In September of 2015, Sally Q. Yates, the Deputy Attorney General of the U.S. Department of Justice, gave a speech announcing a “new policy” on individual liability in matters of corporate wrongdoing. It is not enough to pursue corporate entities in economic crime cases, she pointed out. Individuals must also be held liable, both civilly and criminally. This should be done as a matter of fairness— “Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation”—but also for deterrence: “nothing discourages corporate criminal activity like the prospect of people going to prison.”
For antitrust lawyers, Quinn’s speech struck a familiar note. Prosecutors in the Antitrust Division have long emphasized the importance of holding individual price fixers criminally liable in addition to prosecuting their corporate employers. Jail time, they believe, is the best way to deter price fixing cartels. Indeed, over time the Antitrust Division has ratcheted up its effort to put price fixers from around the world in U.S. jails to serve actual time (the average jail sentence now is about two years). In this effort the U.S. stands virtually alone in the world. Most other jurisdictions rely on civil fines imposed on corporations, not on criminal prosecutions.
Placing more focus on the individual, though, raises some important questions. Who, exactly, are these individuals who engage in price fixing? And why do we think that jail time will deter them (it obviously doesn’t deter them all)?
The idea of rogues
Corporations sometimes have a ready answer to questions of participation and deterrence. Many argue that individuals who engage in cartel behavior are “rogues,” a term often used in two different ways. One is the dictionary sense of a “rascal or scoundrel,” one who “wanders apart from the herd” or varies “markedly from the standard.” The other is a low-level employee who participates in cartel behavior out of view of management. Deterring such people may require an understanding of the psychology of rogue behavior, but it is the rogue who is at fault, not the corporation. Indeed, it is this conclusion that makes “rogues” so attractive an explanation to corporate management.
The argument over rogues is a long-running one. In U.S. law, though, the legal rule is clear: under the New York Central case, decided by the Supreme Court in 1909, if an employee is acting within the scope of his or her authority for the benefit of the principal, the organization can be held criminally liable.1 Even the greatest scoundrel, or the lowest-level employee, can bind the corporation criminally if the employee acts, at least in part, to advance the corporation’s interests.
The issue of rogues, though, extends beyond the legal rule for corporate criminal liability. Corporate compliance officers, anxious to put in place programs that will get employees to comply, might want to know whether they should be worrying about deviants and low-level minor employees. And prosecutors might be convinced to exercise prosecutorial discretion with regard to charging corporations if the criminal conduct was done by rogues, whatever the legal rule might be.
Do rogues exist?
The first question is whether rogues really exist. The conventional wisdom is to be skeptical of the rogue explanation. Brent Snyder, the current Deputy Assistant Attorney General in charge of criminal enforcement in the Antitrust Division, has likened the rogue to the mythical “Yeti.” Experienced defense counsel seem to share that view. One defense lawyer to whom I spoke could recall only one case in which an obscure employee managed to hide his participation in a cartel. Another defense lawyer, who represents non-U.S. employees in U.S. criminal investigations, dismissed the idea that cartelists are deviants. In that lawyer’s experience cartel participants are more likely to be normal business people who find themselves in a job where their predecessor had participated in a cartel and where they believe that their actions, like their predecessor’s, advance their employer’s interests.
Interestingly, there are not much hard data about those who, in fact, participate in cartels or what motivates them or whether these people might be rogues. In an initial effort to remedy this deficiency, I turned to U.S. Justice Department Antitrust Division press releases issued between March 2014 and March 2016 that mentioned individuals.2 Press releases provide a different cut of information than indictments because they include case dispositions (pleas and sentences) as well as charges, meaning that they cover cartel participation that goes back over a more extended period (individuals who showed up twice were not double-counted). My goal was to get an initial impression of the characteristics of cartel participants and to see what observations might come from this rough-cut of data.
