Corporate Leniency and its Efficacy
From Advocatespedia, The Law Encyclopedia
Corporate Leniency means leniency to corporations reporting their illegal antitrust activity at an early stage, if they meet certain conditions. “Leniency” means not charging such a firm criminally for the activity being reported. Corporate leniency programs allow a cartel participant to receive partial or full fine reductions if the cartel participant cooperates with the antitrust authority. Cartel participants that provide information about the cartel before the antitrust authority has started an investigation will be allowed to receive leniency. Cartel participants that provide additional information which reduces the duration of the investigation will also be able to receive leniency. The introduction of corporate leniency programs has increased the number of successful prosecutions of cartels.
In August 1993, the Antitrust Division expanded its Corporate Leniency Policy (Amnesty Program) to increase the opportunities and raise the incentives for companies to report criminal activity and cooperate with the Division. The Amnesty Program was revised in three major respects. First, the policy was changed to ensure that amnesty is automatic if there is no pre-existing investigation. That is, if a corporation comes forward prior to an investigation and meets the program's requirements, the grant of amnesty is certain and is not subject to the exercise of prosecutorial discretion. Second, the Division created an alternative amnesty, whereby amnesty is available even if cooperation begins after an investigation is underway. Third, if a corporation qualifies for automatic amnesty, then all directors, officers, and employees who come forward with the corporation and agree to cooperate also receive automatic amnesty. In addition, executives of a corporation seeking amnesty after an investigation has begun will be given serious consideration for lenient treatment -- in the form of individual amnesty or individual immunity -- in exchange for their full cooperation. The Division's revised Amnesty Program was, and is, unique. No other governmental voluntary disclosure program creates as great an opportunity or incentive for corporations to come forward and cooperate. However, because the features of the revised program -- automatic amnesty, post-investigation amnesty and complete protection for cooperating individuals -- were such dramatic departures conceptually from traditional applications of corporate amnesty principles, many in the private bar initially took a wait-and-see approach to evaluate how the Division would apply the new program. Over time, the antitrust bar's reservations have been replaced with a continually growing recognition of the program's merits and a respect for the Division's good faith in granting amnesty applications. The antitrust bar's changed attitude is reflected in both words and actions. Now, at continuing education programs for the antitrust bar, it is frequently members of the private bar, rather than government representatives, who raise the advantages of the Division's Amnesty Program. And the private bar's acceptance of the Program is demonstrated by its actions: under the old policy, on average only one corporation per year applied for amnesty, whereas under the revised policy, we have been receiving applications for corporate amnesty at a rate closer to one per month -- some of which have led to the largest and most significant matters on the Division's docket. In fact, recent amnesty applications have been key in uncovering and pursuing major domestic and international conspiracies, including some with the broadest impact we have ever seen. In the last six months alone, the Amnesty Program has resulted in nearly a dozen convictions and over $100 million in fines.
Since the mid-1990's, the Antitrust Division of the U.S. Department of Justice ("Division") has employed a strategy of concentrating its enforcement resources on international cartels that victimize American businesses and consumers. This enforcement emphasis has led to remarkable success in terms of cracking international cartels, securing the convictions of major conspirators, and obtaining record-breaking fines. However, international convictions and high fines do not begin to tell the whole story. The last two years have seen a string of consecutive record-breaking jail sentences, including one defendant sentenced to ten years imprisonment for his role in orchestrating a bid-rigging, bribery, and money laundering scheme. New highs were also reached this past year in terms of the total number of jail days imposed in Division cases -- more than 10,000 -- and the average jail sentence -- more than 18 months. As outlined in the summary below, there is no question that the stakes have continued to rise for companies and their executives who engage in antitrust offenses.
• Leniency Before an Investigation Has Begun
Leniency will be granted to a corporation reporting illegal activity before an investigation has begun, if the following six conditions are met:
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.
• Alternative Requirements for Leniency
If a corporation comes forward to report illegal antitrust activity and does not meet all six of the conditions set out in Part A, above, the corporation, whether it comes forward before or after an investigation has begun, will be granted leniency if the following seven conditions are met:
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 confessing corporation's role in it, and when the corporation comes forward.
In applying condition 7, the primary considerations will be how early the corporation comes forward and whether the corporation coerced another party to participate in the illegal activity or clearly was the leader in, or originator of, the activity. The burden of satisfying condition 7 will be low if the corporation comes forward before the Division has begun an investigation into the illegal activity. That burden will increase the closer the Division comes to having evidence that is likely to result in a sustainable conviction.
