Promoting Antitrust Compliance the Antitrust Division's Subtle Shift Regarding Corporate Compliance: a Step Toward Incentivizing More Robust Antitrust Compliance Efforts

• Publication year: 2015
• Author: By Heather Tewksbury, Ryan D. Tansey, and Alicia Berenyi

PROMOTING ANTITRUST COMPLIANCE THE ANTITRUST DIVISION'S SUBTLE SHIFT REGARDING CORPORATE COMPLIANCE: A STEP TOWARD INCENTIVIZING MORE ROBUST ANTITRUST COMPLIANCE EFFORTS

By Heather Tewksbury, Ryan D. Tansey, and Alicia Berenyi¹

INTRODUCTION:

A surprising feature of many corporate compliance programs is their limited emphasis on antitrust. Compliance efforts are a key feature of modern corporate governance initiatives, and it stands to reason that such initiatives should include safeguards against the severe reputational and financial penalties that may arise from antitrust violations. Nevertheless, corporate antitrust compliance efforts often lag behind initiatives addressed to other high-risk legal areas, such as the Foreign Corrupt Practices Act. Some critics believe that the lack of emphasis on antitrust compliance results from the Antitrust Division's opposition to giving credit for compliance programs under the United States Sentencing Guidelines, which contrasts with efforts to credit effective compliance programs in the FCPA space. In a recent, positive shift, the Antitrust Division has begun crediting compliance in less formulaic ways. This article proposes that the Antitrust Division go further, by establishing a more concrete, transparent structure for crediting antitrust compliance. In addition, this article recommends changes to the Sentencing Guidelines to codify the role that compliance can play in mitigating criminal antitrust sanctions.

Part One of this article details the surprising lack of focus on corporate antitrust compliance despite the increased risks of criminal prosecutions and civil liability. This is in contrast to FCPA compliance which has, by all accounts, increased in response to heightened DOJ enforcement efforts. Part Two describes the Antitrust Division's historical treatment of corporate compliance and the tension between the Sentencing Guidelines' structure and the policies and incentives within the Antitrust Division, how this treatment diverges from the practices of the rest of the Department of Justice, and how the relative faltering of antitrust compliance may be attributable to this divergence. Part Three explains how, very recently, the Antitrust Division has begun departing from its historical practice by crediting compliance in less formulaic ways at sentencing. Part Four proposes that, moving forward, the Antitrust Division should continue to credit compliance at sentencing and adopt a more transparent approach to maximize its incentive effect on corporate antitrust compliance. Part Five proposes that the Sentencing Guidelines incorporate a mechanism for crediting compliance programs in a way that the Antitrust Division can support within the context of the leniency program and existing DOJ policy.

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I. CURRENT COMPLIANCE CULTURE A. Antitrust Compliance—Big Risks But Little Recognition

Corporate compliance has become a central fixture of many modern corporate governance initiatives. Logic would thus dictate that antitrust compliance programs would be of particular concern to companies looking to minimize the steep risks and penalties inherent in criminal antitrust violations. The goal of all effective antitrust compliance programs is to curb the risk of collusive behavior by educating executives and employees concerning potentially anticompetitive conduct.² If effective, the benefits of antitrust compliance programs can be substantial. They may protect a company and its employees from massive and costly lawsuits by preventing antitrust violations altogether, and may also root out cartel behavior in its infancy, increasing the chances that a company will be the first to detect and report anticompetitive conduct and thus secure leniency from the Antitrust Division.³

Today, companies that collude with their competitors to fix prices, rig bids, or allocate markets face historically severe penalties from criminal antitrust enforcement in both the United States and abroad. Average total corporate fines for such criminal violations have steadily increased in the U.S. from $535 million between 2005 and 2008, to at least $1 billion in all but two years between 2009 and 2014.⁴ The severity of criminal antitrust penalties has also increased for company employees. An average of 13 individuals per year were sentenced to prison in the U.S. for antitrust violations between 1990 and 1999, compared to the 44 individuals sentenced in 2014 alone. The average prison sentence also increased from eight months between 1990 and 1999 to 25 months between 2010 and 2014.⁵ In addition to the increasing costs of government prosecution, there is also the virtual certainty of tag-along private litigation, which exposes companies to joint and several liability, treble damages, and counsel fees in connection with class action and opt out suits by direct and indirect purchasers—not to mention exposure to enforcement by the now extensive competition regimes across the world.

