The Antitrust Division's Corporate Lenience Program

Informed that it was ejected, Stolt-Nielsen brought an action to enforce the signed amnesty agreement and enjoin prosecution. The district court ruled for the company, and issued an order enjoining the prosecution, but the Third Circuit reversed, holding that the separation-of-powers doctrine prevented courts from enjoining a prosecution. Stolt-Nielsen was indicted last September.

Some defense attorneys have questioned why they should bring their clients in to confess antitrust violations if the reward can be an indictment. The Leniency Program required companies to take a leap of faith, believing that in exchange for confession, a company would receive significant benefits. But Stolt-Nielsen cooperated and was indicted along with its non-cooperating coconspirators.

Thinking Twice

Stolt-Nielsen reaffirms a principle for dealing with the government: Any statement made to prosecutors must be carefully evaluated to ensure its truthfulness and completeness. If a company approaches the Division hoping to receive amnesty for criminal activity, it must not misstate, even inadvertently, the illegal conduct or its role in it. At the same time, while Stolt-Nielsen's problems provide a vivid example of the potential perils of making misstatements during amnesty negotiations, it's easy to overstate the effect that the case should have on a company's decision whether to seek amnesty.

According to the published decisions, attorneys for the company told the DOJ that the company's participation in the conspiracy ended in March 2002. When the DOJ investigated the matter after the amnesty agreement, however, it discovered, perhaps through documentary evidence, that the company's participation continued until November 2002. Finding that the company had materially misrepresented its participation in criminal activity, the Division revoked the amnesty. Even if Stolt-Nielsen's misrepresentations were unintentional, they left the company exposed to prosecution without any protection from the Leniency Program.

From the government standpoint, if the Leniency Program is to function effectively, prosecutors must be assured that the first cooperator is telling the complete truth about the scope of illegal activity and the cooperator's role in it. Indeed, if a company could secure amnesty by providing inaccurate information, it would be unfair to other companies considering whether to engage in a truthful discussion with the government over their own roles in the misconduct.

A New Trend?

There is little reason to think that the Division's decision to oust Stolt-Nielsen from the Leniency Program marks a new trend. The Division has collected billions of dollars from its Leniency Program, and its efforts would be undermined if defense attorneys came to believe that they could not trust the Division to grant amnesty when their clients were the first cooperators in an investigation. The Division has every reason to maintain the confidence of the antitrust bar. There have been no reports of more companies being ejected from the Leniency Program, and amnesty applicants keep coming.

Moreover, the risk of reporting illegal conduct, even after Stolt-Nielsen, is outweighed by the risk that another party will cooperate first and trigger a prosecution. The incentives of the Leniency Program remain the same: report your illegal conduct or face the full consequences. While Stolt-Nielsen reportedly made the mistake of reporting misconduct inaccurately, any added concern about truthfulness in disclosure should not outweigh the risk to a company if it is indicted for an antitrust violation. As the last several years have shown in several high-profile cases, federal prosecutors are more willing than ever to prosecute corporations, even when an indictment will effectively liquidate the company. In situations where it is clear that a company has engaged in illegal anticompetitive conduct, any risks associated with seeking amnesty are insignificant compared to the possible death penalty of a criminal indictment.

Thus, Stolt-Nielsen's experience with the Division should not keep a company from seeking amnesty. It does mean, however, that defense counsel should be even more careful than usual to avoid misstatements and update any disclosures when new facts come to light. Moreover, although counsel often try to restrict information about an internal investigation to those employees who need to know, it may be wise to consult a wider group to ensure that counsel are hearing the full story of the illegal conduct. If more employees review and approve the disclosures to the government, it is less likely that those disclosures will omit crucial facts.

Under the Leniency Program, employees at a company that receives amnesty generally are protected just like their employer. Employees therefore have an incentive to cooperate in an internal investigation to ensure that the full story is told to DOJ and that their employer is accepted into the Leniency Program. Counsel would be wise to explain to employees that their interests are aligned with their employer's in this regard and that there is no reason to hold back facts. When communication is lacking, employees who have information that would clarify the company's representations may be excluded from the process, and that exclusion creates the risk of an incomplete or inaccurate disclosure. DOJ certainly believed that Stolt-Nielsen had intentionally misrepresented its participation in illegal activity and therefore did not deserve amnesty. Whether it will take the same position with regard to unintentional but significant misstatements is not yet clear. The best policy is to explain to relevant employees early on why full and accurate disclosure is the necessary to avoid prosecution.

