US: Settling Antitrust Cartel Conduct Matters with the US DOJ

Companies under investigation by the US Department of Justice (DOJ) for antitrust cartel conduct must often weigh the decision to settle the charges versus the possibility of an indictment and the potential for more severe sanctions in an agency enforcement action. There are, of course, costs and benefits to settling cartel matters. Companies that plead guilty to criminal charges are able to protect more of their employees from indictment and negotiate with the DOJ over the size of their fine and how it is calculated, allowing the company to protect its other legal interests, including exposure to follow-on damages cases and coordinated defence of antitrust cartel conduct investigations in other jurisdictions. Only two companies^[2] have defended DOJ criminal charges in court in the past 20 years, and both were convicted, faced proportionally greater fines and had substantially more of their executives indicted.^[3]

This is not to say that all companies under investigation for antitrust cartel conduct should plead guilty. Although the stakes are high when a company is facing a criminal investigation, most DOJ antitrust investigations do not result in criminal charges. DOJ workload reports show that in each of the past 10 years, the DOJ averaged more than 80 open grand jury investigations, and in those same 10 years, averaged fewer than 18 enforcement actions against companies.^[4] When a company learns it is under investigation for antitrust cartel conduct, it should therefore move quickly to determine whether the evidence is likely to result in an enforcement action by the DOJ. Only then can the company refine its strategy in dealing with the DOJ.

The DOJ has sole federal authority to investigate and prosecute antitrust cartels as criminal violations in the United States and, therefore, has sole authority to negotiate settlements. To the extent that the Federal Trade Commission identifies cartel conduct, it may refer the investigation to the DOJ for prosecution as a cartel offence. Although the speed at which antitrust cartel investigations proceed varies widely, the stages of a criminal investigation are generally the same across cases, and how quickly the investigation proceeds through those steps will dictate when a settlement with the DOJ is possible.

There are many ways the DOJ may learn of antitrust cartel conduct with sufficient specificity to begin investigating. Unlike in other jurisdictions, the DOJ may not undertake sectoral inquiries; instead, it will only open an investigation if ‘the allegations or suspicions of a criminal violation are sufficiently credible or plausible to call for a criminal investigation’.^[5] Investigations most commonly start when a cartel participant self-reports the cartel to secure its priority place in the DOJ’s Leniency Program, known as a ‘marker’. The DOJ may also learn of antitrust cartel conduct from other governmental investigations, including referrals from other parts of the DOJ. Evidence of antitrust cartel conduct has also been identified in documents provided by a company as part of the merger control process under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended). Foreign antitrust authorities may also notify the DOJ of potential antitrust cartel conduct. Finally, and increasingly, the DOJ actively monitors ongoing civil antitrust litigation for allegations of cartel conduct.

Once antitrust cartel conduct is brought to the DOJ’s attention, it will open an investigation. Depending on the circumstances, the DOJ may investigate cartel activity for months before the companies under investigation even learn of the investigation. During this time, the DOJ may work with a leniency applicant and other third parties, and may employ surveillance tools including wiretaps and search warrants for telephone and bank records. In some cases, a leniency applicant will be required to collect evidence, including witnesses wearing wires at meetings with other companies.

By the time a company learns it is under investigation, the DOJ’s evidence of antitrust cartel conduct may be extensive and, at virtually all times, the company will be at an informational disadvantage from the DOJ. Although the steps taken by the DOJ are investigation-specific, the investigation typically becomes known to the target companies through a combination of knock-and-talk interviews^[6] with employees, execution of search warrants on business premises or service of grand jury subpoenas.

A company’s tone in its interactions with the DOJ will affect the terms on which the company is able to settle, should it choose to do so. The DOJ recently clarified its cooperation policy, stating ‘the extent of any fine reduction will not merely reflect the timing of cooperation, but also will reflect the nature, extent, and value of that cooperation to the investigation . . . . [T]he earlier cooperation is provided, the more valuable it usually is in assisting the division’s efforts to hold other corporate and individual conspirators accountable.’^[7] The DOJ monitors cooperation from the moment that the company learns of the investigation and companies may shift from a non-cooperative to a cooperative approach, or vice versa, with the DOJ at any time. It is, therefore, incumbent on each company under investigation to assess the conduct in question as quickly as possible to inform its dealings with the DOJ, including any decision to cooperate and the possibility of settlement.

