Federal Criminal Antitrust Enforcement

The record antitrust penalties imposed in FY2012 do not reflect the generally smaller fines imposed on a larger number of corporate antitrust defendants, though the Antitrust Division continued filing relatively large numbers of charging documents (averaging 72 per year), for each of the last three years. Antitrust defendants paid an additional $220 million in restitution and disgorgement paid to federal and state agencies, for a total of $1.35 billion with the criminal penalties, which better reflects the costs imposed by established violations of U.S. antitrust law.'

Of the criminal antitrust penalties over $10 million imposed in the last three fiscal years, nearly 85% were paid by foreign corporate defendants. Similarly, approximately 75% of individual defendants in criminal antitrust prosecutions over the past three years were not U.S. citizens or U.S. residents. This continues the aggressive enforcement of U.S. antitrust law on competitor agreements outside the United States that result in goods or services sold into the United States at prices affected by the competitors' agreement, an enforcement policy initiated notably under the Clinton Administration and continued by all succeeding administrations.

Periods of incarceration for individual defendants convicted of antitrust violations increased materially over the last three years. Periods of incarceration imposed in FY2010 to FY2012 increased to an average of 25 months from an average of 20 months for the preceding decade's annual average. The Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (Public Law 108-237) increased the maximum period of incarceration for a violation of 15 U.S.C. ' 1 from three to 10 years. To date, only one prison sentence of four years imposed by a U.S. district court has exceeded the three-year maximum that existed before the 2004 amendments to the Sherman Act criminal penalties.'

Policy Changes

The Obama Antitrust Division initiated several important policy changes during the last three years, of which we discuss three. Most notably, in 2013 the Antitrust Division reversed a policy regarding plea negotiations with corporate defendants in which certain employees or officers would be excluded from the benefit of non-prosecution provisions in the plea agreement (commonly called “carve-outs”), and named in the publicly available documents related to the plea agreement. DOJ, Antitrust Division, “Statement of Assistant Attorney General Bill Baer on Changes to Antitrust Division's Carve-Out Practice Regarding Corporate Plea Agreements,” April 12, 2013, available at http://1.usa.gov/1dsJEGQ.

Prior to the policy change, the Antitrust Division was the only criminal prosecuting division of the DOJ that publicly stated individuals who were not included in non-prosecution provisions of corporate plea agreements, prompting a common quip that the “Scarlet A” means “antitrust” in this circumstance. The Antitrust Division will now identify excluded individuals in an annex to the corporate plea agreement, and seek leave to file the annex under seal, which district judges commonly permit as standard procedure.

Related to this policy change, the Antitrust Division announced that it will no longer exclude individuals from non-prosecution provisions of corporate plea agreements solely because an individual does not cooperate in the Antitrust Division's investigation. The Antitrust Division states that it will now exclude only those individuals who are “potential targets” of the investigation. Previously, the Antitrust Division had carved out employees “for reasons unrelated to culpability.” Id.

In 2011, the Antitrust Division entered into its first non-prosecution agreements (NPA) with respect to four financial institutions' alleged manipulation of municipal bond prices. In February 2012, the Antitrust Division entered into its first deferred prosecution agreement (DPA) with Royal Bank of Scotland (RBS) related to a multinational antitrust investigation of competitor coordination on London Interbank Offered Rates (LIBOR rates).

Previously, the Obama Antitrust Division had refused to use DPAs and NPAs for antitrust violations based on a stated position that not proceeding with prosecutions would dilute the effectiveness of the Antitrust Division's leniency program, the source of more than 50% of antitrust investigations conducted by the Antitrust Division over the past decade. With the Antitrust Division's application of NPAs and DPAs, the Division has now explicitly recognized, like other criminal enforcement divisions of the DOJ, the profound collateral consequences that criminal charges can have on a corporation, including revocation of licenses or requirements for continued operation, and the consequential harm to employees, shareholders, and the economy.