• Leniency for Corporate Directors, Officers, and Employees
If a corporation qualifies for leniency under Part A, above, all directors, officers, and employees of the corporation who admit their involvement in the illegal antitrust activity as part of the corporate confession will receive leniency, in the form of not being charged criminally for the illegal activity, if they admit their wrongdoing with candor and completeness and continue to assist the Division throughout the investigation. If a corporation does not qualify for leniency under Part A, above, the directors, officers, and employees who come forward with the corporation will be considered for immunity from criminal prosecution on the same basis as if they had approached the Division individually.
• Leniency Procedure
If the staff that receives the request for leniency believes the corporation qualifies for and should be accorded leniency, it should forward a favorable recommendation to the Office of Operations, setting forth the reasons why leniency should be granted. Staff should not delay making such a recommendation until a fact memo recommending prosecution of others is prepared. The Director of Operations will review the request and forward it to the Assistant Attorney General for final decision. If the staff recommends against leniency, corporate counsel may wish to seek an appointment with the Director of Operations to make their views known. Counsel are not entitled to such a meeting as a matter of right, but the opportunity will generally be afforded. Under World Common Law:
INTERNATIONAL CARTEL ENFORCEMENT
• Investigations. Currently, there are approximately 50 sitting grand juries investigating suspected international cartel activity. International cartel investigations account for close to half of the Division's criminal investigations. The subjects and targets of the Division's international investigations are located on 6 continents and in nearly 25 different countries. However, the geographic scope of the criminal activity is even broader than these numbers reflect. Our investigations have uncovered meetings of international cartels in well over 100 cities in more than 35 countries, including most of the Far East and nearly every country in Western Europe.
• Cartels Prosecuted. Since the beginning of FY 1997, the Division has prosecuted international cartels affecting well over $10 billion in U.S. commerce. The Division has prosecuted international cartels operating in a number of sectors including vitamins, textiles, construction, food and feed additives, food preservatives, chemicals, graphite electrodes (used in steel making), fine arts, and marine construction and marine transportation services. The cartel activity uncovered in these cases has cost U.S. businesses and consumers many hundreds of millions of dollars annually. For example:
o Lysine - Prices increased by 70% in the first 6 months; doubled over course of conspiracy; defendants agreed to pay U.S. customers more than $45 million in damages;
o Citric Acid - Prices increased by over 30% during duration of conspiracy;
o Graphite Electrodes - Prices increased by over 60% during duration of conspiracy;
o Vitamins - Defendants agreed to pay U.S. customers more than $1 billion in damages.
• Fines Imposed. Of the over $2 billion dollars in criminal fines imposed in Division cases since FY 1997, well over 90 percent were obtained in connection with the prosecution of international cartel activity. The Division has obtained fines of $10 million or more against U.S., Dutch, German, Japanese, Belgian, Swiss, British, Luxembourgian, Norwegian, and Liechtenstein-based companies. In 33 of the 39 instances in which the Division has secured a fine of $10 million or greater, the corporate defendants were foreign-based. These numbers reflect the fact that the typical international cartel likely consists of a U.S. company and three or four of its competitors that are market leaders in Europe, Asia, and throughout the world. (See Attached Chart of Sherman Act Violations Yielding a Fine of $10 Million or More.)
• Percentage Of Foreign Corporate Defendants. Since the beginning of FY 1998, roughly 50 percent of corporate defendants in criminal cases brought by the Division were foreign-based. In FY 2001, the percentage of foreign-based firms charged by the Division rose to nearly 70 percent, and then returned to around 50 percent over the last year.
PROSECUTION OF INDIVIDUALS
The Division has long supported the belief that the best and surest way to deter and punish cartel activity is to hold the most culpable individuals accountable by seeking jail sentences. For reasons that can not be explored in this summary, that view has really begun to take hold.(1) Antitrust offenders are being sent to jail with increasing frequency and for longer periods of time.
• Jail Sentences Have Increased. Last year, defendants in cases prosecuted by the Division were sentenced to a record number of jail days, more than 10,000 in all, with the average jail sentence reaching a new high of more than 18 months. In the last four years, over 75 years of imprisonment have been imposed on antitrust offenders, with more than 30 defendants receiving jail sentences of one year or longer. To put that last figure in perspective, more individuals have been sentenced in Division cases to one year or longer in the last four years, than in the previous decade combined. The majority of those sentences were imposed against U.S. business executives. However, as noted below, recent cases have resulted in the imprisonment of foreign executives as well.
• Record Jail Sentences In FY 2002. Fiscal year 2002 sentences include a three-year jail term imposed on Elmore Roy Anderson for rigging USAID bids and defrauding USAID in connection with construction work in Egypt that the U.S. government funded as a part of the Camp David Peace Accords; a 63-month jail term imposed on Melvyn Merberg for his role in rigging bids submitted to, and defrauding, Newark public schools and other government, not-for-profit, and private entities in the New York City metropolitan area; and a record-breaking ten-year sentence imposed on Austin "Sonny" Shelton, a former Guam government official, for orchestrating a bid-rigging, bribery, and money laundering scheme involving FEMA-funded contracts in Guam.
