In a historic shift, prosecutors with the US Department of Justice's (DOJ) antitrust division (the "Division") will now consider providing credit in the charging and sentencing stages of an antitrust criminal investigation to a company that maintains a robust and effective antitrust compliance program. The Division has published guidance entitled "Evaluation of Corporate Compliance Programs" ("Guidance"), which sets forth the nine factors that Division prosecutors will evaluate in considering whether a compliance program is sufficient to support a reduction of criminal charges and sentences. The Guidance also provides transparency and useful instruction to the business community and practitioners regarding what the Division considers best practice in antitrust compliance.
Applying only to criminal antitrust violations (such as price fixing, bid rigging and market allocation), the Division's new policy provides credit at both the charging and sentencing stages of criminal prosecutions if a company can establish that such violations took place during a time in which it maintained an "effective compliance program" as defined in the Guidance. While the Guidance sets out the nine key elements of an effective compliance program, both the Guidance and comments from Division front office prosecutors made during a panel discussion at NYU School of Law following the Division's announcement of the policy change, strongly underscore that credit will be given only if a company "promptly self-reports" a potential cartel violation after it is detected through its internal compliance measures. A failure to promptly self-report – despite a company maintaining a best practice compliance program – likely will result in no credit given.
The Division's Guidance is a positive step toward assisting companies and their antitrust counsel in drafting and implementing an antitrust compliance program. However, significant questions remain regarding the extent to which the opportunity for compliance credit will incentivize companies to self-report criminal antitrust violations. This is true particularly given the enormous risk of follow-on civil litigation (both within the US and abroad) and how the Guidance interacts with the Division's Leniency Program.
"Evaluation of corporate compliance programs"
The Division has now departed from its hardline approach of refusing to grant credit during charging or sentencing for companies that had pre-existing antitrust compliance programs, which was based on the theory that the occurrence of an antitrust violation meant that such a program was ineffective. According to Assistant Attorney General Makan Delrahim, this position reflected "an outdated view of the real world."
The Division's Guidance explains in considerable detail the elements of a robust and effective antitrust program. The Guidelines are intended to be read in conjunction with other prosecutorial guidance materials, including the "Principles of Federal Prosecution of Business Organizations" and the United States sentencing guidelines.
The Division acknowledges that while it has "no formulaic requirements regarding the evaluation of a compliance program," prosecutors should ask three preliminary questions about a company's compliance efforts to focus their analysis on a case-by-case basis:
- Does the company's compliance program address and prohibit criminal antitrust violations?
- Did the antitrust compliance program detect and facilitate prompt reporting of the violation?
- To what extent was a company's senior management involved in the violation?
The change brings the Division in alignment with the position taken by the US DOJ in non-antitrust matters, namely that "no compliance program can ever prevent all criminal activity by a corporation's employees." In doing so, the Guidance identifies nine factors that the Division should consider when evaluating a compliance program's effectiveness at the charging stage:
- Design and comprehensiveness: Division prosecutors will consider "the design, format and, comprehensiveness" of the program, including its integration into a company's business, the accessibility/type of resources for employees, and whether it existed prior to the investigation. Focus will also be on how often it is reviewed or updated.
- Culture of compliance: Emphasis is placed on whether "management has clearly articulated – and conducted themselves in accordance with – the company's commitment to good corporate citizenship." This includes consideration of the actions of senior management, their response to violations, and personal accountability for prior failures.
- Responsibility for the compliance program: A chief compliance officer or executive should be given "operational responsibility for the program," including "autonomy, authority, and seniority within the company's governance structure." He or she should also be given adequate resources for training, monitoring, auditing and evaluating the program.
- Risk assessment: A compliance program must be tailored to the company's industry and internal business lines, including common types of misconduct. Antitrust policies should be implemented accordingly, utilizing information or metrics to help detect violations and reviewed to keep abreast of legal or technological advances and lessons learned.
- Training and communication: The Guidance directs prosecutors to consider whether a program's training and communications allow employees to understand their antitrust obligations. Communication issues include the nature of the communication and method of distribution, whether antitrust policies are included in a Code of Conduct, and whether employees must certify that they have read the policy. Training considerations include who receives training, whether that training is tailored to business lines and seniority, the type, timing and format of training and whether training is updated to reflect developments.
- Review, monitoring and auditing: Regular review and audits should be undertaken to ensure the program continues to address relevant antitrust risks, to reinforce a company's commitment to compliance and to identify violations quickly. The Division will consider the method used to evaluate or audit the program and the frequency of review.
- Reporting: The program should utilize anonymous or confidential reporting methods that employees can use without fear of retaliation. Relevant factors include the type of mechanism, whether the reporting system is publicized internally, whether employees have a duty to report, and whether reports are periodically reviewed.
- Incentives and discipline: The Division will consider the incentive and discipline features of the program, including the nature of any incentives for compliance (e.g., bonus clawbacks or denial of promotions) and the type of discipline inflicted for prior violations, such as management turnover, termination or ongoing supervision.
- Remediation and role of the compliance program in the discovery of the violation: The Guidance emphasizes the importance of early detection and self-policing, as well as any remedial efforts, which should enable a company to be the first applicant for leniency. Considerations here include the role of the program in uncovering the violation, individual knowledge prior to detection, the role of senior leadership in addressing the violation and whether the program assisted the company to promptly self-report.