The Antitrust Division has to date limited acceptance of NPAs and DPAs to financial institutions, though one representative of the Antitrust Division, with its primary responsibility to protect competitive markets, has stated that “the last thing we want to do is punish someone out of business if that is going to mean a reduction in competition.” Peter Huston, Asst. Chief, San Francisco Field Office, Antitrust Division, U.S. Department of Justice, quoted in http://bit.ly/172PWbj.

The Antitrust Division has recently announced a position that, if a company goes to trial to contest an antitrust criminal charge and is convicted, the Division may request the district court to impose an independent compliance monitor on the company as a condition of probation. In March 2012, AUO Optronics and its U.S. subsidiary (collectively AUO) were convicted of participating in competitor agreements to fix the price of thin film transistor-liquid crystal display (TFT-LCD) panels, in violation of Section 1 of the Sherman Act. In its sentencing memorandum, the Antitrust Division sought a corporate fine of $1 billion, of which the court imposed $500 million.

The Division for the first time also requested that the district court require that AUO retain a court-approved, independent monitor to review AUO's compliance with U.S. antitrust law, and presumably the competition laws of other countries in which AUO operates. Antitrust Division personnel, including the Division's General Counsel, have since stated that this may become a model for probation in other cases that progress to a conviction after trial.

Another important policy change, which is perhaps more correctly described as a reevaluation of the Antitrust Division's budget, relates to the Division's closure of four of its seven field Offices. Effective February 2013, the Division closed its Field Offices in Atlanta, Cleveland, Dallas, and Philadelphia. The Division retains its Field Offices in Chicago, New York, and San Francisco.

The Field Offices, with the National Criminal Enforcement Section in Washington, are the criminal investigation and prosecution units of the Antitrust Division. The Antitrust Division has not stated the number of antitrust prosecution attorneys in these Field Office closures that have not been retained in other locations of the Division. Though the Division stated that it will attempt to retain a similar number of prosecuting attorney positions in the remaining Field Offices and in Washington, DC, the Field Offices' closures may reduce the Antitrust Division's prosecuting attorney force by as much as 30% over the next couple of fiscal years, and filling the prosecuting attorney positions in the other offices will be difficult with the DOJ's current managed hiring policy that allows limited hiring within currently available budgetary resources.'

Conclusion

As we have seen, the Obama Antitrust Division has recently undertaken several changes in criminal antitrust enforcement policy that demonstrate flexibility and fairness, particularly with the recognition of non-prosecution or deferred prosecution agreements and the decision to follow the other criminal enforcement divisions of the DOJ in not publicly naming individuals excluded from non-prosecution provisions of corporate plea agreements.

The Antitrust Division has exhibited the consistency in selection of investigations, the types of conduct prosecuted criminally, and the aggressive investigation and prosecution of defendants even if not U.S. corporations, citizens, or residents that prior administrations began. However, the Antitrust Division's closure of several field offices, and the subsequent decrease in prosecuting attorneys, raise a question whether the Antitrust Division will be able to continue the level of work it has exhibited to date under the Obama Administration.'

David J. Laing, a member of this newsletter's Board of Editors, is a Partner in Crowell & Moring's Antitrust and White Collar and Regulatory Enforcement practice groups. He was a former Trial Attorney in the DOJ Antitrust Division, and a Special Assistant U.S. Attorney.

We last reviewed the performance of the Obama Administration's criminal antitrust enforcement during the second year of the first Obama administration. Laing, D.: Criminal Antitrust Enforcement Under the Obama Administration, Business Crimes Bulletin, September 2010. Now three years later and well into the second Obama Administration, the Antitrust Division of the U.S. Department of Justice (DOJ) has undergone a sufficient number of structural changes, announced certain important policy changes, and has had three more years of activity for us to review whether the Antitrust Division has fulfilled Candidate Obama's campaign promise to “reinvigorate antitrust enforcement” and take “aggressive action to curb the growth of international cartels.” Candidate Obama famously stated that, in comparison with antitrust enforcement under the supervision of George H.W. Bush, “Under my administration, the antitrust laws will mean something again.”

