DOJ Antitrust Division Answers Questions Under Leniency Program

It would be hard to argue with the success of the revised Leniency Program that the Department of Justice Antitrust Division (“Division”) introduced 15 years ago. The program (sometimes referred to as the Amnesty Program) has brought in record fines from corporate defendants, increasing the number and length of jail terms for individuals, and provided free passes for those fortunate enough to qualify.

The Division recently issued an interesting policy paper that clarifies its position on certain issues under the program, which positions previously may have been known only to those who practice regularly in the field of criminal antitrust. The paper, titled “Frequently Asked Questions Regarding the Antitrust Division's Leniency Program and Model Leniency Letter” (“Paper”), was authored by Scott Hammond, Deputy Assistant Attorney General (“DAAG”) for Criminal Enforcement, and Belinda Barnett, Senior Counsel in the Division. In the form of answers to 33 questions, the Paper also restates the Division's position on various points regarding the program, and attaches copies of revised individual and corporate model leniency letters used by the Division. Copies are available on the Division's Web site. Mr. Hammond subsequently published an article on the Web site of the Cartel and Criminal Practice Committee of the ABA Section of Antitrust Law, which summarizes the 22-page Paper. The Paper states that “it is meant to be a comprehensive and updated resource” and will be periodically updated with input from the private bar and business community.

Following are the points most likely to be of interest to corporate counsel:

Who You Gonna Call?

Since only the first company or individual to contact the Division to apply for leniency may receive a complete pass from criminal penalties, time is of the essence. As the Paper notes, “on a number of occasions, the second company to apply for leniency has been beaten by a prior applicant by only a number of hours.” Those few hours can cost a company millions of dollars in fines and cost individuals jail time. So it is helpful to the average reader that the Division makes clear as to whom a leniency applicant should contact to initiate the process, and provides the actual phone numbers of the contacts. Mr. Hammond, the Criminal DAAG, reviews all requests for leniency and so should be the first person to call in most cases. However, counsel may also contact any one of the seven Division field offices or the National Criminal Enforcement Section in Washington, especially if counsel knows that there is already an existing investigation in one of those offices involving the subject matter of the application.

The Marker System

The Paper explains the process following the initial call, from market to conditional leniency letter to final letter. Because a company may not know definitively at first whether it has actually participated in a criminal violation of the antitrust laws, the Division developed a marker system to allow a potential applicant to hold a place in line for a finite period of time while its counsel gathers more information to support the application. Once an applicant secures a marker from the Division, no other potential applicant can “leap frog” over the applicant that has the marker. The Paper confirms Division practice that, to obtain a marker, counsel must “(1) report that he or she has uncovered some information or evidence indicating that his or her client has engaged in a criminal antitrust violation; (2) disclose the general nature of the conduct discovered; (3) identify the industry, product, or service involved in terms that are specific enough to allow the Division to determine whether leniency is still available and to protect the marker for the applicant; and (4) identify the client.”

As the Paper notes, “the evidentiary standard for obtaining a marker is relatively low ' .” However, it would not be enough to state that the client has received a grand jury subpoena or been the subject of a search warrant; there must be some information or evidence to suggest a possible violation. The Paper goes on to explain the factors that determine the length of time an applicant is given to perfect its application, notes that 30 days for an initial marker is common, and confirms that the marker may be extended at the Division's discretion if the applicant can demonstrate a good faith effort to proceed in a timely manner.

The Scope of Leniency

In the Paper, the Division emphasizes that in order to obtain a conditional leniency letter, the applicant must admit to participation in a criminal antitrust violation (i.e., price-fixing, bid-rigging, capacity restriction, or allocation of markets, customers, or sales or production volumes). Because the marker system allows a company to investigate its conduct more thoroughly before receiving a conditional leniency letter, it is no longer sufficient for the applicant to say that there is a “possible” violation.

The Paper also answers a recurring question in affirming that the leniency protection applies not just to the antitrust offense, but to any other offense committed “in connection with the anticompetitive activity being reported.” The Paper notes, however, that the leniency letter issued by the Division does not bind other prosecuting agencies. On the other hand, it points out that since the original leniency program was introduced in 1978, there have been no instances in which another prosecuting agency has prosecuted a leniency applicant for offenses consisting of conduct integral to the commission of the antitrust violation.

The Paper explains that the grant of conditional leniency usually applies to any act or offense committed “prior to the date of” the leniency letter. In the rare case in which significant time has elapsed between discovery of the anticompetitive activity and the report to the Division, the Division reserves the right to grant conditional leniency only up to the date the applicant represents that it terminated its participation in the activity.

