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Leniency Programs and Increased Criminal Penalties make Antitrust Compliance Programs Essential

    Client Alerts
  • August 25, 2010

In May 2005, we sent out an alert that specified the many reasons for corporate antitrust compliance programs, including:

  • Multi-national coordination of cartel investigations
  • Increased use of the U.S. leniency or amnesty program
  • Adoption of similar programs by many other countries
  • Substantially higher statutory levels for fines and jail sentences, and
  • Dramatically higher levels of fines and jail sentences imposed in the U.S.

In the past five years, all of these factors have expanded, making compliance programs even more essential. Now, more than 50 countries have leniency programs enabling a corporation that is the first to give notice of a price fixing cartel to obtain immunity for itself and all of its employees who cooperate with the investigation.

According to Scott Hammond, Deputy Assistant Attorney General at the Antitrust Division, the proliferation of leniency programs "has completely transformed the way competition authorities around the world detect, investigate, and deter cartels." The Division now has 50 international cartel investigations open with more than one-half initiated or advanced by a leniency applicant. Since there can be only one grant of leniency per conspiracy, these programs, according to Hammond, "create a race to be the first to the prosecutor's office."

Criminal sentences and procedures have also escalated. The largest corporate fine remains the $500 million fine paid by Hoffmann-La Roche in the vitamin cartel case in 1999 but the second largest fine, $400 million, was recently paid by LG Display in the liquid crystal display prosecution. The Division collected over $1 billion in fines in FY 2009 and to date, it has obtained 18 fines above $100 million. The European Commission has imposed more than € 1 billion in fines per year since 2006 with the highest being € 3 billion in 2007.

The Division now insists on jail sentences for individuals, both domestic and foreign. Since May 1999, more than 40 foreign nationals have served or are serving jail sentences in the U.S. The average jail sentence in 2007 was 31 months. In connection with the marine hose investigation, for the first time the Justice Department arrested antitrust defendants, eight foreign nationals in Houston and San Francisco. The Antitrust Division now uses a variety of investigation tools, including border watches, INTERPOL Red Notices (which have resulted in the apprehension of many individuals) and extradition. Many other countries have now made cartel violations criminal and jail sentences have been imposed in the UK and Brazil.

Most of this activity results from the leniency programs, "the Division's most effective generator of international cartel prosecutions." But the "race to the prosecutor's office" has become so intense that, according to the Antitrust Division, the winner has beaten the second applicant "by only a number of hours." As a result, the Division has set up a "marker system," enabling an applicant to hold its place in line while it gathers more information to support its application.

In order to obtain leniency, a company must admit its participation in a criminal antitrust violation, act promptly to report fully the activity, terminate its involvement, provide full cooperation to the Antitrust Division and make restitution to injured parties. Substantial benefits are available so long as the company is willing to cooperate even if it does not win the race to the prosecutor's office. And the "Amnesty Plus" program allows for a discounted fine for a company's participation in Conspiracy A even if the company cannot obtain leniency for Conspiracy A but obtains leniency for Conspiracy B and cooperates with the investigation of both matters.

As a result of the 2010 reauthorization of the Antitrust Criminal Penalty Enhancement and Reform Act, companies qualifying for leniency are no longer exposed to treble damages in subsequent civil litigation but face only single damages attributable to their sales so long as they provide "satisfactory cooperation" to the plaintiffs in the civil action.   

Even if a company does not qualify for leniency, maintenance of an "effective compliance program" will enable it to obtain a substantial reduction in any fine.

Set to become effective November 1, 2010, revisions of the Guidelines provide that the reduction will stay in place even if high-level persons participated in the activity so long as four conditions are met: (1) the person having "operational responsibility" for the compliance program reported directly to the Board or one of its committees; (2) the program detected the offense before discovery by the government was "reasonably likely;" (3) the offense was promptly reported to the government; and (4) the person with "operational responsibility" for the program did not participate in (nor condoned or was willfully ignorant of) the offense.

As a result of this amendment, companies may find it necessary to change their compliance programs so that the compliance officer is not the General Counsel and so that he/she reports directly to the Board or one of its committees (presumably the Audit Committee). Of course, reports could go to the General Counsel as well.

About Parker Poe's Antitrust & Business Torts Practice
Parker Poe provides a wide range of services relating to antitrust, trade regulation and business tort matters. The Antitrust & Business Torts Practice Group resolves disputes at the state, national and international levels through negotiation, alternative dispute resolution, litigation and the appeals process. Attorneys in our practice group have worked at federal and state antitrust enforcement agencies, held United States Supreme Court judicial clerkships and include former federal prosecutors.