Restitution Under the Leniency Program

While the Leniency Program is often portrayed as a free pass for the first cooperating company, even a successful amnesty recipient is required to make restitution to any victims of its anticompetitive conduct. In many cases, the amnesty recipient might be happy to pay only restitution ' essentially whatever money is necessary to make the victims whole ' rather than the much greater penalties usually associated with a criminal plea or conviction, which can range from substantial fines to treble damages.

Nonetheless, it's the Division that will determine the amount of restitution ' at the end of amnesty negotiations, when the company may well have disclosed all it knows and be of little further use to prosecutors. When it comes time to determine the amount, the company may be in a weak negotiating position, leaving the Division free to set a number that the company has little choice but to pay, even if it's considerably higher than what the applicant believes appropriate.

The requirement of restitution to victims should not in itself prevent a company from seeking amnesty, but, to avoid surprises, counsel should advise their clients about the restitution under the Leniency Program before starting discussions with the government. While the amount of restitution will probably be far less than any fine paid if the company were convicted, it's important to warn the company that it might be saddled with a considerable restitution payment.

Conclusion

Stolt-Nielsen should not keep a company from seeking amnesty. But the case points out the considerable risks of making an inaccurate disclosure to the government when negotiating an amnesty agreement. Counsel negotiating such agreements should take steps to ensure full and truthful disclosure, including an especially thorough internal investigation to confirm that aspects of the company's conduct have not been overlooked and excluded from the disclosures.

Ryan Malone ([email protected]) is in the Washington, DC, office of Ropes & Gray LLP. His practice focuses on criminal and civil litigation.

Antitrust practitioners and companies worried about antitrust prosecution are weighing the significance of Stolt-Nielsen S.A. v. United States, 442 F.3d 177 (3d Cir. 2006), which held that the Department of Justice (DOJ) could still prosecute a company after it had been accepted into the Antitrust Division's Corporate Leniency Program. Under the Program, adopted in 1993, a company engaged in antitrust violations that qualifies for leniency will not be prosecuted, provided that it confesses its wrongdoing, agrees to cooperate in an investigation of co-conspirators, and makes restitution to victims of its illegal conduct. The Program offers protection from both criminal prosecution and treble damages in subsequent civil antitrust suits.

But there's a catch. Amnesty is available only to the first company in a given cartel or conspiracy that cooperates with the Division. The second company in the door is not guaranteed anything, no matter how extensive its cooperation, and it may wind up with no leniency at all. This 'winner take all' policy creates a rush to the prosecutor's office to report illegal conduct.

Given the success and widespread acceptance of the Program, the recent decision by the Division to eject a cooperating company generated attention and controversy. Stolt-Nielsen was the first amnesty recipient to lose its status and face indictment. The Division claimed that Stolt-Nielsen's disclosures of an anticompetitive ocean-shipping cartel had been incomplete, and that during amnesty negotiations Stolt-Nielsen had misrepresented its own illegal conduct.

Informed that it was ejected, Stolt-Nielsen brought an action to enforce the signed amnesty agreement and enjoin prosecution. The district court ruled for the company, and issued an order enjoining the prosecution, but the Third Circuit reversed, holding that the separation-of-powers doctrine prevented courts from enjoining a prosecution. Stolt-Nielsen was indicted last September.

Some defense attorneys have questioned why they should bring their clients in to confess antitrust violations if the reward can be an indictment. The Leniency Program required companies to take a leap of faith, believing that in exchange for confession, a company would receive significant benefits. But Stolt-Nielsen cooperated and was indicted along with its non-cooperating coconspirators.

Thinking Twice

Stolt-Nielsen reaffirms a principle for dealing with the government: Any statement made to prosecutors must be carefully evaluated to ensure its truthfulness and completeness. If a company approaches the Division hoping to receive amnesty for criminal activity, it must not misstate, even inadvertently, the illegal conduct or its role in it. At the same time, while Stolt-Nielsen's problems provide a vivid example of the potential perils of making misstatements during amnesty negotiations, it's easy to overstate the effect that the case should have on a company's decision whether to seek amnesty.

According to the published decisions, attorneys for the company told the DOJ that the company's participation in the conspiracy ended in March 2002. When the DOJ investigated the matter after the amnesty agreement, however, it discovered, perhaps through documentary evidence, that the company's participation continued until November 2002. Finding that the company had materially misrepresented its participation in criminal activity, the Division revoked the amnesty. Even if Stolt-Nielsen's misrepresentations were unintentional, they left the company exposed to prosecution without any protection from the Leniency Program.

