
In 1993 the Department of Justice Antitrust Division (“Division”) announced a Corporate Leniency Policy for organizations reporting their involvement in illegal antitrust activity.1 Although announced over 20 years ago, the policy has become increasingly important recently in view of the severe penalties and other consequences now applicable when a company is found to be in violation of the antitrust laws.

THE EARLY BIRD GETS THE PASS – TYPE A LENIENCY
Leniency may be granted to a corporation reporting illegal activity both before and after the department has commenced an investigation. However, the benefits of reporting before an investigation are immense – no criminal indictment of the corporation, and if the corporation qualifies, no criminal indictment of the directors, officers and employees of the corporation who also admit their involvement in the illegal activity. Further, under the Antitrust Crime Penalty Enhancement and Reform Act of 2004 (“ACPERA”),2 avoidance of civil liability for treble damages, and no joint and several liability, may also be available.

In order to avail itself of these benefits the corporation must satisfy the following six conditions:

  • 1. At the time the corporation comes forward to report the illegal activity, the Division has not received information about the illegal activity being reported from any other source;
  • 2. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity;
  • 3. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation;
  • 4. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials;
  • 5. Where possible, the corporation makes restitution to injured parties; and
  • 6. The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.
The two most important of the elements for Type A Leniency are numbers one and six. The corporation confessing involvement in illegal antitrust activity must be the first to report the activity previously unknown to the Division. Being second, even by a few hours, is too late. Also, the reporting corporation cannot have been the ringleader of the conspiracy. The leniency policy does not allow the architect of the conspiracy to escape the criminal consequences of its act by turning in all of those other entities which voluntarily or involuntarily followed its lead.

BENEFITS AVAILABLE EVEN AFTER AN INVESTIGATION HAS BEGUN - TYPE B LENIENCY
Even if a corporation is unable to satisfy all six of the foregoing criteria, leniency may still be available. If a corporation comes forward before or after an investigation has begun, leniency is available If the following seven conditions are satisfied:
  • 1. The corporation is the first one to come forward and qualify for leniency with respect to the illegal activity being reported;
  • 2. The Division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction;
  • 3. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity;
  • 4. The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation that advances the Division in its investigation;
  • 5. The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials;
  • 6. Where possible, the corporation makes restitution to injured parties; and
  • 7. The Division determines that granting leniency would not be unfair to others, considering the nature of the illegal activity, the confessions corporation’s role in it, and when the corporation comes forward.
With Type B leniency an applicant does not have to provide the Antitrust Division’s first knowledge of the illegal activity, but it must be the first participant to come forward with respect to that illegal activity. For example, if a retailer has reported a possible wholesale price fixing scheme, the Division may begin an investigation. However, one of the wholesale participants could obtain Type B leniency if it is the first wholesaler to come forward. Second, the Division policy does not afford leniency if there already exists sufficient evidence to obtain a “sustainable conviction” against the applying corporation.

DERIVATIVE LENIENCY FOR DIRECTORS, OFFICERS AND EMPLOYEES OF QUALIFYING CORPORATION
If a corporation qualifies for Type A leniency, then all directors, officers and employees of the qualifying corporation may also obtain leniency on three conditions:
  • 1. At the time the corporation comes forward, the individuals must admit their involvement in the illegal antitrust activity;
  • 2. The admissions of involvement are complete and truthful; and
  • 3. The individuals provide assistance to the Division throughout the investigation.
For corporations obtaining Type B leniency, there is no automatic leniency for directors, officers and employees as there is in Type A leniency. However, those individuals are considered for leniency under the Leniency Policy for Individuals.3

LENIENCY POLICY FOR INDIVIDUALS
One year after approving the corporate leniency policy, the Division announced a Leniency Policy for Individuals. For individuals who are not a part of a corporate proffer or application, leniency is available under certain conditions. Those conditions are:
  • 1. At the time the individual comes forward to report the illegal activity, the Division has not received information about the illegal activity being reported from any other source;
  • 2. The individual reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation; and
  • 3. The individual did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.
As with the forms of corporate leniency, it is most important for any individual seeking leniency that he or she be the very first applicant.

UNDERSTANDING WHAT IS EXPECTED OF THE APPLICANT FOR LENIENCY
The foregoing policies are simplistic in their formulation but those simple terms are pregnant with meaning in the mind of the Division. It is important therefore to understand what is expected of an applicant in order to obtain leniency.
1. Getting There First
The Division only grants one Type A leniency application resulting in complete protection for the corporation and its officers and directors from criminal consequences. Therefore, it is imperative that counsel move rapidly to be the first in line when indications of a criminal antitrust violation are discovered. Any applicant corporation is in a race to be first to confess not only as against other corporate conspirators and their employees, but also against the corporation’s own employees who may seek individual leniency.

