The Challenges Facing the Antitrust Leniency Program and the Yates Memorandum

The Justice Department’s Antitrust Division has a long history of independence within the US Department of Justice. Antitrust enforcement was considered a unique area requiring a specialized understanding of markets and economics.

In the civil enforcement area, this expertise and understanding of economics, competition and business makes sense. As a former prosecutor, the Antitrust Division’s prosecution of criminal violations is not so unique. Antitrust prosecutors like to think it is a unique area requiring a specific expertise. However, criminal cases can be complex in any arena depending on the statutes being enforced and the particular facts.

The Antitrust Division’s Leniency Program has been an unqualified success. A number of countries have followed the Antitrust Division’s lead and enacted similar programs to prosecute cartel activity.

In simple terms, the Antitrust Division offers full immunity to the first company reporting a cartel. The scope of the full immunity may depend on whether the government has initiated an investigation. In the classic Type A situation, a company reporting the cartel will receive immunity and the directors, officers and employees will be covered by the immunity so long as they cooperate and provide truthful information to Antitrust Division prosecutors. The Antitrust Division prosecutors use the terminology of “carve in” for individuals who are covered by the immunity, and “carve out” for the individuals excluded from the company’s immunity and subject to prosecution.

The Antitrust Division’s record of prosecutions is impressive. Coupled with its successful antitrust leniency program, the Antitrust Division has increased its prosecution of culpable individuals. For years, the ratio of individual prosecutions was 1:1, grew to 2:1, and now stands at approximately 3 individuals for every corporate settlement/prosecution. The Antitrust Division’s record on individual prosecutions is mature and shows the importance of attention to holding individuals accountable.

When the Department of Justice announced the Yates Memorandum in 2015, the Antitrust Division’s leniency program was specifically excluded from the requirement of holding culpable individuals accountable. The Antitrust Division’s leniency program requires immunity awards to directors, officers and employees who cooperate. Even with the immunity awards, the Antitrust Division has been able to prosecute a large number of culpable individuals.

The Antitrust Division’s leniency program is not without its critics. Some question the wisdom of rewarding a bad actor (or sometimes the worst actor in a cartel) with immunity while holding the other participant companies accountable. The worst actor in a cartel may have an incentive to break ranks and report a cartel to secure immunity before one of its co-conspirators turns in the bad actor.

Even with the success of the leniency program and a record of success in prosecuting individuals, the Antitrust Division is feeling pressure from the US Department of Justice to rein in the leniency program, and in particular, the award of leniency to culpable individuals. This has become evident in two contexts.

First, the Antitrust Division recently announced modifications to the leniency program to restrict the automatic award of immunity to former directors, officers and employees. Prior to this announcement, former directors, officers and employees received immunity under the same standard applied to existing directors, officers and employees.

Second, the Antitrust Division has informally sought to require directors, officers and employees to disclose knowledge or participation in cartel activity involving related markets as a condition to immunity in the original market. Depending on how this is enforced, individuals may face serious questions when a company decides to cooperate.

Let’s consider this hypothetical: If an officer participated in cartel activity in product A and B, and a company seeks leniency in product A, the officer faces a difficult decision. If the officer cooperates in product A, the officer may not receive immunity for product A, unless the officer discloses his/her involvement in product B. If the company cannot earn Type A leniency in product B and would be the second or third company, for example, to report the cartel activity, the officer faces a greater risk of prosecution for his/her activity in product B. Under this scenario, the officer has an incentive to disclose his/her role in product A to earn immunity in that market but does not have the same incentive for product B because he/she may be carved out of the product B settlement, meaning he/she will face the choice of pleading guilty or challenging the case at trial.

It is easy to see the challenges in this scenario. In the past, the Antitrust Division may have been more accommodating of the officer’s predicament. However, the Antitrust Division is subject to influence from prosecutors in the Criminal Division and at US Attorney’s Offices who like to stick to a common theme – if an individual cooperates in one area, the individual must cooperate in all areas, meaning you have to cooperate completely and truthfully in all areas where you have information that may assist the government.

The implications of this policy will be significant and the Antitrust Division and defense bar will likely struggle with these situations to ensure a fair outcome while maintaining incentives for companies and individuals to cooperate under the leniency program.

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