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Law Seminars International

The Corporate Leniency Policy and the 2004 Antitrust Criminal

Enhancement and Reform Act: evaluating the race

for leniencyDaniel Sasse of Crowell & Moring LLP September 7, 2006

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Overview

I. Amnesty 101 – an overviewII. Start the Race or Circle

the WagonsIII.the 2004 Antitrust

Criminal Enhancement and Reform Act

IV. Resources

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I. Amnesty 101 DOJ’s Corporate Leniency Program

• First one in the door receives a free pass from criminal prosecution, no jail or fine.

• Benefits only available to first in.

• Amnesty is automatic if there is no pre-existing investigation, no prosecutorial discretion.

• Alternative amnesty available if investigation is underway.

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I. Amnesty 101 Automatic Amnesty – Part A Amnesty

“Part A” amnesty or automatic amnesty will be granted if before an investigation is begun, six requirements are met:1. DOJ is not already aware of cartel from another source2. The corporation, upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity. (prompt termination not reporting) 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. 5. Where possible, the corporation makes restitution to injured parties. 6. The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or the originator of, the activity.

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I. Amnesty 101 Alternative Amnesty – Part B AmnestyIf an investigation has begun, or if corporation had a leadership role, Alternative or “Part B” Amnesty may be available if seven criteria are met:1. Corporation is first to come forward and qualify for leniency2. DOJ does not yet have evidence that is likely to result in a sustainable conviction3. Company upon discovery of conduct “took prompt and effective action to terminate its part in the activity” (prompt termination not reporting)4. Report with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the investigation5. Confession truly a corporate act6. Where possible the corporation makes restitution to customers7. 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 (burden low if no investigation has begun).

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I. Amnesty 101 Individual Amnesty

•Directors, officers, and employees of a corporation qualifying for automatic amnesty, who come forward and cooperate, also receive automatic amnesty.•After an investigation begins employees given serious consideration for lenient treatment in exchange for their full cooperation.•Individual Amnesty also available separate from corporate immunity.

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I. Amnesty 101 Clarifications from DOJ

1.Confidentiality: policy is to keep all information and identity of applicant confidential.

2.Disclosure to Foreign Authorities: despite bilateral cooperation agreements, DOJ will not disclose to foreign agencies absent amnesty applicant permission.

3.Leader or Originator: the language states the leader or originator, co-leaders will qualify under A6 and the more discretionary B7.

4.Termination of Activity: Does not require disclosure, just termination. DOJ may request continued involvement.

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I. Amnesty 101 Clarifications from DOJ

5.Expanding Scope of Conspiracy: Due to the need for speed, companies often have not finished internal investigations when applying for amnesty. If company or individual discovers conspiracy was broader, but is cooperating with DOJ amnesty will be expanded, usually with addendum to amnesty letter.

6.Model Amnesty Letter:• Publicly available, insures transparency and

predictability.• States application will not waive a-c privilege.• Former Employees: Technically not covered under

policy, but included in model letter and counsel can negotiate inclusion.

• Letter is conditional requiring completion of agreement and cooperation with DOJ.

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I. Amnesty 101 Additional Incentives

Amnesty Plus Results when a company negotiating a plea agreement seeks to obtain lenient treatment by offering to disclose a second, unrelated conspiracy.

• Receive full Amnesty in Second Cartel.• “Plus” an additional, higher discount for cooperation in

first investigation.

Penalty Plus  DOJ now takes the position that if a company fails to take advantage of an Amnesty Plus opportunity DOJ will seek an increased penalty. DOJ requests court consider the company's conduct as an aggravating sentencing factor and will pursue a fine or jail sentence at or above the upper end of the Guidelines range.

The Omnibus Question Participants in the program (or grand jury witnesses) asked to disclose whether they are aware of any other cartel activity with respect to other products in this or any other industry. Participants faced with full disclosure or risk losing benefits of amnesty.

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II. Start the Race or Circle the Wagons

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II. The Race Do you run the race?

1. Can you win the race?2. What are the risks of doing

nothing?3. Look to other Jurisdictions?4. Civil Litigation5. What other skeletons are in

the closet?6. Customer Strategy

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II. The Race Can you win the race?

It is not surprising that the Antitrust Division would promote competition, and the greatest reward goes to the one who wins the amnesty race.

– 10 minutes can make the difference– US, Canada, Japan, Australia allow applicants to put down “markers” even if investigation is not complete.

– There may still be benefits in being second.

– 2004 Reform Act increases pressure to be first.

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II. The Race Can you win the race?

The key question in considering whether you can win the race is assessing how you learned about the illicit activity and who else is aware of it?

– Does anyone outside of the company know?

– Does anyone outside of the cartel know?

– Does the DOJ know about the cartel?– Do any employees have criminal exposure and what is preventing them from seeking amnesty?

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II. The Race Risks of Doing Nothing – will I get caught?

•With two amnesty applications a month, do you trust your fellow conspirators? DOJ has repeatedly stated the amnesty program is its most effective tool in combating cartels, but it is not the only tool in the arsenal. •Investigative Tools of the DOJ include:

• informants• consensual monitoring• audio and video tape recordings• search warrants• International cooperation agreements• new: wire tapping

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II. The Race Risks of Doing Nothing – what if I get caught?

Without a doubt the single biggest consideration is the risk of jail time in the U.S. and to a much lesser extent other jurisdictions.

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II. The Race Risks of Doing Nothing – what if I get caught?

