The Antitrust Division of the U.S. Department of Justice has signaled a major new shift in its enforcement approach concerning companies that violate antitrust laws and don’t have effective corporate compliance programs in place.
In recent speeches, two senior officials with the Justice Department have stated that the agency will consider seeking court-supervised probation in cases where a company violates antitrust laws and does not have proper compliance policies and procedures in place. These officials further stated that a company will be deemed to have an ineffective compliance program if it continues to employ culpable senior executives who do not accept responsibility for their crimes.
“If a company has no pre-existing compliance program, or makes no efforts to strengthen a compliance program that has proved ineffective, then that company is a likely candidate for probation,” said Brent Snyder, the Division’s deputy assistant attorney general for criminal enforcement, in a speech at the International Chamber of Commerce and United States Council of International Business’ Joint Antitrust Compliance Workshop in September.
“This is where a company’s decision to retain culpable individuals who do not accept responsibility in key management positions will be considered in deciding whether the company demonstrates a commitment to effective compliance,” Snyder added. “Conversely, companies that can demonstrate they have adopted or strengthened existing compliance programs may be able to avoid probation.”
William Baer, assistant attorney general for the Antitrust Division, reiterated this message in a separate speech at Georgetown University Law Center’s Global Antitrust Enforcement Symposium. “If any company continues to employ such individuals in positions of substantial authority; or in positions where they can continue to engage directly or indirectly in collusive conduct; or in positions where they supervise the company’s compliance and remediation programs; or in positions where they supervise individuals who would be witnesses against them, we will have serious doubts about that company’s commitment to implementing a new compliance program or invigorating an existing one,” he said.
“In such cases, the Division will consider seeking court-supervised probation as a means of assuring that the company devises and implements an effective compliance program,” Baer added.
“If a company has no pre-existing compliance program, or makes no efforts to strengthen a compliance program that has proved ineffective, then that company is a likely candidate for probation.”
Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement, Justice Department
The remarks by Baer and Snyder indicate a potentially major shift in the Antitrust Division’s enforcement approach, antitrust experts say. “Based on the factors identified in the speeches, the Antitrust Division will not be reluctant to request corporate probation where it concludes there is a need to strengthen compliance,” Mark Krotoski, a partner in antitrust practice of law firm Morgan Lewis, says.
Steve Kowal, a partner with law firm K&L Gates, stresses that court-assigned probation has traditionally been used only in cases where massive fines have been imposed, and generally hasn’t been used in antitrust cases. “That’s not something that, up until now, companies had to be concerned about in the antitrust context,” he says.
“Under recent practice, it has been rare for the Antitrust Division to request corporate probation,” Krotoski agrees. “Only in egregious circumstances, or based on unique facts, has a request for probation been made.”
Under the U.S. Sentencing Guidelines, a court may impose probation on a company for a period of one-to-five years, during which time it will be placed “under the continuing scrutiny of the court for the entire probationary period,” Krotoski says. This includes visits and inspections by a court-assigned probation officer.
It also means that the company must comply with certain conditions during the probationary period. “General probation conditions may include obeying all laws, permitting regular meetings and visits with the probation officer, answering inquires of the probation officer, and providing information as requested,” Krotoski says.
Companies may also have to comply with more specific conditions, such as “an explicit order that the company either institute or enhance its compliance program under a direct reporting obligation to the court and the Department of Justice,” Kowal says. Additionally, the court may require the company to make a report to the government and the court on the progress of their compliance efforts, he says.
In more serious cases, the Antitrust Division may also assign a compliance monitor at the company’s expense as a condition of probation. “The monitor, in essence, would have the right to dictate how that compliance program would be implemented or operated,” Kowal says. It also may be required to provide regular reports to the court and the Justice Department concerning its review and investigation of the company.”
In his speech, Baer cited Taiwan-based liquid crystal display (LCD) producer AU Optronics as an example of a company that didn’t demonstrate that it would take antitrust compliance seriously after a violation and would require probation. In 2012, AUO and its subsidiary reached a $500 million settlement—the largest fine ever imposed against a company for violating antitrust laws—with the Justice Department for its participation in a five-year conspiracy to fix the prices of thin-film transistor LCD panels sold worldwide.
Below Brent Snyder, deputy assistant attorney general for the Antitrust Division of the Justice Department, outlined what companies and management need to do to ensure effective compliance within their organizations.