Settling cartel matters with the US DOJ

Settlement of cartel matters can take multiple forms: (1) leniency, (2) deferred prosecution agreements, and (3) plea agreements.

Leniency

Leniency through the DOJ’s Leniency Program is a form of settlement. The DOJ’s Leniency Program rewards companies that report antitrust cartel conduct of which the DOJ is not already aware with immunity from prosecution, and thereby creates strong incentives for the company to report cartel conduct before another cartel participant does so. In exchange for being the first cartel participant to report illegal conduct, a company that secures leniency avoids all risk of prosecution and attendant fines. Given the incentive to report antitrust cartel conduct, leniency applications are the most common way that DOJ antitrust cartel conduct investigations begin. Even if a company is not the original leniency applicant, it may benefit from the DOJ’s Leniency Plus Program under which a company already under investigation for cartel conduct reports other cartel conduct not already known to the DOJ. Leniency Plus applicants receive leniency for the previously unreported conduct and a discounted fine for the first cartel investigation.

Deferred prosecution agreements

Prior to 2010, deferred prosecution agreements (DPAs) were used commonly for non-antitrust crimes. Since 2010, the DOJ has increased its use of DPAs, culminating in the DPA Guidelines published by the DOJ in 2019. Under the DPA Guidelines, DOJ prosecutors must now consider whether a DPA rather than a guilty plea is an appropriate remedy in an antitrust cartel conduct investigation by focusing primarily on a company’s pre-existing compliance programme. Under a DPA, the DOJ files criminal charges, but then agrees not to prosecute if the company complies with the terms of the DPA. In announcing the DPA Guidelines, Assistant Attorney General Delrahim emphasised four factors that are key to the availability of a DPA to ‘good corporate citizens’ who ‘(1) implement robust and effective compliance programs, and when wrongdoing occurs, they (2) promptly self-report, (3) cooperate in the Division’s investigation, and (4) take remedial action’.^[8]

Plea agreements

Plea agreements are the traditional form of settlement of criminal antitrust cartel charges with the DOJ. Although a company may plead guilty to criminal charges without a plea agreement, the plea agreement allows the company to plead guilty to antitrust cartel conduct in exchange for favourable settlement terms or recommendations that are then presented to a federal judge for approval.

Negotiating terms, commitments and disclosures or admissions

Companies have two primary sources of leverage when negotiating with the DOJ – their cooperation and the strength of their defences if they were to force the DOJ to prove its case in court. Companies that offer valuable cooperation to the DOJ may negotiate substantial discounts on their fines. Companies that have defences in an antitrust cartel conduct investigation often benefit from pressing either complete or partial defences to narrow the scope of the investigation and, ultimately, the settlement.

If, following the DOJ’s investigation, a company is unable to persuade the DOJ to close its investigation, the company faces a difficult decision. Although there are limited instances in which companies directly threatened with indictment have resisted and have not been indicted, companies should expect that if the DOJ threatens the company with indictment, an indictment will be forthcoming. In addition, although the DOJ will never completely show its hand, a company will ordinarily have a decent understanding of the strength of the DOJ’s case against it.

Managing and minimising fines or monetary payments

Despite public court filings, which show that the DOJ follows its model plea agreement^[9] closely, companies can work with DOJ staff to prepare a plea agreement that benefits both the DOJ and the settling company and reflects the circumstances of the investigation. Ultimately, the DOJ wants a fine that reflects the facts of the investigation and the seriousness of the offence. At least within an investigation, the DOJ typically strives for consistency in fine calculations across all potential defendants in the case.