DOJ has made international cartels a priority.DOJ has stepped up fines and jail sentences.•Since the beginning of 1997 $3 billion in fines.•$500 million fine in vitamins of single defendant highest ever criminal fine.•100 years of criminal sentences•107 individual defendants with jail terms•40 individuals with sentences longer than a year•90 foreign individuals subject to criminal prosecution•50 plus grand juries currently impaneled.

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II. The Race Risks of Doing Nothing – what if I get caught?

2004 Antitrust Criminal Penalty Enhancement Act has increased the risk of doing nothing.

1. It increased the maximum jail term for individuals from 3 years to 10 years.

2. It increased the maximum criminal fines for companies from $10 to $100 million.

3. It increased the maximum fine for individuals from $350,000 to $1 million.

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II. The Race Consideration of other jurisdictions

•DOJ policy statement is to maintain confidentiality and will not share with foreign agencies, despite cooperation agreements.

•Still must consider disclosure in all relevant jurisdictions with direct sales.

–You may have to or choose to disclose publicly –DOJ will progress with investigation of others and that information will not remain confidential

•List of aggressive jurisdictions is growing. At a minimum, Canada, EU, U.K., Australia, and Japan

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II. The Race Civil Litigation

•Largely a US phenomenon. •Despite the passage of European Commission Regulation 1/2003, the publication of the European Commission’s recent Green Paper on Damages Actions for Breach of the EC Antitrust Rules, and repeated encouragement from Commissioner Kroes still very little private enforcement outside of the US.

•US Courts also appear less willing to extend jurisdiction to wholly foreign purchases, for foreign purchases (addressed in the Empagran discussion).

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II. The Race Civil Litigation

The risk of US litigation, however, can be substantial and can overshadow the combined criminal fines from all global agencies. Companies must consider:

– Mere reports of an investigation or dawn raid will trigger US lawsuits

– Plaintiffs’ bar recognizes that pleas are negotiated and civil suits may expand, years, products, and regions of cartel.

– Oral presentations and carefully limiting application– Companies inevitably face protracted and multi-tracked litigations• Direct class actions in federal court• Indirect class actions brought under Illinois Brick repealer statutes

• Follow-on or opt-out litigation, usually from large customers who choose to proceed separately from the class actions

• State Attorneys General may also bring parens patriae actions to recover on behalf of their citizens for indirect purchaser damages.

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II. The Race Other skeletons in your closet

Companies must also consider the web or any other conspiracies and the snowball effect of the disclosures that will be required by: –Amnesty Plus,–Penalty Plus, and –The Omnibus Question

Similarly, one must consider how disclosures by other cartels members, even in other jurisdictions, will impact your company.

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II. The Race Customer Strategy

You must assume that your key customers will learn of the illegal activity.•Will you have to make public disclosures and do you have a public relations team in place?

•Does the illicit activity affect a large range of customers or a finite number with an existing relationship?

•Do you sit back and wait or do you approach your own customers?

•Do you have to consider approaching your competitors customers even if you didn’t sell to them?

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III. 2004 Antitrust Criminal Penalty Enhancement and Reform ActThe Act is designed to both support

criminal prosecution and to encourage participation in the Amnesty Program. The Act:•Increases The Risk of Not Seeking Amnesty

•Increases The Reward of Receiving Amnesty

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III. 2004 ACPERA Carrot and a Stick

Criminal Penalties Are Increased•Maximum jail sentence increased from 3 to 10 years

•Maximum individual fine increased $350,000 to $1 million

•Maximum corporate fine increased from $10 million to $100 million

The Rewards For Cooperation Are Increased for Amnesty Applicant•Damages are de-trebled•Joint and several liability eliminated•Five year sunset provision (2009) for amnesty inducements

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III. 2004 ACPERA Protection for Amnesty Applicants

The Act limits civil plaintiffs to single (de-trebled) damages in claims against amnesty applicants for the following types of claims:• conduct alleged to violate Sherman Act section 1 or 3

• or any similar state law• applies to parens patriae suits• does not de-treble damages suffered by State entities

• does not de-treble damages brought by federal government under the False Claims Act

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III. 2004 ACPERA Cooperation Requirements for Applicants

In order to received reduced liability, the amnesty applicant must cooperate with plaintiffs in the follow-on civil litigation.

Does the Act require amnesty applicants to cooperate with the civil litigants? The defense bar has taken the position that amnesty applicants can forfeit the de-trebling and joint-and-several liability protections and refuse to cooperate. The plaintiffs bar has argued that such refusal should revoke the applicants amnesty with the DOJ and subject the company to prosecution, arguing that the Act in essence made cooperation mandatory.

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III. 2004 ACPERA Cooperation Requirements for Applicants

The court in which the civil litigation is pending must determine whether the applicant has provided “satisfactory cooperation” with respect to the following:•Whether applicant provided plaintiffs a full account of all known facts.

•Whether applicant furnished all documents.•Whether applicant used best efforts to secure and facilitate cooperation from current and former employees for interviews, depos, and court proceedings.

•The timeliness of the applicant’s cooperation is also relevant, including whether DOJ or a state issued compulsory process prior to the cooperation or whether private plaintiffs had initiated an action.

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III. 2004 ACPERA New Issues for Consideration

1.Retroactivity2.Judicial Application3.Do you have to cooperate4.When does the obligation begin5.Increased importance of amnesty

letter even if no prosecution6.New Customer Strategy7.The Shifting Dynamic of who

will settle.