Antitrust Alert: Justice Department Issues Guidance on Antitrust Criminal Leniency Program
On November 19, the Antitrust Division of the U.S. Department of Justice ("DOJ") issued new guidance on its leniency program, under which cartel participants that cooperate with the government may avoid prosecution. This detailed guidance, "Frequently Asked Questions Regarding the Antitrust Division's Leniency Program" (FAQ), was accompanied by revised model leniency letters, the templates for the binding agreements between the DOJ and cooperating parties. The DOJ's updated policy statements should be of interest to all who follow the DOJ's criminal cartel enforcement efforts.
Under the DOJ's leniency program, corporations and individuals can avoid criminal prosecution, fines, and prison by being first to confess participation in a criminal antitrust conspiracy, fully cooperating with the DOJ, and meeting other specified conditions. Since the DOJ revised its leniency program in the early 1990s, cooperation by leniency applicants has resulted in scores of convictions and roughly $4 billion in criminal fines. Many of the DOJ's major international investigations have been advanced through the cooperation of leniency applications. Just a few weeks ago, the DOJ announced that three leading electronics manufacturers—LG, Sharp, and Chunghwa—have agreed to plead guilty and pay a total of $585 million in criminal fines for their roles in conspiracies to fix the prices of LCD panels. It is likely this investigation was initiated by information obtained from a co-conspirator that received conditional leniency.
The FAQ provide helpful guidance regarding the DOJ's policy position on a number of recurring issues, including leniency application procedures, criteria for obtaining leniency, the conditional and final leniency letters, and confidentiality of leniency applications. By and large, the FAQ restate (and helpfully consolidate) prior policies articulated in speeches by DOJ officials over the past decade. But parts of the FAQ offer new or clarified positions on issues that previously had created uncertainty, such as:
"Markers" used to reserve for a limited time an applicant's eligibility for leniency while it collects information to perfect its leniency application (#2). The FAQ provides a cogent explanation on the marker process.
The requirement that an applicant admit to a criminal violation (#5). The new model leniency letters make this an explicit requirement.
Treatment of non-antitrust crimes (#6). Consistent with prior practice, the FAQ explains that "the Division's leniency program provides some protection for non-antitrust violations, and in some instances, it does not." To clarify the point, the FAQ offers examples that counsel often see in practice (e.g., wire fraud in connection with commission of an antitrust violation).
Creation of a new model corporate conditional leniency letter to account for applicants that also are involved in another DOJ investigation (#10). The new model makes clear that an applicant's protection and obligations "extend only to the activity reported pursuant to the leniency application and not to the separate investigation." See para. 5, Dual Model Corporate Conditional Leniency Letter.
The DOJ requirement that a leniency applicant not be "the leader in, or originator of, the [illegal] activity" (#14). The FAQ clarify that, to be disqualified from the program, an applicant must be the single ringleader of a conspiracy—a very high threshold. "Wherever possible, the Division has construed or interpreted its program in favor of accepting an applicant into the leniency program in order to provide the maximum amount of incentives and opportunities for companies to come forward and report their illegal activity."
The protection of the attorney-client privilege or work product doctrine (#16). The FAQ make clear that "the Division does not require or request the production of privileged communications or documents and does not refuse to grant leniency because a corporation has not produced such privileged information." This statement memorializes current practice and arguably goes further than the "McNulty Memo," the memo from Deputy Attorney General Paul McNulty that sets forth the principles of federal prosecution of business organizations. That controversial memo leaves open the possibility for federal prosecutors to request waiver of attorney-client or work product protections when needed for law enforcement.
Among the most controversial of the FAQ's policy statements are drafted in direct response to the DOJ's litigation loss in United States v. Stolt-Nielsen SA. To briefly recap, in early 2003, the DOJ granted Stolt-Nielsen, a Norwegian shipping company, conditional leniency relating to its participation in a parcel-tanker shipping cartel. In March 2004, the DOJ revoked the company's leniency -the first time an applicant had been kicked out of the program—after concluding that Stolt-Nielsen had misrepresented to the DOJ that it had promptly terminated its participation in the cartel. The DOJ contended that the company was obligated to terminate its illegal conduct in March 2002, when it first discovered the wrongdoing. The evidence showed that the company's illegal conduct had continued through 2002. The DOJ then filed criminal indictments charging Stolt-Nielsen and two former executives.
In November 2007, a federal district court dismissed the indictment, ruling that the company had met the conditions of the leniency agreement by implementing measures in early 2002 to eliminate the illegal behavior (e.g., by distributing to employees a comprehensive antitrust compliance policy). Based on this finding, and because the DOJ had benefited from the leniency agreement (using evidence obtained from the company to prosecute others), the court held that the DOJ was bound by its terms, which covered all behavior prior to the date of the agreement (January 2003). In December 2007, the DOJ announced that it would not appeal the decision.
In response to Stolt, the FAQ provides guidance on the DOJ's current views on the (1) discovery of illegal activity (##11-12), (2) termination of illegal activity (#13), and (3) revocation of conditional leniency (##27-29). Two of these FAQ in particular have caused consternation among some members of the antitrust bar:
Period covered by the conditional leniency letter (#12). The FAQ provides that, in rare cases (where there is significant time between discovery of the illegal conduct and the date of the leniency application), "the Division reserves the right to grant conditional leniency only up to the date the applicant represents it terminated its participation in the activity." See n.2, Model Corporate Conditional Leniency Letter.
Conduct sufficient to terminate the applicant's participation in the illegal activity (#13). The model corporate conditional leniency letter requires a leniency applicant to promptly terminate its participation in the illegal activity being reported upon discovering the illegal conduct. This was a contested issue in Stolt. The FAQ attempt to clarify the subject by explaining that "What constitutes prompt and effective action will, of course, depend on the particular circumstances in each leniency matter. A primary consideration is what steps are taken by management in response to the discovery of the anticompetitive activity being reported."
There is some risk that these pronouncements might foretell a higher DOJ standard for seeking (and retaining) conditional leniency, if only in the rare case. On balance, the FAQ and revised model leniency letters reflect current accepted practices and provide the private bar and business community with added transparency regarding how the DOJ implements its leniency program.
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