• Conviction Of Foreign Executives. The Division has prosecuted foreign executives from The United Kingdom, Germany, Belgium, The Netherlands, France, Switzerland, Italy, Sweden, Canada, South Africa, Mexico, Japan, and Korea for engaging in cartel activity, resulting in heavy fines and, in some cases, imprisonment. Since FY 2001, roughly one-third of the individual defendants in our cases have been foreign nationals. Foreign defendants from Canada, Germany, Switzerland, Sweden, and France have served prison sentences in U.S. jails for violating U.S. antitrust laws.
• Tracking Down International Fugitives. In 2001, the Division adopted a policy of placing indicted fugitives on a "Red Notice" list maintained by INTERPOL. A red notice watch is essentially an international "wanted" notice that, in many INTERPOL member nations, serves as a request that the subject be arrested, with a view toward extradition. Multiple fugitive defendants have already been apprehended through a Division INTERPOL red notice. The Division will seek to extradite any fugitive defendant apprehended through the INTERPOL red notice watch. The Division's use of red notices clearly raises the stakes for foreign executives who hope to avoid prosecution by simply remaining outside of the United States. With the stiffening resolve that foreign governments are taking toward punishing cartel activity and their increased willingness to assist the United States in prosecuting cartel activity, the safe harbors for antitrust offenders are rapidly shrinking.
INCREASED COOPERATION WITH FOREIGN ANTITRUST AUTHORITIES
Our ability to detect and prosecute international cartel activity has been enhanced by the increased cooperation and assistance that we have received from foreign governments, and from their own enforcement efforts. Cooperation among competition law enforcement authorities has undergone a sea change in the past five years. Over the past several years there has been a growing worldwide consensus that international cartel activity is pervasive and is victimizing businesses and consumers everywhere. This shared commitment to fighting international cartels has led to the establishment of cooperative relationships among competition law enforcement authorities around the world in order to more effectively investigate and prosecute international cartels.
• International Anti-Cartel Enforcement Workshops. In the Fall of 1999, the Division hosted the first ever international meeting of cartel investigators and prosecutors. Representatives from the competition law enforcement agencies of over 25 countries and the EU gathered in Washington for a two-day program devoted to the practical aspects of investigating and prosecuting international cartels. The event was such a success that the U.K.'s Office of Fair Trading hosted a similar conference in November 2000 in Brighton, England attended by representatives of 26 jurisdictions, the Canadian Bureau of Competition hosted the third workshop in November 2001, and the fourth International Cartels Workshop was hosted by the three Brazilian competition law enforcement agencies in Rio de Janeiro last September. A fifth workshop is being planned for Brussels for the Autumn of 2003. Perhaps even more important than the exchange of ideas and "best practices" at these meetings, the workshops have provided enforcers with the opportunity to develop close working relationships which then serve as the basis for future formal and informal cooperation. This informal cooperation among competition law enforcers is best evidenced by a number of recent investigations in which dawn raids, searches, service of grand jury subpoenas, and drop-in interviews were coordinated to occur simultaneously in multiple jurisdictions.
• Assistance In Obtaining Foreign-Located Evidence. The improved cooperation with foreign law enforcement authorities already has provided us with increased access to foreign-located evidence and witnesses that has proven to be instrumental in the cracking of a number of international cartels. While I am constrained as to what I can reveal about the nature of this assistance, I will offer one example that I am at liberty to discuss and one compelling statistic to demonstrate the breadth of this cooperation. The example -- our investigation of bid-rigging on wastewater treatment plant construction contracts in Egypt, which were funded by USAID, was assisted by the execution of search warrants by foreign authorities on the Division's behalf to seize evidence abroad. In that investigation, over 100 German police officers assisted in the simultaneous execution of search warrants on multiple companies at several locations across Germany. The searches induced cooperation from subjects of the investigation, which previously had been lacking, and that was critical to the success of the cases we later brought. The statistic -- In the past few years, foreign authorities from five different countries have executed search warrants at our request in more than a half-dozen of our international cartel investigations. This is a remarkable advancement in international cooperation.