Conditions for Leniency

DAAG Hammond represents that the Paper and the revised model letters are an attempt to make as transparent as possible the conditions that must be satisfied to obtain amnesty/leniency, and the process the Division will follow to revoke it as the circumstances require. First, the revised model letter now explicitly states that the burden is on the applicant to prove the accuracy of its representations to qualify for leniency. A letter granting unconditional leniency will follow only after the applicant: 1) establishes its eligibility for leniency; and 2) cooperates in the Division's investigation. The revised letters make clear that the Division may revoke an applicant's conditional acceptance into the program if it determines that either of these conditions have not been met. Before making a final decision to revoke leniency, the Division will provide notice to the applicant of the recommendation of the Division staff and provide counsel an opportunity to meet with the Division regarding the potential revocation.

Learning a lesson from its saga with Stolt-Nielsen (see 442 F.3d 177 (3d Cir. 2006)), the Division now requires in its leniency letter that the applicant agree not to seek judicial review of any decision by the Division to revoke conditional leniency “unless and until [the applicant] has been charged by indictment or information.” The Division contends that this is not a diminution of an applicant's rights because no defendant has a right to seek judicial review of a Division decision to indict prior to the indictment. If a corporation's conditional leniency is revoked, the Division represents that it would not elect to prosecute individual employees so long as they had fully cooperated prior to the revocation and did not continue to participate in the anticompetitive activity being reported, or obstruct or attempt to obstruct an investigation of such activity.

Applicant's Role in the Offense

A party is disqualified from receiving leniency if it was “the leader in, or the originator of” the anticompetitive activity being reported. The Paper makes clear that just because a company is the largest in the industry or has the greatest market share, this will not disqualify it from receiving leniency on these grounds. Likewise, the Paper gives an example of two ringleaders in a five-firm conspiracy, noting that all of the firms, including the two leaders, are potentially eligible for leniency since there is no single leader.

Termination of the Anticompetitive Activity

Another condition to receiving leniency is that the applicant “take prompt and effective action to terminate its participation in the anticompetitive activity being reported upon discovery of the activity.” Questions often arise as to just what steps are required in a particular situation. Discovery of the activity is defined to mean when the board of directors or inside or outside counsel was first informed of the conduct at issue. The Paper then clarifies that a “primary consideration is what steps are taken by management in response to the discovery of the anticompetitive activity being reported.” Among other things, the company must not use those individuals who were involved in the activity to conduct the investigation, formulate the company's response, or determine appropriate disciplinary action against the participants.

The Paper states the obvious in instructing that a company must stop further participation in the activity being reported, unless the Division staff request otherwise in order to assist with the investigation (e.g., to monitor and record discussions with other participants). So long as a company stops the activity, it will not be disqualified “merely because the applicant did not take some particular action.”

The Division also notes that it would not revoke a company's conditional acceptance into the leniency program because a lower level employee, in a remote office, continued for some short period of time to have conspiratorial contacts with his or her counterpart. The company has not met its burden, however, if it allows the culpable employees to remain in the same position with no repercussions or inadequate supervision and fails to prevent them from continuing to engage in the actual anticompetitive activity.

Other Clarifications

The Paper reiterates the Division's policy, in accord with current DOJ procedure, that the applicant is not required to provide, as part of its cooperation, documents or communications that are protected by the attorney-client privilege or work product immunity. Similarly, disclosures made by counsel in furtherance of a leniency application are not deemed to constitute a waiver of any privilege.

The Paper also warns that unauthorized disclosures about the application or the investigation could constitute obstruction, so an applicant should discuss with the Division staff the details of informing others within the company or outside it. Other topics covered include: 1) what happens when during
the investigation the company discovers that the scope of the activity is greater than initially believed, either in duration or markets involved; 2) what happens when individual executives refuse to cooperate; 3) whether present and former officers, directors, and employees are covered; 4) the need to make restitution; and 5) whether the Division may disclose information from an applicant to a foreign government.

The Division has made efforts to be transparent about its Leniency Program by issuing papers and making speeches from time to time. The Paper is the latest and most comprehensive effort in that direction, for which the Division deserves credit.

Richard E. Donovan is a partner and co-chair of the litigation and antitrust/trade regulation practice groups at Kelley Drye & Warren LLP, New York. He focuses his practice on antitrust and trade regulation issues, internal investigations and commercial litigation. Donovan can be reached at [email protected].