Once the company under investigation signals to the DOJ that it may be willing to plead guilty based on certain terms, the remainder of the investigation serves as a negotiation of the final plea agreement. As part of the negotiating process, companies will present the DOJ with evidence and legal arguments to narrow the scope of the settlement. The four key determinants to a company’s fine level are: (1) base fine, which is based on the volume of affected commerce, (2) culpability score, (3) cooperation discount, and (4) recommendation within the United States Sentencing Guidelines^[10] range.

The Sentencing Guidelines govern all federal criminal sentences, including for antitrust cartel conduct. The core sanction under the Sentencing Guidelines for companies is a criminal fine.

Base fine

The first step in determining a criminal fine under the Sentencing Guidelines is to calculate the base fine. The company’s base fine is calculated using ‘the volume of commerce done by [the company] in goods or services that were affected by the violation’.^[11] The affected volume of commerce (VOC) is often a subject of critical negotiation between the company and the DOJ. For a company entering into a criminal antitrust plea agreement, the base fine is typically assessed as 20 per cent of the VOC in lieu of calculating the pecuniary loss.^[12] Although companies often argue for the gain or loss caused by the violation, the 20 per cent calculation is almost always used to ‘avoid the time and expense that would be required for the court to determine the actual gain or loss’.^[13] Because the VOC forms the basis for the fine, it is obviously in the interest of the company to lower the VOC, which can be done through limiting the years of the alleged cartel conduct, the scope of products covered or the companies or markets affected by the conduct. Even when there is clear cartel conduct, the evidence may be stronger or weaker in relation to certain aspects of the alleged cartel conduct. A decision to settle may be guided by some indication that the DOJ would be willing to limit the scope of the alleged cartel conduct, and therefore lower the VOC.

Culpability score

The company’s culpability score is then determined,^[14] to calculate the minimum and maximum multiplier. These multipliers are then applied to the base fine to determine the applicable fine range under the Sentencing Guidelines.^[15] The culpability score for antitrust offences is calculated and then converted to a minimum and maximum multiplier using a table;^[16] the minimum multiplier for any cartel offence is 0.75.

Cooperation discount

After the company has signalled it is willing to engage in settlement discussions, the DOJ staff conducting the investigation will obtain authorisation to inform the company of the level of discount from the Sentencing Guidelines fine that it will receive for cooperation. Absent unusual circumstances, the discount is typically deducted from the minimum fine under the Sentencing Guidelines.

Recommendation under the Sentencing Guidelines

Because a maximum fine under the Sentencing Guidelines is twice the amount of the minimum fine under the Sentencing Guidelines, a company’s ability to obtain a fine at the lower end of the range can be more important than other variables considered by the company when deciding whether to cooperate and settle with the DOJ. The DOJ and companies have significant flexibility in negotiating fines. For example, in the Air Cargo investigation, Korean Airlines reached an agreement with the DOJ that the VOC would include all air cargo shipped from the United States, but would exclude all VOC shipped to the United States, which effectively more than halved the VOC used for calculating the fine.^[17] Years later in the same cartel investigation, the DOJ agreed that Cathay Pacific would pay a fine based solely on its shipments to the United States from Hong Kong, precisely the opposite of what Korean Airlines and other carriers did.^[18]

The plea agreement process will impact a company’s strategy for follow-on damages litigation and the scope of its potential exposure. The VOC in the plea agreement is used as the baseline in subsequent private damages claims because a plea agreement requires an admission of guilt. Under the doctrine of issue preclusion, a company that has pled guilty to antitrust cartel conduct may not subsequently deny the conduct covered by the plea agreement in private damages actions. Some plea agreements lack detail of the alleged cartel activity, such as the precise product and customer or type of customer affected. In other plea agreements, settling companies may prefer greater specificity. For example, in antitrust cartel plea agreements that were part of the DOJ’s Auto Parts investigation, many settling companies asked the DOJ to identify the scope of cartelised products and customers affected as precisely as possible to ensure that the scope of preclusion was clear and limited.^[19]

Companies that lack the ability to pay the fine under the Sentencing Guidelines may seek a reduction of fines on the basis of inability to pay but ‘not more than necessary to avoid substantially jeopardising the continued viability’ of the company.^[20] When a company asserts limited ability to pay in plea discussions, this argument is typically supported by forensic accountants and is verified by the DOJ’s review of the company’s finances. The DOJ’s policy is not to seek a fine that a company lacks the ability to pay, and if the fine cannot be paid immediately, the company may pay it in instalments over a period of up to five years. Importantly, companies that pay in instalments are automatically given corporate probation.