From the government standpoint, if the Leniency Program is to function effectively, prosecutors must be assured that the first cooperator is telling the complete truth about the scope of illegal activity and the cooperator's role in it. Indeed, if a company could secure amnesty by providing inaccurate information, it would be unfair to other companies considering whether to engage in a truthful discussion with the government over their own roles in the misconduct.

A New Trend?

There is little reason to think that the Division's decision to oust Stolt-Nielsen from the Leniency Program marks a new trend. The Division has collected billions of dollars from its Leniency Program, and its efforts would be undermined if defense attorneys came to believe that they could not trust the Division to grant amnesty when their clients were the first cooperators in an investigation. The Division has every reason to maintain the confidence of the antitrust bar. There have been no reports of more companies being ejected from the Leniency Program, and amnesty applicants keep coming.

Moreover, the risk of reporting illegal conduct, even after Stolt-Nielsen, is outweighed by the risk that another party will cooperate first and trigger a prosecution. The incentives of the Leniency Program remain the same: report your illegal conduct or face the full consequences. While Stolt-Nielsen reportedly made the mistake of reporting misconduct inaccurately, any added concern about truthfulness in disclosure should not outweigh the risk to a company if it is indicted for an antitrust violation. As the last several years have shown in several high-profile cases, federal prosecutors are more willing than ever to prosecute corporations, even when an indictment will effectively liquidate the company. In situations where it is clear that a company has engaged in illegal anticompetitive conduct, any risks associated with seeking amnesty are insignificant compared to the possible death penalty of a criminal indictment.

Thus, Stolt-Nielsen's experience with the Division should not keep a company from seeking amnesty. It does mean, however, that defense counsel should be even more careful than usual to avoid misstatements and update any disclosures when new facts come to light. Moreover, although counsel often try to restrict information about an internal investigation to those employees who need to know, it may be wise to consult a wider group to ensure that counsel are hearing the full story of the illegal conduct. If more employees review and approve the disclosures to the government, it is less likely that those disclosures will omit crucial facts.

Under the Leniency Program, employees at a company that receives amnesty generally are protected just like their employer. Employees therefore have an incentive to cooperate in an internal investigation to ensure that the full story is told to DOJ and that their employer is accepted into the Leniency Program. Counsel would be wise to explain to employees that their interests are aligned with their employer's in this regard and that there is no reason to hold back facts. When communication is lacking, employees who have information that would clarify the company's representations may be excluded from the process, and that exclusion creates the risk of an incomplete or inaccurate disclosure. DOJ certainly believed that Stolt-Nielsen had intentionally misrepresented its participation in illegal activity and therefore did not deserve amnesty. Whether it will take the same position with regard to unintentional but significant misstatements is not yet clear. The best policy is to explain to relevant employees early on why full and accurate disclosure is the necessary to avoid prosecution.

Restitution Under the Leniency Program

While the Leniency Program is often portrayed as a free pass for the first cooperating company, even a successful amnesty recipient is required to make restitution to any victims of its anticompetitive conduct. In many cases, the amnesty recipient might be happy to pay only restitution ' essentially whatever money is necessary to make the victims whole ' rather than the much greater penalties usually associated with a criminal plea or conviction, which can range from substantial fines to treble damages.

Nonetheless, it's the Division that will determine the amount of restitution ' at the end of amnesty negotiations, when the company may well have disclosed all it knows and be of little further use to prosecutors. When it comes time to determine the amount, the company may be in a weak negotiating position, leaving the Division free to set a number that the company has little choice but to pay, even if it's considerably higher than what the applicant believes appropriate.

The requirement of restitution to victims should not in itself prevent a company from seeking amnesty, but, to avoid surprises, counsel should advise their clients about the restitution under the Leniency Program before starting discussions with the government. While the amount of restitution will probably be far less than any fine paid if the company were convicted, it's important to warn the company that it might be saddled with a considerable restitution payment.

Conclusion

Stolt-Nielsen should not keep a company from seeking amnesty. But the case points out the considerable risks of making an inaccurate disclosure to the government when negotiating an amnesty agreement. Counsel negotiating such agreements should take steps to ensure full and truthful disclosure, including an especially thorough internal investigation to confirm that aspects of the company's conduct have not been overlooked and excluded from the disclosures.

Ryan Malone ([email protected]) is in the Washington, DC, office of Ropes & Gray LLP. His practice focuses on criminal and civil litigation.