The increases in amount and severity of criminal antitrust sanctions can be attributed to a number of factors, including: statutory increases in maximum allowable penalties, the Antitrust Division's focus on international cases, which tend to implicate larger volumes of commerce, newfound attention paid by judges to the seriousness of antitrust violations, and increased utilization of the Antitrust Division's leniency program. The global reach of antitrust enforcement is also not limited to American enforcement. "Dozens of countries have effective and aggressive cartel enforcement programs,"⁶ thus a violator may face stiff penalties in multiple jurisdictions.

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Given the current antitrust enforcement backdrop, one would expect companies to work diligently to improve their internal antitrust compliance protocols. However, critics and anecdotal evidence suggests this has not been the case. Indeed, instead of tracking the constant uptick in detection and prosecution of anticompetitive conduct over the past decade, corporate focus on antitrust compliance has never seemed to get off the ground in the same way as FCPA compliance. Although there has not been extensive study in this area, a 2012 survey indicates that 92% of companies discussed antitrust compliance in the company code of business conduct, whereas only 60% of those companies reported conducting any kind of antitrust compliance training program.⁷ This means that a staggering 40% of companies had no substantial antitrust compliance program. And even for the subset of companies that require some antitrust compliance trainings, the effectiveness of those programs is questionable. For instance, a mere 22% of all respondents required compliance training for employees attending "high risk gatherings of competitors," like trade association meetings.⁸ Furthermore, 64% of companies reported that they did not conduct comprehensive internal audits, a key safeguard that detects illegal activity.⁹

Thus, despite the substantial benefits of a successful antitrust compliance program—avoidance of high fines, prison for individuals,¹⁰ legal costs, and treble damages in civil actions—antitrust compliance efforts remain largely deficient.

B. Rise In Other Forms of Compliance

In contrast to the antitrust arena, recent proliferation in FCPA enforcement has seen an attendant increase in FCPA corporate compliance programs. Like antitrust, criminal and civil enforcement of the FCPA has seen significant growth in recent years. A 1998 Amendment to the FCPA broadened the statute's jurisdictional reach,¹¹ and the DOJ has since prioritized FCPA enforcement, resulting in a spike of prosecutions.¹² While there were only five FCPA enforcement actions in 2004, that number ballooned to over 70 in 2010.¹³

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Although the stakes are high for companies accused of FCPA violations, they are not nearly as high as in the antitrust context. For example, the four most recent settlements by FCPA corporate offenders included payments ranging from $3.4 million to $25 million.¹⁴ By contrast, on May 20, 2015, four banks agreed to plead guilty to price fixing in the foreign currency exchange spot markets, and agreed to fines ranging from $395 million to $925 million.¹⁵ And these massive differences in exposure are not limited to public enforcement: in contrast to antitrust, there is little risk of tag-along private civil actions in the context of the FCPA—under which there is no statutory private right of action¹⁶—and certainly none that can result in treble damages.

However, despite the less severe nature of FCPA penalties, unlike antitrust compliance FCPA compliance efforts have significantly expanded as enforcement efforts have increased. Although empirical studies on this issue are also scarce, the trend is apparent. Companies are investing large sums to minimize their FCPA exposure by implementing robust compliance programs, devoting "often scarce resources into the development, benchmarking, monitoring, and auditing of detailed and exhaustive FCPA compliance programs."¹⁷ These programs have become more sophisticated, with companies overhauling "bulky" programs into "smarter risk-based compliance regimes."¹⁸ Many companies have even adopted robust "enterprise wide 'zero tolerance' policies" regarding FCPA violations.¹⁹ Other anecdotal examples of the split between antitrust and FCPA compliance abound. Two national compliance conferences in 2014 saw only a single panel on antitrust compliance, whereas both conferences held numerous FCPA related panels and programming.²⁰

II. IMPACT OF INCENTIVES ON CORPORATE COMPLIANCE

The divergent trajectories of antitrust and FCPA corporate compliance may be attributable, at least in part, to the different treatment that antitrust and FCPA compliance programs have historically received by the Department of Justice throughout the investigation, prosecution, and sentencing of corporate offenders.

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A. The Antitrust Division's Historical Position Against USSG Credit...