Responding to an Investigation

• Pages: 65-98

65

RESPONDING TO AN INVESTIGATION

This chapter provides a general overview of important considerations

in responding to government cartel investigations and conducting parallel

internal investigations.

A. General Principles

1.

Immediate Considerations

When a client has been involved in potential cartel activity or is the

subject of a cartel investigation, the most immediate strategic

consideration is determining whether to apply for amnesty or leniency. In

the United States and most other jurisdictions, the company that first alerts

the government to a possible antitrust violation can avoid criminal liability

completely. The first-in amnesty applicant in the U.S. also dramatically

reduces its exposure to civil damages.

Speed is an important factor in considering whether to apply for

amnesty or leniency, because competitors will likely be considering the

same decision. In some cases, the first amnesty applicant has been only

hours ahead of the second. The most immediate need when weighing this

decision is to understand the facts so that if there is a potential violation,

the company can attempt to be the first amnesty applicant (especially in

the jurisdictions where the client faces the greatest exposure). If amnesty

is not available, as is often the case when a government investigation has

already been launched, the decision is whether to cooperate actively with

the government to obtain a fine discount if a violation is found.

At the outset of an investigation, outside counsel should identify the

point people within the client for the investigation—typically, the general

counsel or someone in the legal group. Counsel and the client should also

make an initial assessment of the geographic scope of the investigation

and determine the point people in each jurisdiction. In the early stages, it

is best to limit the size of the working group to the extent possible to avoid

the possibility of leaks.

If a government investigation has not yet been launched, this group

can consider whether to disseminate dawn raid or search warrant

guidelines explaining how to respond to inquiries from government

66 International Antitrust Cartel Handbook

investigators and questions from the press. After the group has been

established, counsel should begin to develop an understanding of the facts

through interviews of a small number of employees and review of a

targeted set of documents. It is important to direct interviewees to keep

both the existence of the interview and its substance confidential. Where

the identity of the individuals involved is unclear, sales personnel and

management responsible for the products at issue may prove useful

starting points.

Counsel should be prepared, even at this early stage, to answer the

client’s questions about the potential liability. Although detailed

assessment of the risk is premature prior to investigation, counsel can

explain the maximum penalties: in the United States, companies face

criminal fines of up to $100 million or, in the alternative, twice the gain to

the defendants or loss to customers resulting from the conspiracy (a

number that may greatly exceed $100 million in some cases); employees

face criminal fines of $1 million or twice the gain or loss, as well as a

prison term of up to ten years.1 In addition, in U.S. follow-on civil cases,

the plaintiffs will generally be entitled to treble damages (or even higher

damages in cases involving both direct and indirect purchasers). The

process of complying with a government investigation and conducting

follow-on litigation also entails considerable legal costs, likely over a

period of several years, which are not reduced by amnesty. Where conduct

raises issues in other jurisdictions, this exposure may be increased.

If amnesty is not available, companies have three basic options in

responding to a government investigation. They can: (1) cooperate

proactively; (2) passively respond to government requests; or (3) fight the

investigation to the extent possible. The approach the company chooses

depends on the facts discovered in the internal investigation and the

company’s approach to risk.

2.

Basic Strategies

a. Proactive Cooperation

A strategy of proactive cooperation in the United States entails

frequent contact with U.S. Department of Justice (DOJ) attorneys to

provide relevant documents (located both inside and outside the United

States) and proffers of facts relevant to the DOJ’s investigation. This

approach involves the production of both exculpatory and problematic

1. 15 U.S.C. §1; 18 U.S.C. § 3751(b)-(d).

Responding to an Investigation 67

documents related to the conduct of interest. It requires counsel to follow

the factual trail and keep the DOJ informed of the process and substance

of the internal investigation. This strategy may be optimal when a

company has found problematic activity and wishes to reduce its fine

exposure, or if a company believes that it did not participate in the conduct

at issue and can demonstrate its innocence through proactive production

of documents and information. In practice, cooperation by the company

also may result in constructive discussion of the government’s priorities

and views of the case. This approach also offers counsel the opportunity

to effectively advocate its positions in the case, because it involves the

disclosure of all relevant facts and generally facilitates productive

relationships between the company and the DOJ.

b. Passive Cooperation

A passive cooperation strategy entails responding to the government’s

subpoena or informal requests but not proactively providing documents

from outside the United States or extensive proffers to the government

unless specifically requested. This strategy can be effective if the company

is a peripheral player in the industry or did not seem to be involved in any

problematic conduct. The goal of this approach is to minimize costs and

avoid attention from the government. This strategy may be most attractive

where the DOJ is relatively unlikely to indict.

c. Aggressive Opposition

A third option is to fight each step of the process. In this scenario, the

client will consider contesting or resisting every request made by the DOJ

to the greatest extent possible, thereby forcing the DOJ to invest the

maximum amount of resources required to build its case. The risks of this

strategy can be significant if damaging evidence can be obtained through

other sources. This approach may result in an indictment of the company

and ultimately a trial on the merits. If the company and the DOJ ultimately

reach a negotiated resolution, the DOJ will insist on greater penalties than

it would have otherwise. If the company is found guilty at trial, the amount

of the judgment is likely to be much higher than the amount of a settlement

negotiated through cooperation with the DOJ.

A strategy of noncooperation, though risky, may make sense when

there is very little risk of liability, or when any po tential negot iated

resolution with the government is categorically unacceptable to a client.