With respect to credit at the sentencing stage, prosecutors will follow the US Sentencing Guidelines, which enable a three-point reduction in a company's culpability score if it has an "effective" compliance program. Like at the charging stage, what is considered effective will be assessed on a case-by-case basis. Most importantly, sentencing credit will not be available, and a compliance program will be deemed ineffective, if (i) the company failed to promptly report a violation to the Division, or (ii) members of the senior management were involved in the violation.
Although the Guidance applies only to criminal cartel conduct, the Division's about-face in compliance program policy marks a significant and important shift that applies to companies of all sizes and will assist in-house counsel to craft and implement a comprehensive antitrust compliance program. Many of the elements of a robust and effective compliance program, as detailed in the Guidance, will likely be familiar to in-house counsel or compliance officers that are already tasked with ensuring compliance with other regulatory regimes. In this respect, the Guidance is a helpful reminder of the importance of compliance and will incentivize companies to review, update and modify their programs.
The Division has taken a positive step towards recognizing that a company can have an effective compliance program even in the face of a violation. In such instance, a company may still receive credit at both the charging and sentencing stages if its compliance program bears the hallmarks of a program that is robust and effective as described in the Division's Guidance.
However, it is critical to note that simply maintaining a best practice compliance program will only go so far in reducing or eliminating a company's exposure and culpability under the antitrust laws. In his speech announcing the Division's Guidance, AAG Delrahim emphasized that, to benefit under the policy, a company must be a "good corporate citizen," which requires both an effective compliance program, as well as prompt self-reporting, cooperation with the Division's investigation and remedial action. The Division has indicated that what amounts to "prompt" self-reporting will be assessed on a case-by-case basis, but there remains considerable uncertainty as to how the self-reporting requirement will play out in practice.
We note that:
- While credit for compliance may certainly increase the "carrot" for companies to pursue effective compliance programs, that incentive may be outweighed by other company considerations. Consider a situation where a company with a best practice compliance program detects a violation. While that company will be required to promptly self-report to receive credit under the Division's policy, if a company is not "first in the door" to obtain leniency, notifying the Division could result in potentially ruinous follow-on civil litigation by private plaintiffs, state Attorneys General and other global antitrust litigation or government regulators. AAG Delrahim made clear that there is no intention to have detrebling and other benefits of the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA) apply in the absence of leniency. Any benefits of prompt self-reporting, while perhaps providing credit at the charging and sentencing stages at the U.S. federal level, must therefore be weighed against the potential for additional civil and criminal liability.
- It appears that maintaining an effective compliance program will not result in non-prosecution of a company for cartel conduct, nor will it result in shifting the dial from criminal prosecution to civil action by the Division. However, the Division has indicated that it may consider a deferred prosecution agreement ("DPA") where appropriate. A decision to proceed by way of DPA depends not only on the effectiveness of a compliance program, but also many other discretionary factors that the Division is required to apply. It remains to be seen whether we will see a rise in the use of DPAs, and whether the availability of a DPA will encourage a company to invest in a best-practice compliance program.
The compliance program policy is an encouraging step towards greater transparency for businesses in determining their level of investment in internal antitrust compliance. This should provide in-house counsel and compliance officers with the support they need to encourage senior management to invest in a company's antitrust compliance efforts. It is clear, however, that a company's management will face tough decisions in determining whether the "carrot" – credit at charging and sentencing – is worth the risks that flow from prompt self-reporting. There are many competing factors at play and, in some instances, the availability of such credit may be outweighed by other interests. Despite the Division's efforts, it appears that its Leniency Program continues to remain the ultimate incentive for early detection of antitrust violations, as the only way for a company and its executives to be guaranteed amnesty from criminal enforcement action.
Despite these uncertainties, the issuance of these Guidelines is a strong step in the direction of recognizing the efforts companies take toward encouraging antitrust compliance and serves as a useful reminder of the importance of having a robust and effective antitrust compliance policy.
Norton Rose Fulbright is at the forefront of these issues. Our US Head of Antitrust and Competition, Robin Adelstein, participated as an invited panelist along with representatives of the Division's front office at the NYU School of Law, where the new policy was announced by AAG Delrahim. For more information about best practices for antitrust compliance, our antitrust team stands ready to assist. We have experienced antitrust lawyers in New York, Washington DC, and Texas, advising on US compliance programs, as well as a global team for compliance issues world-wide.
If you would like further information, please contact any of the US antitrust contacts listed below.
Robin D. Adelstein is the US Head of our Antitrust and Competition practice group. Robin's pragmatic approach to the practice of law is informed by her experience, having served as in-house antitrust and litigation counsel at Swiss healthcare company Novartis and UK alcohol beverage leader Diageo before becoming North American General Counsel of Sandoz, the generics and biosimilars division of Novartis.
Gerald A. Stein is a senior counsel in our Antitrust and Competition practice group. Gerald previously was an attorney with the Bureau of Competition at the Federal Trade Commission for more than eight years, where he investigated and litigated a variety of antitrust matters including mergers and acquisitions and anticompetitive conduct.
A special thanks to law clerk Emily Woolbank (New York), who works under the direct supervision of Robin Adelstein.