Eliminate The Antitrust Exception To Corporate Charging Guidelines

Good corporate governance requires a robust and effective legal compliance program. This was the key lesson of the decision by the Delaware Chancery Court in the seminal 1996 Caremark case. It held that a corporation’s board of directors could not turn a blind eye to possible violations of the law by purposefully failing to institute a program to ferret out such violations and bring them to the board’s attention.

Establishment of a robust corporate compliance program was also a motivation of Congress in enacting the Sarbanes-Oxley Act. That law directed the U.S. Sentencing Commission to beef up the requirements under which a corporation convicted of a crime could receive a downward adjustment of its fine if it had a meaningful compliance program in place.

Antitrust must certainly be a key component of any corporate compliance program. This is especially true today, when the Department of Justice and the European Commission’s Directorate General for Competition are leveling record fines on corporations, and – in the United States and Britain – sending top executives to prison for violations of antitrust and competition laws.

Since at least 2006, the Department of Justice has had established guidelines for determining when to charge a corporation with a crime. These guidelines indicate that a factor to be considered is “the existence and adequacy of the corporation’s pre-existing compliance program.”

In 2008, the guidelines were amended and made part of the U.S. Attorney’s Manual, but the amendments did not change the basic approach. Throughout this time, there has been one glaring exception to the consideration of a corporate compliance program in determining whether to charge a corporation with a crime. If the crime was an antitrust violation, the Department of Justice would prosecute, notwithstanding the existence of a compliance program.

I confronted Scott Hammond regarding this exception several years ago at a public forum held in Washington, D.C. by the American Bar Association Antitrust Section. Hammond was then the Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division of the Department of Justice. His response to my question was that allowing antitrust prosecutors to consider the existence and effectiveness of a compliance program would weaken the Antitrust Division’s leniency program.

Since 1993, the Antitrust Division has had a corporate leniency policy. This policy has been the centerpiece of criminal antitrust cartel enforcement in the United States. Indeed, the program has been so successful in exposing cartels that many other countries have adopted similar programs. Under this policy, the first corporation to report the existence of illegal antitrust activity will receive immunity from prosecution for the corporation, its officers and executives.

There are several qualifiers under this policy, including whether the Antitirust Division has received information about the illegal activity from another source, and whether the corporation was the ringleader or originator of the cartel. However, the policy clearly encourages a race to report a cartel. The prize is immunity.

This leniency policy was strengthened in June 2004, with the passage of the Antitrust Criminal Penalty Enhancement and Reform Act. Under this law, a plaintiff in the follow-on civil treble-damage class action cases can receive only single damages from a corporation receiving government immunity. In addition, if the corporation meets certain requirements regarding cooperation, the plaintiff would receive only the actual damages sustained that are attributable to the amount of commerce done by the corporation in the goods and services affected by the conspiracy. In other words, the corporation receiving immunity is not jointly and severally liable for the entire cartel’s damages as would otherwise be the case.

I disagree with Hammond’s rationale for the antitrust exception to the corporate charging guidelines. I do not believe the possibility that a corporation will escape criminal prosecution for an antitrust violation because of a robust antitrust compliance program will diminish this race to report. Despite record corporate fines and enhanced jail sentences for executives, the most significant benefit of immunity in many instances is the single damages provision of the 2004 Act.

Furthermore, a corporation that uncovers an antitrust violation cannot be sure that the prosecutors will find that the compliance program meets the criteria needed to avoid prosecution. However, the first to report cartel activity and meet all of the criteria for the leniency program is almost guaranteed the benefits of immunity.

Hammond recently retired after a very distinguished career as head of criminal antitrust enforcement. I hope that his successor, as well as the other leadership in the Antitrust Division, takes a long hard look at this exception to the corporate charging guidelines.

The government should encourage a robust corporate compliance program, including for antitrust. Eliminating the antitrust exception to the corporate charging guidelines will help foster such programs without damaging the leniency program.