It would be hard to argue with the success of the revised Leniency Program that the Department of Justice Antitrust Division (“Division”) introduced 15 years ago. The program (sometimes referred to as the Amnesty Program) has brought in record fines from corporate defendants, increasing the number and length of jail terms for individuals, and provided free passes for those fortunate enough to qualify.

The Division recently issued an interesting policy paper that clarifies its position on certain issues under the program, which positions previously may have been known only to those who practice regularly in the field of criminal antitrust. The paper, titled “Frequently Asked Questions Regarding the Antitrust Division's Leniency Program and Model Leniency Letter” (“Paper”), was authored by Scott Hammond, Deputy Assistant Attorney General (“DAAG”) for Criminal Enforcement, and Belinda Barnett, Senior Counsel in the Division. In the form of answers to 33 questions, the Paper also restates the Division's position on various points regarding the program, and attaches copies of revised individual and corporate model leniency letters used by the Division. Copies are available on the Division's Web site. Mr. Hammond subsequently published an article on the Web site of the Cartel and Criminal Practice Committee of the ABA Section of Antitrust Law, which summarizes the 22-page Paper. The Paper states that “it is meant to be a comprehensive and updated resource” and will be periodically updated with input from the private bar and business community.

Following are the points most likely to be of interest to corporate counsel:

Who You Gonna Call?

Since only the first company or individual to contact the Division to apply for leniency may receive a complete pass from criminal penalties, time is of the essence. As the Paper notes, “on a number of occasions, the second company to apply for leniency has been beaten by a prior applicant by only a number of hours.” Those few hours can cost a company millions of dollars in fines and cost individuals jail time. So it is helpful to the average reader that the Division makes clear as to whom a leniency applicant should contact to initiate the process, and provides the actual phone numbers of the contacts. Mr. Hammond, the Criminal DAAG, reviews all requests for leniency and so should be the first person to call in most cases. However, counsel may also contact any one of the seven Division field offices or the National Criminal Enforcement Section in Washington, especially if counsel knows that there is already an existing investigation in one of those offices involving the subject matter of the application.

The Marker System

The Paper explains the process following the initial call, from market to conditional leniency letter to final letter. Because a company may not know definitively at first whether it has actually participated in a criminal violation of the antitrust laws, the Division developed a marker system to allow a potential applicant to hold a place in line for a finite period of time while its counsel gathers more information to support the application. Once an applicant secures a marker from the Division, no other potential applicant can “leap frog” over the applicant that has the marker. The Paper confirms Division practice that, to obtain a marker, counsel must “(1) report that he or she has uncovered some information or evidence indicating that his or her client has engaged in a criminal antitrust violation; (2) disclose the general nature of the conduct discovered; (3) identify the industry, product, or service involved in terms that are specific enough to allow the Division to determine whether leniency is still available and to protect the marker for the applicant; and (4) identify the client.”

As the Paper notes, “the evidentiary standard for obtaining a marker is relatively low ' .” However, it would not be enough to state that the client has received a grand jury subpoena or been the subject of a search warrant; there must be some information or evidence to suggest a possible violation. The Paper goes on to explain the factors that determine the length of time an applicant is given to perfect its application, notes that 30 days for an initial marker is common, and confirms that the marker may be extended at the Division's discretion if the applicant can demonstrate a good faith effort to proceed in a timely manner.

The Scope of Leniency

In the Paper, the Division emphasizes that in order to obtain a conditional leniency letter, the applicant must admit to participation in a criminal antitrust violation (i.e., price-fixing, bid-rigging, capacity restriction, or allocation of markets, customers, or sales or production volumes). Because the marker system allows a company to investigate its conduct more thoroughly before receiving a conditional leniency letter, it is no longer sufficient for the applicant to say that there is a “possible” violation.

The Paper also answers a recurring question in affirming that the leniency protection applies not just to the antitrust offense, but to any other offense committed “in connection with the anticompetitive activity being reported.” The Paper notes, however, that the leniency letter issued by the Division does not bind other prosecuting agencies. On the other hand, it points out that since the original leniency program was introduced in 1978, there have been no instances in which another prosecuting agency has prosecuted a leniency applicant for offenses consisting of conduct integral to the commission of the antitrust violation.

The Paper explains that the grant of conditional leniency usually applies to any act or offense committed “prior to the date of” the leniency letter. In the rare case in which significant time has elapsed between discovery of the anticompetitive activity and the report to the Division, the Division reserves the right to grant conditional leniency only up to the date the applicant represents that it terminated its participation in the activity.