… it starts at the top. A company's senior executives and board of directors must fully support and engage with the company's compliance efforts. If senior management does not actively support and cultivate a culture of compliance, a company will have a paper compliance program, not an effective one. Employees will pick up on the lead of their bosses. If the bosses take compliance seriously, the employees are far more likely to take it seriously. If they don’t, the employees won’t. It’s as simple as that …
…For senior management, supporting compliance efforts means being fully knowledgeable about those efforts, providing the necessary resources, and assigning the right people to oversee them. This includes making sure the compliance program is implemented successfully. This means not just receiving regular reports but actively monitoring the program. Executives and board members cannot simply go through the motions and hope that the company's compliance program works. They must make clear to employees that compliance is important and mandatory.
Second, a company should ensure that the entire organization is committed to its compliance efforts and can participate in them. This means educating all executives and managers, and most employees–especially those with sales and pricing responsibilities. When appropriate, it may also mean providing training for subsidiaries, distributors, agents, and contractors. And it means providing all members of the organization the opportunity to report anonymously and seek guidance about potential or actual criminal conduct without fear of retaliation.
Third, a company should ensure that it has a proactive compliance program. This means that in addition to providing training and a forum for feedback, a company should make sure that at risk activities are regularly monitored and audited. And the company should regularly evaluate the compliance program itself to understand what it can improve. The fact that each of you is here today says to me that your respective companies understand this.
Fourth, a company should think carefully about its approach to individuals who personally violated the antitrust laws or otherwise engaged in conduct inconsistent with an effective compliance program. A company must encourage individuals to adhere to the compliance program. And a company should be willing to discipline employees who either commit antitrust crimes or fail to take the reasonable steps necessary to stop the criminal conduct in the first place. It has been departmental policy not to insert itself into the personnel matters of companies by requiring the termination of culpable employees, and that has not changed. A company’s retention, however, of culpable employees in positions where they can repeat their conduct, impede a company’s internal investigation and cooperation, or influence employees who may be called upon to testify against them, raises serious questions and concerns about the company’s commitment to effective antitrust compliance.
Finally, a company that discovers criminal antitrust conduct should be prepared to take the steps necessary to stop it from happening again. This likely includes making changes to a compliance program that failed to prevent the criminal conduct initially. A company should also recognize that, in such circumstances, it will be required to accept responsibility for that conduct, which is the final topic I would like to touch on this afternoon.
Source: Justice Department.
In determining the settlement amount, the Antitrust Division condemned AUO for refusing to acknowledge that its participation in the scheme was illegal, even though its co-conspirators accepted responsibility. “Far from demonstrating a commitment to future antitrust compliance, AUO continued to employ convicted price fixers and indicted fugitives,” Baer stated. “In those circumstances, the Division argued that not only was probation necessary, but also a compliance monitor was appropriate.”
The court sentenced both AUO and its U.S. subsidiary to three years of probation, requiring the companies to develop and implement an effective compliance and ethics program. They were also required to appoint a compliance monitor to supervise the implementation of the program and report back to the court and the Justice Department.
“If a company violates any probation terms, it can be hauled back to court,” Krotoski says. When a court concludes that company violated any condition of the probation, it may then decide “to extend the probation term, impose further conditions, or revoke probation and resentence the company,” he says.
What Regulators Want
During their speeches, Baer and Snyder also discussed the hallmarks of an effective compliance program from the viewpoint of the Antitrust Division. “A truly well-run compliance program should prevent a company from conspiring to fix prices, rig bids, or allocate markets,” Snyder said. “Effective compliance programs should prevent that crime from beginning or, at a minimum, detect it and stop it shortly after it starts.”
Kowal says the broader lesson from Snyder’s message is that “companies should focus significant attention and resources on their internal compliance programs before these investigations are commenced.”
“Even a partially effective compliance program can help a company meet many of the requirements of the Division’s leniency program,” Snyder added. “To earn leniency, among other things a company must be the first to report the illegal conspiracy, must promptly stop its participation in that conspiracy, and must fully disclose its crimes.”
“These speeches send a clear signal to companies about what the Antitrust Division now expects with regard to compliance programs,” Krotoski says. “Companies can only help themselves by establishing a strong compliance program early. When an investigation starts, the worst place for a company to be is without a compliance program or one that is merely nominal and ineffective.”
“The bottom line is pretty simple: If a company commits an antitrust crime, it faces serious consequences here in the United States,” Baer concluded. “A company can mitigate those consequences by coming forward promptly, cooperating completely, and taking the steps necessary to ensure that the conduct does not reoccur.”