Managing and minimising non-monetary settlement requirements

Companies’ primary leverage in plea agreement negotiations is the new information they can offer the DOJ through cooperation. Whereas 10 to 15 years ago, the DOJ offered levels of discount based on the order in which companies signalled they would plead guilty, today’s cooperation discounts require clearly documented cooperation. Companies that are not prepared to offer cooperation to the DOJ are unlikely to receive significant discounts from the Sentencing Guidelines fine they negotiate. Further, the DOJ will likely be wary of entering into plea agreements with companies that try to narrow their prospective cooperation obligations.

Antitrust compliance monitors are not typically appointed in DOJ antitrust cartel settlements. Although the DOJ has announced that it will consider corporate monitors when ‘(1) the company refuses to improve its corporate culture to encourage compliance with the law; (2) it refuses to implement an adequate antitrust compliance programme or it employs a grossly inadequate compliance programme after the antitrust violation; or (3) it has engaged in recurrent antitrust violations’,^[21] the DOJ’s model plea agreement for companies does not mention an antitrust compliance monitor as an option. For example, the DOJ asked the judge hearing United States v. AU Optronics Corp to impose an antitrust compliance monitor after AU Optronics refused to plead guilty and was convicted at trial.

Probation is also unusual for companies that settle cartel claims by pleading guilty. ‘Typically, the Division will not seek probation for pleading corporations except in limited circumstances, such as when a company has not accepted responsibility or has received a “penalty plus” fine adjustment for failing to report other cartel conduct at the time of a prior plea.’^[22] Probation may also be called for if, for example, the local rules applicable in a particular court require probation, or if the defendant is paying the fine on an instalment basis.

DOJ policy favours restitution through private damages actions, and not through court-ordered restitution. Citing the availability of civil private damages cases and the complex nature of private damages actions, the Antitrust Division Manual encourages staff to consider seeking orders for restitution only in cases in which victims are unable or unlikely to seek treble damages and in other limited circumstances. Because of the preclusive effect of a plea agreement in subsequent private damages follow-on litigation, the scope of a company’s plea agreement will set the minimum scope for private damages actions. In practice, companies rarely plead guilty to all conduct that might have been charged, and follow-on damages claims typically allege much broader conduct than what is reflected in the plea agreement.

Criminal cartel plea agreements will not otherwise impose conduct limitations, other than to require compliance with the law.

Managing and minimising risk to individual employees and executives

Only the leniency applicant may protect all of its employees from indictment for antitrust cartel conduct reported as part of its leniency application. Neither companies that later plead guilty nor their employees are protected from prosecution. DOJ policy is to focus on prosecution and sanction of individuals and this policy is applied in the context of both plea agreements and DPAs. Since the mid-2000s, the DOJ has refined its approach from one that allowed companies to protect their executives to one that presumes that culpable individuals should be punished. Before 2010, corporate plea agreements often shielded even the most culpable employees from prosecution. With increased focus on individual accountability, this evolved to corporate plea agreements that include carve-outs: a list of individuals who might still be indicted. The DOJ now identifies carved-out individuals in an appendix to the plea agreement that is filed under seal with the court.

Although more recent DOJ policy focuses on individual culpability and does not contemplate leniency for executives solely based on a company’s cooperation, companies that have decided to settle with the DOJ can help their executives by encouraging them to cooperate. This may include retaining counsel for the employees or allowing their lawyers to negotiate on behalf of the executives in exchange for the employee’s cooperation. Ultimately, it is in a company’s interest that its employees offer truthful cooperation and testimony to the DOJ.

