DOJ Makes Giving Up Harder: Stricter Requirements for Seeking Leniency
The Development: The Department of Justice Antitrust Division ("DOJ") recently updated its Leniency Program and issued a revised set of frequently asked questions ("FAQs") about the program. The changes increase the requirements for individuals and companies seeking leniency from prosecution for their involvement in an antitrust conspiracy by requiring applicants to "promptly" self-report violations and remediate any resulting harm.
The Background: Under 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 DOJ, and meeting other specified conditions.
Looking Ahead: Changes to the Leniency Program, particularly the more stringent timing and restitution requirements, likely provide added leverage to DOJ (whether to grant leniency) and to private plaintiffs (forcing applicants to settle, and more quickly). These dynamics could make seeking leniency less attractive to some that uncover evidence of illegal conduct.
The DOJ Antitrust Division recently announced new requirements for DOJ's Leniency Program, which allows the first individual or company to self-report its involvement in an antitrust conspiracy to avoid prosecution and lessen exposure in related civil litigation if the leniency applicant cooperates with DOJ's resulting investigation and prosecution(s). Past DOJ leadership has frequently referred to the Leniency Program as the linchpin for U.S. criminal antitrust enforcement, since DOJ often relies on co-conspirators' confessions to identify and prosecute price fixing, customer and market allocation, and other criminal antitrust violations. In remarks announcing the policy shift, DOJ Assistant Attorney General Jonathan Kanter maintained that the changes were needed to ensure companies are not "sitting on their hands after detecting an antitrust crime." The director of DOJ's Procurement Collusion Strike Force said the recent updates are "designed to incentivize good corporate citizenship," now require that any leniency applicant "promptly" self-report violations, and remediate the resulting harm—including using "best efforts to make restitution to injured parties." But rather than encouraging individuals and companies to self-report antitrust violations—which is the overriding purpose of DOJ's Leniency Program—the revisions may instead reduce the number of leniency applications by further increasing the burdens and costs on self-reporters.
The meaning of "promptly" is left undefined in the policy update. The FAQs provide that DOJ will make "this assessment based on the facts and circumstances of the illegal activity and the size and complexity of operations of the corporate applicant." In practice, organizations often conduct an internal investigation to confirm whether a violation was committed, which can require a significant amount of time and attorney involvement. In light of this, DOJ acknowledged that an organization "may still be eligible for leniency if it conducts a preliminary internal investigation in a timely fashion to confirm that it committed a violation before self-reporting." But here, too, "timely" is left undefined. The FAQs indicate only that it is "the applicant's burden to prove that its self-reporting was prompt."
Also new is the concept that applicants will not receive their final leniency letter from DOJ until after they complete their restitution to victims and use "best efforts to remediate the harm caused by the illegal activity, and to improve its compliance program to mitigate the risk of engaging in future illegal activity." The FAQs suggest that restitution can be satisfied in most cases by negotiating directly with victims and/or by settling parallel civil actions. The policy update further encourages applicants to "work with civil plaintiffs and the court to streamline damages determinations so that restitution to victims happens as swiftly as possible." Applicants must present "concrete, reasonably achievable plans about how they will make restitution" before receiving a conditional leniency letter. That offer remains revocable until DOJ issues a final leniency letter, but the FAQs dictate that "[b]efore receiving a final leniency letter, applicants must actually pay restitution." Tying the Leniency Program's restitution requirement to settlements with civil plaintiffs—and requiring that those settlements be complete before any final leniency letter is granted—means that, in practice, companies pursuing leniency will be largely unable to defend any parallel civil litigation on the merits, which could be a significant drawback for companies contemplating a leniency application.
Applying for leniency has always been a high-risk proposition, albeit one with important benefits, because it is never certain whether leniency will actually be granted. This might explain, in part, why U.S. and international enforcers have seen a multiyear decline in the number of companies applying for leniency. According to OECD's 2021 Global Competition Enforcement Update, leniency applications in the Americas and Europe dropped more than 50% from 2015 to 2019. The updates to the Leniency Program might lead more companies to conclude that leniency's cons outweigh its pros, further contributing to this downward trend.
Three Key Takeaways:
- Although the Leniency Program has long encouraged companies to swiftly identify, investigate, and, if appropriate, report potential antitrust violations, the new requirements reinforce the need for speed. Companies must continue training their executives and employees to recognize and report potential antitrust violations and be prepared to quickly make decisions about whether to pursue leniency if a violation is found.
- Successful leniency applicants receive concrete benefits, avoiding prosecution, fines, and jail time. But there are costs, including exposure in private civil actions. Requiring restitution before obtaining any final leniency letter from DOJ could seriously affect an applicant's trial strategy, including whether and when to settle. Private plaintiffs will no doubt be emboldened by this change in DOJ policy.
- Despite their intended effect, DOJ's enhanced requirements for obtaining leniency may further deter participation in the agency's Leniency Program and result in fewer criminal prosecutions.
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