Even though counsel may not have sufficient information to be certain that the corporation has actually been involved in a violation sufficient to allow the necessary confessions of guilt required by the policy, nonetheless counsel should notify the Division of its desire to make such an application to maintain its place at the head of the line. If complete information is not immediately available to counsel, the Division will give the applicant a “marker,” which will hold its place at the front of the line, until counsel can obtain additional information necessary to a valid leniency application. 4
To obtain the marker, which generally will not extend for more than 30 days, counsel must disclose that indications of a possible violation have been discovered, the general nature of the conduct, the industry, product or service involved, and the identity of the client.5

2. Discovery of Illegal Activity
The Division has taken the position that the date of discovery of the illegal activity is when the corporation’s board of directors or counsel (inside or outside) are first informed of illegal conduct. Leniency is not precluded even though an executive officer or a member of the board is involved in the illegal activity.6

3. Leader or Originator of Illegal Activity
As noted earlier, a corporation is not entitled to leniency if it was the leader or originator of the illegal activity or if it coerced any other party to participate in the conduct. The Division interprets this requirement singularly, “the” leader. If there are five conspirators and two corporations are equally the leaders, then all conspirators are eligible for leniency.7

4. Cooperation
Under any form of leniency, the applicant must provide full, continuing and complete cooperation. Although the benefits of early confession are munificent, the successful applicant corporation undertakes a significant and expensive burden in agreeing to cooperate with the Division.
For example, a corporation would be expected to voluntarily produce documents and records to the Division at the corporation’s own expense. However, this obligation goes further and would, for example, require the corporation to provide translations of documents in a foreign language.
The applicant is also obligated to produce those documents, regardless of where they might be located and in what format. If the documents are not in readily usable electronic formats, the corporation will be expected to convert them into readily usable and accessible form.8

The applicant is also required to use its best efforts to provide the Division with the continuing, full and complete cooperation of its directors, officers and employees. This would include providing testimony as requested by the Division.

The stated policy of the Division is not to require a waiver of the attorney-client or work product privileges. Although the applicant is not asked or required to waive the privilege, the Division does note that “some corporations. . . have concluded that a voluntary disclosure of privileged communications and/or documents was in the best interest of the corporation.”9 An observation rife with implication.

WHAT IS NOT COVERED
1. Non-Cooperating Employee
Even if the corporation is granted Type A leniency, the automatic application of that leniency to its directors, officers and employees has one major condition - the individual must provide full, complete and continuing cooperation to the Division. Should an individual refuse to do so, that person will be “carved out” of the leniency grant.

2. Former Directors, Officers and Employees
The corporate leniency policy does not reference former directors, officers or employees of a successful corporate applicant for leniency. Consequently the Division is not required to grant leniency but may do so on a case by case basis.10

3. Other Crimes
The leniency granted an applicant provides some protection from prosecution for other federal criminal offenses. For example, if in the course of an illegal bid rigging scheme a participant committed a mail or wire fraud violation in order to facilitate the antitrust offense, the Division would not prosecute that other offense. If however, the offense committed was unconnected to the antitrust violation it would be subject to prosecution as a separate offense.

It is also important to note that the leniency program only binds the Division and not other enforcement agencies.11

4. Immunity from Civil Consequences
The Division’s leniency policy does not provide immunity from the civil consequences of a criminal violation of the antitrust laws. However, under the provisions of ACPERA, many of the more serious civil consequences to a successful leniency applicant can be ameliorated if the corporation also complies with the terms of that statute.12

IS CONFESSING GOOD FOR THE SOUL?
In view of the expense and the burden imposed on a corporation and its employees in obtaining leniency, one might ask whether it is really worthwhile to avail itself of the leniency program? The answer should always be a resounding “yes.”

Avoiding the adverse public relations consequences of an indictment, the exposure to millions of dollars in fines, a felony conviction and penitentiary time make the leniency application decision an easy one. Combined with avoiding the very significant consequence of a criminal conviction and punishment is the real possibility of avoiding the most impactful of the civil consequences of illegal antitrust conduct.

To unlock these unheard of benefits requires the simplest key – Be First in The Division’s Door.

William Frank Carroll is a trial and appellate lawyer with the firm of Dykema Gossett PLLC in Dallas. His practice focuses on complex commercial and white collar criminal litigation in the areas of antitrust, financial institutions, intellectual property and securities. He is currently an Adjunct Professor of Law at Southern Methodist University School of Law where he has taught Antitrust Law, Complex Federal Litigation (class actions) and Trial Advocacy. Frank is one of less than 100 lawyers in the State of Texas who is Board Certified in both Civil Trial and Civil Appellate Law. He currently chairs the Federal Bar Association Antitrust and Trade Regulation Section and is also the immediate past chair of the FBA Federal Litigation Section and the State Bar of Texas Antitrust and Business Litigation Section.

Endnotes
1www.justice.gov/atr/corporate-leniency-policy
2Pub.L.No. 108-237 § 213(a)-(b), 118 Stat. 661, 666-668. (June 22, 2004), as amended by Pub. L. No. 111-190, 124 Stat. 1275 (June 9, 2010), codified as amended at 15 U.S.C. § 1 note. ACPERA is the subject of an excellent article by Kristin G. Martilla, “ACPERA – Emerging Guidance and New Questions,” FBA The Antitrust Lawyer, www.fed.bar.org/Sections/Antitrust-Trade-Regulation-S.
3www.justice.gov/atr/individual-leniency-policy.
4S. Hammond and B. Barrett, “Frequently Asked Questions Regarding The Antitrust Division’s Leniency Program and Model Leniency Letters,” at p. 2 (November 19, 2008). www.justice.gov/atr/frequently-asked-questions-regard.
5Id. at p. 3.
6Id. at p. 12.
7Id. at p. 16.
8Id.
9Id. at 17.
10Id. at 18.
11Id. at 7-8.
12B. Sweeney, “Earning ACPERA’s Civil Benefit: What Constitutes ‘Timely’ and ‘Satisfactory’ Cooperation?,” 29 Antitrust No. 3 at 37 (Summer 2015).

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