Special settlement considerations for foreign entities

More than 80 per cent of companies that have entered into antitrust cartel conduct plea agreements with the DOJ with fines exceeding US$10 million are foreign companies. As a result, there are well-developed strategic and procedural settlement considerations when the settling company is a foreign entity, particularly if the alleged antitrust cartel conduct may have affected more than one jurisdiction.

First, and foremost, companies under investigation in multiple jurisdictions must align US settlement negotiations with their legal strategy across all other jurisdictions. Companies may be placed in a difficult position if they pursue settlement strategies in the United States that prejudice their defences in other jurisdictions or vice versa. The existence, or possibility, of non-US investigations is highly relevant to settlements because the DOJ will often agree to exclude VOC from plea agreements if the same commerce will be used to fine the company in another jurisdiction. Precisely how to proceed in multi-jurisdictional antitrust cartel investigations and settlements requires close coordination and alignment by the company and its counsel to optimise outcomes across all jurisdictions.

There are procedural differences as well. Foreign defendants are permitted to enter into conditional plea agreements, which require the court to accept the agreed-upon sentence or reject the plea agreement. Foreign plea agreements are most typically governed by Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure, under which the DOJ and the settling company agree to a sentence or sentencing range. Under this Rule, the judge may approve or reject the plea agreement, but may not modify the settlement terms. This effectively allows the settling defendant to withdraw its guilty plea if the court will not accept the terms. In the antitrust context, use of Rule 11(c)(1)(C) plea agreements is allowed for foreign defendants who must waive personal jurisdiction when the plea agreement is signed and who are less likely to do so if there is a risk that they will have waived personal jurisdiction only to have the court reject the negotiated settlement.

Foreign companies may wish to consider carefully which entities within the companies will plead guilty. In the context of international antitrust cartels, the DOJ gives careful consideration to the entities that will be included in the plea agreement. Although settling defendants often seek to have a US subsidiary and not a foreign parent enter into a plea agreement, the DOJ will require the most culpable party to enter into the plea agreement. This is important to the DOJ’s priority of deterring cartel conduct by publicising cartel prosecutions. This policy would be frustrated if the DOJ allowed plea agreements by lesser-known US subsidiaries rather than their foreign parents.

Foreign companies face special considerations as to how their cooperation is measured. First, foreign companies seeking credit for cooperation should expect to produce foreign-located documents as part of their cooperation. In addition, the DOJ will require the company to use its best efforts to encourage implicated employees located outside the United States to cooperate with the DOJ’s investigation or to agree to travel to the United States for trial, or both. In rare situations, where executives’ testimony is key to the DOJ’s prosecution of other companies, the DOJ may make the plea agreement voidable if the foreign-located employees fail to cooperate.

If an antitrust cartel is international in scope, companies may use various defences to narrow the scope of their plea agreement.

• The Foreign Trade Antitrust Improvements Act may be used to narrow the scope of charged conduct in plea agreements. Increasingly complex supply chains often raise questions about which sales should be included in the volume of affected commerce.
• Foreign sovereign immunity may come into play in limited circumstances. Foreign sovereigns and their ‘instrumentalities’, including state owned entities, are presumed to be immune from US courts under the Foreign Sovereign Immunities Act (FSIA). Companies that have a valid FSIA defence may be able to exclude some or all implicated entities from the scope of a guilty plea.
• Foreign sovereign compulsion and comity defences may also allow a settling defendant to successfully narrow the scope of their plea agreement. Application of US antitrust laws to foreign persons and foreign entities may create a conflict between US and foreign legal requirements. The DOJ will consider a limited defence against application of the US antitrust laws when a foreign sovereign compels the conduct that the DOJ is investigating. Although this doctrine ‘has no application if a party could comply with both the foreign law and the US antitrust laws’,^[23] companies entering into plea agreements may successfully narrow the scope of the plea agreement and reduce their fine.

Notes