Record fines, new enforcement priorities, and global collaboration among competition authorities are creating a host of new legal and compliance risks for companies trying to navigate the global antitrust enforcement landscape.
New political headwinds are only further complicating the process for multinational companies. “In no other time in recent memory have we faced such an uncertain environment in terms of antitrust enforcement,” says Robert Cooper, a partner at law firm Boies Schiller Flexner.
In the United States, it’s not clear what the new administration’s antitrust priorities will be. And across the pond, even though antitrust enforcement in Europe remains active, Brexit creates uncertainty as to what direction the U.K.’s competition authorities will take. “So what you may see is more of a divergence between different jurisdictions both as a theoretical matter as to how they enforce the laws, as well as how on transnational deals they look at the same set of issues,” Cooper says.
For companies, the big question is what implications this uncertain environment will have on international cooperation across jurisdictions, given that many cartel cases are global in nature. If international cooperation efforts were to be scaled back, companies could have a more difficult time coming up with a seamless decision-making strategy for responding to an investigation, says John Terzaken, former director of criminal enforcement of the Antitrust Division and now co-head of the global competition practice at law firm Allen & Overy.
Moreover, as a byproduct of evolving views on jurisdiction, companies may also start to see “choppy enforcement” if each country starts to take divergent approaches to enforcement, Terzaken adds.
Enforcement trends. Cartel enforcement itself, however, is not expected to abate. “Cartel enforcement has been quite strong, and the consequences of cartel violations have spiraled up steadily,” says Christopher Hockett, a partner at law firm Davis Polk. “I would expect that to continue, that cartel enforcement will be one of the highest—if not the highest—priorities of the U.S. Department of Justice and of enforcement agencies around the world.”
In several countries, in fact, antitrust enforcement authorities have imposed fines totaling hundreds of millions of dollars. These countries include Brazil, India, South Africa, and South Korea.
At the same time, other countries—such as Chile and South Africa—have enacted new legislation criminalizing cartel conduct for the first time. Although the United States and Europe continue to be major powerhouses on the antitrust front, they are now increasingly being joined by other competition authorities coming into their own.
On a global level, the European Commission imposed the highest amount of fines in 2016, in part, due to a number of long-running cases that came to an end; by the end of the year, it had racked up record penalties of over U.S.D$4 billion, according to law firm Allen & Overy’s 2016 Global Cartel Enforcement report.
Of this amount, the largest fine resulted from cartel activity in the auto parts sector. In July 2016, the European Commission fined five truck makers—MAN, Daimler, DAF, Iveco, and Volvo/Renault—a combined €2.93bn (U.S.$3.2bn) for colluding for 14 years in setting truck prices and passing the cost of environmental compliance onto consumers.
While substantial fines from the European Commission are expected to continue into 2017, particularly for the financial services industry, criminal fines and penalties appear to have dropped precipitously in the United States. This is not surprising, given that the Justice Department’s investigation into price-fixing, bid-rigging, and other anti-competitive conduct in the automotive parts industry is drawing to an end. Accounting for nearly two-thirds of the Antitrust Division’s fines in fiscal year 2016, the auto parts industry sweep, to date, has resulted in the prosecutions of 47 companies and 65 executives and more than U.S.$2.9 billion in criminal fines.
“In no other time in recent memory have we faced such an uncertain environment in terms of antitrust enforcement.”
Robert Cooper, Partner, Boies Schiller Flexner
The automotive industry is not out of the weeds yet. Related ongoing investigations are expanding into various countries around the world, including in Brazil, Canada, Germany, India, Mexico, South Korea, South Africa, and Spain, according to Morgan Lewis’s 2016 Global Cartel Enforcement report.
Individual prosecutions. In the United States, prosecution of individuals involved in cartel activity continues to be a top priority. “The Antitrust Division has been one of the most aggressive Divisions in going after individuals,” says Thomas Mueller, chair of the antitrust and competition practice group at law firm WilmerHale.
Issuance of the Yates Memo has further emboldened the Antitrust Division to take a more aggressive approach in identifying culpable individuals. “I think they will go after more individuals than they have historically,” Mueller says.
Several investigations in 2016 produced their first criminal guilty pleas. Most recently, the Justice Department in December 2016 brought its first criminal charges against two high-ranking executives resulting from an ongoing federal antitrust investigation into the packaged seafood industry.
Further enforcement activity is expected as the investigation advances: “We will continue our work to root out the collusion among packaged seafood companies that targeted American consumers,” Acting Assistant Attorney General Renata Hesse of the Justice Department’s Antitrust Division said in a statement.
The Justice Department that same month also brought its first criminal charges against two former senior generic drug executives, who were charged for their roles in conspiracies to fix prices, rig bids, and allocate customers for certain generic drugs.
Moving forward, the pharmaceutical industry will continue to be an area of focus for competition authorities in both the United States and abroad. “The United Kingdom has commenced an investigation into possible anti-competitive agreements, and Germany and Belgium recently launched investigations into pharmaceutical wholesalers for possible collusion,” according to Morgan Lewis’s report. “This remains a key industry to watch in the New Year.”
Antitrust compliance guidance. The good news for compliance and legal professionals is that officials with the Antitrust Division in recent years and in a variety of speeches have expressed their willingness to consider compliance efforts in calculating a company’s fine. Compliance efforts will be taken into consideration where a company makes “extraordinary efforts not just to put a compliance program in place, but to change the corporate culture that allowed a cartel offense to occur,” said Deputy Assistant Attorney General Brent Snyder.
ANTITRUST COMPLIANCE PROGRAM
Below are remarks made by Bill Baer, Assistant Attorney General of the Antitrust Division of the Department of Justice, in remarks made at the Georgetown University Law Center Global Antitrust Enforcement Symposium in 2014.