• Adoption Of Legislation And Agreements To Foster Cooperation . Another example of governments' increased willingness to assist each other in the enforcement of anti-cartel laws can be seen in the May 2001 agreement between the U.K. and U.S. governments to remove a "side letter" to the U.K.-U.S. Mutual Legal Assistance Treaty ("MLAT") which had excluded antitrust matters from the scope of the cooperation provisions of the MLAT. The types of assistance in antitrust matters that the U.K. can now provide to the Division include the use of the U.K. courts to take testimony from witnesses, obtain documents, and assist in the collection of criminal fines. In addition, the U.K. government recently adopted legislation that creates a new criminal offense for individuals who engage in hardcore cartel activity and provides for maximum jail sentences of up to five years for antitrust offenders. The criminalization of cartel offenses in the U.K. may also make it possible in the near future to extradite individuals involved in cartels from the U.K. to face antitrust charges in the United States. In addition, in the past few years, the Division has entered antitrust cooperation agreements with four foreign governments -- Japan, Brazil, Israel, and Mexico. These new agreements complement agreements previously reached with Australia, Germany, Canada, and the European Union and will foster cooperation between the U.S. and those governments with respect to the investigation and prosecution of international cartels and other aspects of antitrust enforcement. Finally, in November 1999, the Division's International Antitrust Enforcement Assistance Agreement with Australia became effective. This agreement is a comprehensive antitrust mutual legal assistance agreement which allows the two countries to exchange evidence and assist each other's civil and criminal antitrust investigative efforts.
• Increased Foreign Enforcement. Of course, antitrust authorities in Canada, Europe, Asia, and around the world are not merely assisting our investigations. They also have become increasingly aggressive in investigating and sanctioning cartels that victimize their consumers. Seemingly with each passing day, the antitrust community learns of a foreign government that has enacted a new antitrust law, created a new cartel investigative unit, obtained a record antitrust fine, or developed a new Corporate Leniency program. In addition, foreign competition law enforcement agencies are imposing increasingly stiff penalties for hard-core cartel conduct. Some recent fines imposed by the EC make the point. In late 2001, the EC imposed huge fines in two major cases -- one global in nature and the other an EC cartel. The EC fined eight companies a total of more than 850 million euro for participating in cartels affecting vitamin products, including fines of 462 million euro against F. Hoffmann-La Roche AG ("HLR") and 296 million euro against BASF AG. Shortly after the vitamin fines were announced, the EC announced the imposition of fines in the European carbonless paper price-fixing cartel. While the amnesty applicant Sappi Limited (South Africa), which was identified by the EC as one of the three largest companies in the cartel, paid nothing in fines, the EU imposed fines against ten other companies totaling over 310 million euro, including a 184 million euro fine against Arjo Wiggins Appleton, the alleged leader of the cartel. Even more recently the EC imposed fines against: (1) the seven members of the specialty graphites cartel totaling almost 61 million euro; (2) the three members of the nucleotides cartel totaling over 20 million euro; and (3) the eight members of the Italian concrete reinforcing bar cartel totaling 85 million euro. Other recent developments in foreign enforcement include: (1) record breaking fines imposed against members of the vitamin cartel in Australia; (2) the first-time imposition of jail sentences for antitrust offenders in Israel; and (3) the allocation of additional resources to the investigation and prosecution of hard core cartels by the establishment of a second cartel unit at the EC. This heightened, worldwide commitment to investigating and severely sanctioning international cartels surely is shrinking the safe harbors for cartel activity.
Related case summaries
Domestic and foreign firms, through their counsel, have come to realize that acceptance into the Amnesty Program can potentially save a company tens of millions of dollars in fines and can eliminate the threat of prosecution and incarceration for the firms' culpable executives. The recent amnesty applications in the marine construction and graphite electrodes investigations are prime examples of the financial benefits of the Amnesty Program. In the marine construction investigation, the amnesty applicant reported its role in a conspiracy to allocate customers and agree on pricing for marine construction contracts (such as contracts to build the decks of offshore oil and gas drilling and production platforms) in the major offshore oil and gas production regions of the world -- the North Sea, the Gulf of Mexico, and waters in the Far East. In return for its corporate confession and continuing cooperation, the company received amnesty and paid zero dollars in fines. Shortly after the investigation went overt, a corporate co-conspirator agreed to plead guilty and cooperate with the government's investigation. Though the company provided very valuable cooperation and received a significant reduction in its fine for that cooperation, it still paid a fine of $49 million. In the graphite electrodes investigation, the cooperation of an amnesty applicant led to the execution of search warrants, the cracking of another international cartel and, shortly thereafter, a plea agreement with another corporate conspirator. In this case, the amnesty company paid zero dollars in fines, and the company next in the door after the amnesty applicant paid a $29 million fine. While nearly $30 million is a substantial saving to the amnesty company, even that measure may understate the financial benefits of amnesty in this case -- for two reasons: (1) the defendant's exposure was limited by the fact that it had less than a 20 percent market share in the United States; and (2) even with that market share, the defendant's Guidelines fine may have been above$75 million but for the timing and extraordinary value of its cooperation. Therefore, as this investigation continues, the financial advantages of the Amnesty Program may become more apparent and more dramatic.