Conditions for Leniency

DAAG Hammond represents that the Paper and the revised model letters are an attempt to make as transparent as possible the conditions that must be satisfied to obtain amnesty/leniency, and the process the Division will follow to revoke it as the circumstances require. First, the revised model letter now explicitly states that the burden is on the applicant to prove the accuracy of its representations to qualify for leniency. A letter granting unconditional leniency will follow only after the applicant: 1) establishes its eligibility for leniency; and 2) cooperates in the Division's investigation. The revised letters make clear that the Division may revoke an applicant's conditional acceptance into the program if it determines that either of these conditions have not been met. Before making a final decision to revoke leniency, the Division will provide notice to the applicant of the recommendation of the Division staff and provide counsel an opportunity to meet with the Division regarding the potential revocation.

Learning a lesson from its saga with Stolt-Nielsen (see 442 F.3d 177 (3d Cir. 2006)), the Division now requires in its leniency letter that the applicant agree not to seek judicial review of any decision by the Division to revoke conditional leniency “unless and until [the applicant] has been charged by indictment or information.” The Division contends that this is not a diminution of an applicant's rights because no defendant has a right to seek judicial review of a Division decision to indict prior to the indictment. If a corporation's conditional leniency is revoked, the Division represents that it would not elect to prosecute individual employees so long as they had fully cooperated prior to the revocation and did not continue to participate in the anticompetitive activity being reported, or obstruct or attempt to obstruct an investigation of such activity.

Applicant's Role in the Offense

A party is disqualified from receiving leniency if it was “the leader in, or the originator of” the anticompetitive activity being reported. The Paper makes clear that just because a company is the largest in the industry or has the greatest market share, this will not disqualify it from receiving leniency on these grounds. Likewise, the Paper gives an example of two ringleaders in a five-firm conspiracy, noting that all of the firms, including the two leaders, are potentially eligible for leniency since there is no single leader.

Termination of the Anticompetitive Activity

Another condition to receiving leniency is that the applicant “take prompt and effective action to terminate its participation in the anticompetitive activity being reported upon discovery of the activity.” Questions often arise as to just what steps are required in a particular situation. Discovery of the activity is defined to mean when the board of directors or inside or outside counsel was first informed of the conduct at issue. The Paper then clarifies that a “primary consideration is what steps are taken by management in response to the discovery of the anticompetitive activity being reported.” Among other things, the company must not use those individuals who were involved in the activity to conduct the investigation, formulate the company's response, or determine appropriate disciplinary action against the participants.

The Paper states the obvious in instructing that a company must stop further participation in the activity being reported, unless the Division staff request otherwise in order to assist with the investigation (e.g., to monitor and record discussions with other participants). So long as a company stops the activity, it will not be disqualified “merely because the applicant did not take some particular action.”

The Division also notes that it would not revoke a company's conditional acceptance into the leniency program because a lower level employee, in a remote office, continued for some short period of time to have conspiratorial contacts with his or her counterpart. The company has not met its burden, however, if it allows the culpable employees to remain in the same position with no repercussions or inadequate supervision and fails to prevent them from continuing to engage in the actual anticompetitive activity.

Other Clarifications

The Paper reiterates the Division's policy, in accord with current DOJ procedure, that the applicant is not required to provide, as part of its cooperation, documents or communications that are protected by the attorney-client privilege or work product immunity. Similarly, disclosures made by counsel in furtherance of a leniency application are not deemed to constitute a waiver of any privilege.

The Paper also warns that unauthorized disclosures about the application or the investigation could constitute obstruction, so an applicant should discuss with the Division staff the details of informing others within the company or outside it. Other topics covered include: 1) what happens when during
the investigation the company discovers that the scope of the activity is greater than initially believed, either in duration or markets involved; 2) what happens when individual executives refuse to cooperate; 3) whether present and former officers, directors, and employees are covered; 4) the need to make restitution; and 5) whether the Division may disclose information from an applicant to a foreign government.

The Division has made efforts to be transparent about its Leniency Program by issuing papers and making speeches from time to time. The Paper is the latest and most comprehensive effort in that direction, for which the Division deserves credit.

Richard E. Donovan is a partner and co-chair of the litigation and antitrust/trade regulation practice groups at Kelley Drye & Warren LLP, New York. He focuses his practice on antitrust and trade regulation issues, internal investigations and commercial litigation. Donovan can be reached at [email protected].