Obviously, the easiest way for companies and their executives to avoid prosecution is not to commit crimes. There has been a lot of important work done recently by the International Chamber of Commerce, the ABA, and others to encourage corporations to step up their compliance efforts. We think that is great. Effective compliance programs minimize the chance that companies will conspire to fix prices. And they maximize the chance for a company guilty of price fixing to find out about the conspiracy early enough to qualify for corporate leniency or otherwise cooperate with our investigation.
Some have argued that the mere existence of a compliance program should be sufficient, in and of itself, to avoid prosecution, secure a non-prosecution agreement, or otherwise dramatically reduce the penalties for criminal antitrust violations. That is something of a stretch. The fact that the company participated in a cartel, and did not detect it until after the investigation began, makes it difficult for the company to establish that its compliance program was effective. It is unlikely that a corporate defendant’s pre-existing compliance and ethics program will be considered effective enough to warrant a slap on the wrist when it failed to prevent the company from violating the antitrust laws. This is a view we share with other parts of the department that prosecute corporate crimes.
We also expect companies to take compliance seriously once they have pleaded guilty or have been convicted. Taking compliance seriously includes making an institutional commitment to change the culture of the company. Companies should be fostering a corporate culture that encourages ethical conduct and a commitment to compliance with the law.
As Deputy Attorney General Cole has said, corporate compliance starts at the top. The board of directors and senior officers must set the tone for compliance to ensure that the company’s entire managerial workforce not only understands the compliance program but also has the incentive to actively participate in its enforcement. Employees should be encouraged to report or seek guidance about potential criminal conduct without fear of retaliation, and there should be appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect that conduct.
Guilty companies sometimes want to continue to employ culpable senior executives who do not accept responsibility and are carved out of the corporate plea agreement, while at the same time arguing that their compliance programs are effective and their remediation efforts laudable. That creates an obvious tension. It is hard to imagine how companies can foster a corporate culture of compliance if they still employ individuals in positions with senior management and pricing responsibilities who have refused to accept responsibility for their crimes and who the companies know to be culpable. 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 thatcompany’s commitment to implementing a new compliance program or invigorating an existing one. Indeed, the Sentencing Guidelines go so far as to suggest that companies that do so cannot be said to have an “effective” compliance program. 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. We reserve the right to insist on probation, including the use of monitors, if doing so is necessary to ensure an effective compliance program and to prevent recidivism.
Source: Department of Justice
“A compliance program that fails to deter or detect cartel behavior cannot qualify for that credit,” Snyder said. “I also do not mean that we are going to credit companies that, after coming under investigation, put into place or nominally improve an antitrust compliance program. That is not extraordinary; that is mandatory under the Sentencing Guidelines.”
“Paper compliance programs do not bring about culture change; senior executives who lead by example and hold themselves and others accountable bring about culture change,” Snyder added. “And companies that make responsible personnel decisions about culpable employees—those who will be carved out of the company’s plea agreement and do not accept responsibility—bring about culture change. That is what we will be looking for.”
Global investigations. For any company that is unfortunate enough to find itself entangled in a global antitrust investigation, “your strategy has to be a global strategy,” Terzaken says. In the early stages of an investigation, the company must determine whether it wants to self-report and take advantage of leniency and immunity programs under the various regimes in various jurisdictions, he says.
Under the Antitrust Division’s Leniency Program, for example, companies and individuals involved in antitrust crimes that self-report can avoid criminal convictions and resulting fines. The first company or individual conspirator to confess participation in an antitrust crime, fully cooperates with the Division, and meets all other conditions specified by the “Corporate Leniency Policy” or the “Leniency Policy for Individuals” will receive leniency for the reported antitrust crime.
Alternatively, under the Antitrust Division’s “Leniency Plus” policy, if a company is under investigation for one antitrust conspiracy, but it’s too late to obtain leniency for that conspiracy, it can still receive additional credit for “substantial assistance” in its plea agreement for that conspiracy by reporting its involvement in a separate antitrust conspiracy.
Cooperation doesn’t just mean producing evidence and making witnesses available. “It involves a real thorough investigation to show you’re doing everything you can to root out the problem,” says Michael Fanelli, a partner at law firm Covington.
Applying for leniency may not always be the best option. In some cases, the company may have a credible defense. “That can be an effective strategy that companies should keep in mind under their range of options,” Fanelli adds.
“From the point-of-view of an ex-enforcer, nothing is more likely to get enforcers annoyed, and on your back, than the perception that companies are playing games with enforcers,” says Kevin Coates, a partner in the antitrust practice at Covington. Thus, when an investigation involves multiple competition authorities, it’s extremely important to have a well-coordinated approach for providing relevant facts and determining what strategy the company is going to take across multiple jurisdictions.
Emerging issues. In October 2016, the Justice Department and the U.S. Federal Trade Commission jointly announced in a new “Antitrust Guidance for Human Resource Professionals” that for the first time both agencies intend to proceed criminally against “naked” wage-fixing and no-poaching agreements.
“These types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct,” the guidance states. Accordingly, the Justice Department said it will “criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire each other’s employees.”
If that investigation uncovers a naked wage-fixing or no-poaching agreement, the Justice Department “may, in the exercise of its prosecutorial discretion, bring criminal, felony charges against the culpable participants in the agreement, including both individuals and companies,” the guidance states.
For compliance professionals, that effectively means that “companies should give increased attention to their HR functions,” Fanelli says. “This new guidance released by the Department and FTC indicates that they will take a harder approach going forward.”
As the enforcement efforts of competition authorities continues to mature, and as cartel enforcement continues to increase around the globe, it will be of utmost importance for compliance officers in the year ahead to continue to navigate and stay abreast of this ever-evolving and evermore complex enforcement landscape.