My first finding is the heterogeneity of the cartels and the participants. During this period ninety-eight individuals were mentioned. Of these, approximately half were involved in major international cartels (twenty-seven in auto parts, seven in Libor, seven in ocean shipping, five in cathode display tubes, one in marine hose) and half in relatively smaller domestic cartels (thirty-six in public home foreclosure auctions, five in school bus transportation in Puerto Rico, three in heir location services, two in water treatment chemicals, one each in tax liens, hazardous waste, wall posters, oil and gas leases, and municipal bonds). The nationalities of the participants reflected this spread. Forty-eight appear to be U.S. citizens (this includes five from Puerto Rico), thirty-nine appear to be Japanese nationals. There was far less representation from other countries (five from the UK, three from Germany, and one each from Australia, Canada, Italy, and Taiwan).
My second finding is the consistency of corporate position. Taking out the home foreclosure auctions, which appear to be the activity of non-corporate actors, not one person mentioned during this time period was in a low-level corporate position. Their described positions varied—executive, general manager, group and department manager, high-level manager, director of sales and marketing—and thirteen of them were identified either as president, CEO, owner, or chairman. These are not line-level employees.
The finding of heterogeneity of cartel type and nationality should give pause to those who think that we could easily generalize about who joins cartels and why. This heterogeneity may indicate that compliance efforts in multinational corporations may need to pay more attention to varying national business cultures. It may be that the deterrent message of individual prosecutions is more difficult to transmit across countries than the Justice Department assumes.
The second finding gives some support to the argument that cartel participants are not likely to be rogues, in either sense. The employees mentioned in these press releases were high-level corporate actors, not the sort of people whose conduct is “markedly different from the standard” or who are operating in obscure low-level positions.
Nevertheless, the data also suggest that the rogue idea shouldn’t be dismissed completely. It may be that the most likely rogues are those who are at the top of the corporate structure and who operate in a way that seems to pay little attention to legality. For example, included within this group is at least one CEO of a major corporation (Aubrey McClendon of Chesapeake Energy) who was charged with rigging bids on oil and natural gas leases, conduct in which he had reportedly engaged before. Such corporate actors would present particular problems both for deterrence theory and compliance, although their corporations would be unlikely to escape prosecution unless they were in a position to cooperate in the CEO’s prosecution (which presumably was the case for McClendon’s company, which apparently cooperated and has not been charged).
Should antitrust compliance efforts be directed at rogues?
Based both on conventional wisdom and these impressionistic data, I think that the search for rogues is not a useful one for a compliance effort in the antitrust area. There are not likely to be many true rogues participating in cartels and the ones that exist are unlikely to be deterred by a compliance program.
Economic theory gives better guidance for compliance. If corporate executives are just trying to help their companies, then it might be useful to pay particular attention in times when companies need particular help and the incentives to engage in cartel behavior might be particularly strong. Behavioral economists talk about the “endowment effect,” that is, the desire of people to keep what they have as opposed to getting something they don’t, even if both have equal value. This might indicate that compliance should be particularly strong when an industry faces downward pressure on prices, for example, during periods of excess capacity or a downturn in the economy.
Of course, social factors are not irrelevant. The broad heterogeneity in cartel behavior indicates that there are likely many different factors that influence individuals to participate in cartels. Industries changing from a highly regulated environment to a free-market environment may just continue in their former “way of life.” There may be more examples of new employees coming into a job and being taught by their predecessors than we might otherwise have thought (one such case turned up in this sample). And if we assume that different corporate cultures can affect compliance, then we might need to pay attention to whether different business cultures in different countries might have similar effect. The desire to participate in cartel behavior may not be culture specific, but the willingness to participate in such behavior might be.
The focus on prosecuting the individuals who participate in cartel behavior reminds us that we don’t know enough about the identities of those individuals and why they engage in this behavior. An initial cut at the data on individual participation indicates that “roguishness” is not an adequate description of cartel participants, but that does not leave us with a good description. If prosecutors are really serious about going after individuals, and corporations are really serious about compliance, though, both will need to do a better job of understanding who participates in cartels so that they can use tools that will be appropriate for deterring them.
New York University School of Law3