Enforcement and Workload Statistics

We begin with a review of the statistical evidence. In terms of antitrust fines imposed by U.S. District Courts, the Obama Antitrust Division has continued to obtain substantial financial penalties in its criminal antitrust prosecutions. The $1.1 billion in fines imposed in FY 2012 (the U.S. government fiscal year begins Oct. 1) represents the highest annual antitrust fines amount imposed to date. However, nearly 95% of this record antitrust penalty figure resulted from two fines ' the $500 million imposed against Taiwanese display manufacturer AU Optronics after a trial to verdict, which is under appeal; and a $470 million fine imposed against Japanese auto parts manufacturer Yazaki Corporation through plea agreement.

The record antitrust penalties imposed in FY2012 do not reflect the generally smaller fines imposed on a larger number of corporate antitrust defendants, though the Antitrust Division continued filing relatively large numbers of charging documents (averaging 72 per year), for each of the last three years. Antitrust defendants paid an additional $220 million in restitution and disgorgement paid to federal and state agencies, for a total of $1.35 billion with the criminal penalties, which better reflects the costs imposed by established violations of U.S. antitrust law.'

Of the criminal antitrust penalties over $10 million imposed in the last three fiscal years, nearly 85% were paid by foreign corporate defendants. Similarly, approximately 75% of individual defendants in criminal antitrust prosecutions over the past three years were not U.S. citizens or U.S. residents. This continues the aggressive enforcement of U.S. antitrust law on competitor agreements outside the United States that result in goods or services sold into the United States at prices affected by the competitors' agreement, an enforcement policy initiated notably under the Clinton Administration and continued by all succeeding administrations.

Periods of incarceration for individual defendants convicted of antitrust violations increased materially over the last three years. Periods of incarceration imposed in FY2010 to FY2012 increased to an average of 25 months from an average of 20 months for the preceding decade's annual average. The Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (Public Law 108-237) increased the maximum period of incarceration for a violation of 15 U.S.C. ' 1 from three to 10 years. To date, only one prison sentence of four years imposed by a U.S. district court has exceeded the three-year maximum that existed before the 2004 amendments to the Sherman Act criminal penalties.'

Policy Changes

The Obama Antitrust Division initiated several important policy changes during the last three years, of which we discuss three. Most notably, in 2013 the Antitrust Division reversed a policy regarding plea negotiations with corporate defendants in which certain employees or officers would be excluded from the benefit of non-prosecution provisions in the plea agreement (commonly called “carve-outs”), and named in the publicly available documents related to the plea agreement. DOJ, Antitrust Division, “Statement of Assistant Attorney General Bill Baer on Changes to Antitrust Division's Carve-Out Practice Regarding Corporate Plea Agreements,” April 12, 2013, available at http://1.usa.gov/1dsJEGQ.

Prior to the policy change, the Antitrust Division was the only criminal prosecuting division of the DOJ that publicly stated individuals who were not included in non-prosecution provisions of corporate plea agreements, prompting a common quip that the “Scarlet A” means “antitrust” in this circumstance. The Antitrust Division will now identify excluded individuals in an annex to the corporate plea agreement, and seek leave to file the annex under seal, which district judges commonly permit as standard procedure.

Related to this policy change, the Antitrust Division announced that it will no longer exclude individuals from non-prosecution provisions of corporate plea agreements solely because an individual does not cooperate in the Antitrust Division's investigation. The Antitrust Division states that it will now exclude only those individuals who are “potential targets” of the investigation. Previously, the Antitrust Division had carved out employees “for reasons unrelated to culpability.” Id.

In 2011, the Antitrust Division entered into its first non-prosecution agreements (NPA) with respect to four financial institutions' alleged manipulation of municipal bond prices. In February 2012, the Antitrust Division entered into its first deferred prosecution agreement (DPA) with Royal Bank of Scotland (RBS) related to a multinational antitrust investigation of competitor coordination on London Interbank Offered Rates (LIBOR rates).

