Attorneys who represent companies seeking leniency for possible antitrust violations are hailing recent moves by the Antitrust Division of the U.S. Department of Justice to clarify aspects of its longtime leniency program.

The clarifications have attracted the attention of and praise from defense lawyers who focus on antitrust matters for their corporate clients.

WilmerHale attorney Thomas Mueller, co-chairman of his firm’s antitrust group in Washington, D.C., recently moderated a nationwide conference call, sponsored by the American Bar Association’s Cartel and Criminal Practice Committee, on the DOJ’s policy paper on the leniency program.

“They have collected and codified what has evolved” since the program was last modified 15 years ago. “They have structured it well,” Mueller said, crediting the program’s “transparency and its certainty” with its overall effectiveness.

Speaking at another ABA event a few days earlier in San Francisco, the Antitrust Division’s acting assistant attorney general, Scott D. Hammond, offered a detailed summary of the impact of the clarifications.

Hammond also touted the transparency of his agency’s effort to provide leniency in antitrust cases, which can carry severe penalties for companies found to have engaged in price-fixing, bid-rigging and other collusive activities that fall under the provisions of the Sherman Antitrust Act.

“The [frequently asked questions] and revised model leniency letters are part of the division’s long-standing effort to maintain transparency and provide guidance in the implementation of the division’s leniency program,” Hammond said.

Among the topics covered in the FAQs are: the conditions for leniency protection; the division’s policy on the production of attorney-client privileged information; the type of violations covered by the conditional leniency letter; the non-prosecution period contained in a conditional leniency letter; and the dual investigations leniency letter. (See sidebar for a list of conditions and other requirements pertaining to leniency applications.)

Learning from a loss

Boston attorney William N. Berkowitz, co-chairman of Bingham McCutchen’s antitrust and trade regulation group, said there are two revisions to the leniency program that are particularly significant:

• A leniency applicant must admit to an antitrust violation to receive a conditional leniency letter. The previous version of the letter granted amnesty to an applicant reporting a “possible” violation, creating what Berkowitz said was “uncertainty” about whether an applicant had to admit to a violation before receiving the letter. Under the revision, the word “possible” has been deleted.
• Berkowitz said there also had been uncertainty about what constituted discovery of the illegal activity. In clarifying what is meant by the word “discovery,” the Antitrust Division now states that “the fact that top executives, board members, or owners participate in the conspiracy does not necessarily bar the corporation from eligibility for leniency.” Instead, the division “generally considers the corporation to have discovered the illegal activity at the earliest date on which either the board of directors or counsel for the corporation … was first informed of the conduct at issue.”

Berkowitz and others speculated that the Antitrust Division decided to revise its leniency program about a year ago after the government lost in Stolt-Nielsen Transportation Group Ltd. v. United States, 534 F.3d 728 (D.C. Cir. 2008).

In that case, Berkowitz explained, a group of shippers had engaged in bid-rigging and price-fixing and had been indicted by the government, but the conviction was dismissed after a federal court found that the plaintiff had complied with the terms of the leniency agreement.
That outcome, Berkowitz believes, prompted a review of the leniency program during much of 2008 and the issuance of the changes at the end of the year.

‘Very powerful sticks’

In the 30-plus years since the program was first implemented and especially since it was revamped in 1993 and 1994, “it has been an extraordinarily successful program for the DOJ,” Berkowitz acknowledged. In particular, he said that it has generated “a heap of money” in the fines collected from violators — more than $630 million in fiscal year 2007, by his estimate — “and it is going up substantially.”

The effectiveness of the program, Berkowitz said, lies in its ability to set up “a great race to confess antitrust violations. At the finish line, the winner gets a stay-out-of-jail-free card, no fines and the elimination of the trebling component of damages in civil suits.”

The second-place contender, he said, “gets nothing,” leaving to the prosecutor’s discretion the decision of whether the DOJ will discount fines or jail sentences for that applicant.
Those fines and prison terms have been “very severe” and have been increasing in recent years, according to WilmerHale’s Mueller.

In 2004, the maximum jail sentence was upped from three years to 10 years; the statutory maximum fine is $100 million, “but you can go above that,” Mueller said, citing as examples leniency agreements by an electronics manufacturer to pay $400 million and by an international airline to pay $350 million.

“The government has very powerful sticks,” he said.

Nonetheless, Mueller remains convinced of the program’s value. “It’s been enormously effective in bringing cases,” he said, “[and] it has opened up a lot of investigations. It’s transparent; it’s fairly administered; and it does provide companies a good alternative to deal with significant liabilities.”

Mueller recalled that, in its earlier incarnation, the program was not considered to be effective. “It used to be discretionary,” with the result that leniency applicants “didn’t know what they were getting.”

Berkowitz, too, praised the program, saying, “It has been so successful it is a model for other nations. … The DOJ, under [the administrations of presidents] Clinton and Bush have utilized it effectively, and I think that will continue under the Obama administration.”

Antitrust Division lays down law on leniency agreements

The following is a list of the conditions under which the U.S. Department of Justice’s Antitrust Division will grant leniency to a corporation reporting illegal activity before an investigation has begun:

• At the time the corporation comes forward to report the illegal activity, the division has not received information about the illegal activity being reported from any other source.
• The corporation, on its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity.
• The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the division throughout the investigation.
• The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials.
• Where possible, the corporation makes restitution to injured parties.
• The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.

The Antitrust Division has also established alternative requirements for leniency if a corporation comes forward to report illegal antitrust activity but does not meet all six of the above conditions. The corporation, whether it comes forward before or after an investigation has begun, will be granted leniency if the following conditions are met:

• The corporation is the first one to come forward and qualify for leniency with respect to the illegal activity being reported.
• The division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction.
• The corporation, on its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity.
• The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation that advances the division in its investigation.
• The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials.
• Where possible, the corporation makes restitution to injured parties.
• The division determines that granting leniency would not be unfair to others, considering the nature of the illegal activity, the confessing corporation’s role in it and when the corporation comes forward.

The Antitrust Division has developed a leniency page on its website, available at http://www.usdoj.gov/atr/public
/criminal /leniency.htm.