Previously, the Obama Antitrust Division had refused to use DPAs and NPAs for antitrust violations based on a stated position that not proceeding with prosecutions would dilute the effectiveness of the Antitrust Division's leniency program, the source of more than 50% of antitrust investigations conducted by the Antitrust Division over the past decade. With the Antitrust Division's application of NPAs and DPAs, the Division has now explicitly recognized, like other criminal enforcement divisions of the DOJ, the profound collateral consequences that criminal charges can have on a corporation, including revocation of licenses or requirements for continued operation, and the consequential harm to employees, shareholders, and the economy.

The Antitrust Division has to date limited acceptance of NPAs and DPAs to financial institutions, though one representative of the Antitrust Division, with its primary responsibility to protect competitive markets, has stated that “the last thing we want to do is punish someone out of business if that is going to mean a reduction in competition.” Peter Huston, Asst. Chief, San Francisco Field Office, Antitrust Division, U.S. Department of Justice, quoted in http://bit.ly/172PWbj.

The Antitrust Division has recently announced a position that, if a company goes to trial to contest an antitrust criminal charge and is convicted, the Division may request the district court to impose an independent compliance monitor on the company as a condition of probation. In March 2012, AUO Optronics and its U.S. subsidiary (collectively AUO) were convicted of participating in competitor agreements to fix the price of thin film transistor-liquid crystal display (TFT-LCD) panels, in violation of Section 1 of the Sherman Act. In its sentencing memorandum, the Antitrust Division sought a corporate fine of $1 billion, of which the court imposed $500 million.

The Division for the first time also requested that the district court require that AUO retain a court-approved, independent monitor to review AUO's compliance with U.S. antitrust law, and presumably the competition laws of other countries in which AUO operates. Antitrust Division personnel, including the Division's General Counsel, have since stated that this may become a model for probation in other cases that progress to a conviction after trial.

Another important policy change, which is perhaps more correctly described as a reevaluation of the Antitrust Division's budget, relates to the Division's closure of four of its seven field Offices. Effective February 2013, the Division closed its Field Offices in Atlanta, Cleveland, Dallas, and Philadelphia. The Division retains its Field Offices in Chicago, New York, and San Francisco.

The Field Offices, with the National Criminal Enforcement Section in Washington, are the criminal investigation and prosecution units of the Antitrust Division. The Antitrust Division has not stated the number of antitrust prosecution attorneys in these Field Office closures that have not been retained in other locations of the Division. Though the Division stated that it will attempt to retain a similar number of prosecuting attorney positions in the remaining Field Offices and in Washington, DC, the Field Offices' closures may reduce the Antitrust Division's prosecuting attorney force by as much as 30% over the next couple of fiscal years, and filling the prosecuting attorney positions in the other offices will be difficult with the DOJ's current managed hiring policy that allows limited hiring within currently available budgetary resources.'

Conclusion

As we have seen, the Obama Antitrust Division has recently undertaken several changes in criminal antitrust enforcement policy that demonstrate flexibility and fairness, particularly with the recognition of non-prosecution or deferred prosecution agreements and the decision to follow the other criminal enforcement divisions of the DOJ in not publicly naming individuals excluded from non-prosecution provisions of corporate plea agreements.

The Antitrust Division has exhibited the consistency in selection of investigations, the types of conduct prosecuted criminally, and the aggressive investigation and prosecution of defendants even if not U.S. corporations, citizens, or residents that prior administrations began. However, the Antitrust Division's closure of several field offices, and the subsequent decrease in prosecuting attorneys, raise a question whether the Antitrust Division will be able to continue the level of work it has exhibited to date under the Obama Administration.'

David J. Laing, a member of this newsletter's Board of Editors, is a Partner in Crowell & Moring's Antitrust and White Collar and Regulatory Enforcement practice groups. He was a former Trial Attorney in the DOJ Antitrust Division, and a Special Assistant U.S. Attorney.