Antitrust Compliance in the Age of Multi-Jurisdictional Leniency: New Ideas and New Challenges
When it comes to compliance training, know your audience
Most compliance programmes start from the flawed premise that cartels originate within the sales force of the company. As evidenced by the major cartel prosecutions of the past 10 years, illicit price-fixing and market allocation strategies are first crafted among the 'principals group' - the CEOs or general managers of the various corporations - and then executed by 'working groups', such as the sales teams dealing with accounts and customers on a daily basis.9 An effective compliance programme will acknowledge the 'two tiers' of cartel activity and tailor the training accordingly. Senior management and sales teams should have separate training sessions - both to ensure that each group focuses on the dilemmas they are most likely to encounter and to encourage frank and honest dialogue about the issues.
'Thou shall not' prohibitions are meaningless - discussion of the hard issues and subtle meanings is essential
Admonishing executives not to discuss pricing with competitors is meaningless - most already know that such conversations are verboten and merely repeating the mantra exacerbates impatience and boredom with the training. The more compelling questions arise in gray areas of competitor contacts. Assume an executive tells the decision makers at rival companies that he will stop discounting next month because he thinks it is the best way to solve the market's problems, and the others in the room say nothing in response. Shortly after this discussion, discounting is eliminated in the market. Many executives would characterise the exchange as competitive intelligence rather than a communication about pricing by a competitor. But in an era where corporations are bringing questionable conduct to the enforcers in search of corporate leniency (and, in the US, single damages in civil treble damage actions), there is a risk that an executive eager to please both superiors and the enforcers will say that everyone in the room understood exactly what the comment meant, and reached an understanding to stop discounting. A series of sophisticated and nuanced hypotheticals such as this one can help the senior executive to understand the limited evidence necessary to prove an agreement and advise senior management what to do when these all-too-common situations occur. Finally, compliance training must also open the executives' eyes to the reality that their competitors would turn on a dime and implicate their partners in crime in order to avoid jail and other penalties.
Watch your language: unwittingly, your words may get you into trouble
In merger, cartel and monopolisation cases, victory or defeat can hinge on the words that the corporate executive uses to communicate thoughts and ideas. The era of instant messaging and e-mail has created a false sense of security, and communications that were once carefully guarded have become increasingly spontaneous, informal and unfiltered. Enforcement agencies, cognisant that a quick off-the-cuff remark may cause embarrassment or prove their claims, often demand that scores of electronic documents be produced even during a routine investigation. Not surprisingly, most executives do not understand that certain buzzwords, even if completely innocuous, may conjure images of conspiracy for antitrust enforcers or plaintiffs' counsel. Ambiguous vocabulary must be used with care (or avoided entirely) in any communication - internal or external - about pricing or markets. Using real-life examples from actual cases or the companies' own files is an effective way to emphasise that documents often remain indelibly etched on the corporation's servers and back-up tapes for the indirect benefit of skillful enforcers and plaintiffs' counsel.
Be prepared for antitrust investigations - know what to expect
Companies and their employees should be prepared for an antitrust investigation before it happens - particularly because enforcers leverage the element of surprise to their advantage. In the US, the Antitrust Division routinely makes unannounced visits to senior executives at their homes. Similarly, the non-US executive may be detained and questioned upon entry into the United States. The vast majority of corporate executives in these situations agree to be interviewed without preparation or the assistance of counsel. Why? The executives believe they will 'look guilty' if they refuse to talk or they will be 'taken to headquarters for interrogation' if they do not cooperate. Unfortunately, these interviews often result in the shaken executive succumbing to the pressure in a variety of ways - namely, lying to government investigators, accidentally omitting information or even exaggerating facts to sound more sinister. Whatever the response, the executive places him or herself under a cloud of suspicion that will make future interactions with investigators more difficult or give rise to obstruction of justice charges. Compliance training should define in basic terms what powers the enforcers have at their disposal during an investigation, as well as an individual's right to defer the meeting until he or she has had an opportunity to refresh his or her recollection and consult an attorney. In this era where the Antitrust Division prosecutions and investigations often culminate in allegations of false statements or evidence tampering, knowing what not to do during an the investigation is critical.10 Unannounced dawn raids are the primary vehicle by which European and many Asian enforcers obtain evidence and they are occasionally used in the US when a court sanctions a search warrant. Companies, particularly those with operations in Europe and Asia, should prepare employees for dawn raids by enforcement officials. Virtually every employee in the organisation, including in-house counsel, senior executives, information technology specialists and administrative personnel will have a role to play if a raid is conducted, and they should know how to execute the appropriate response in order to protect themselves and their corporations from additional problems - and to learn as much about the substance of the investigation as they can during the raid.
Compliance training should bring to life the consequences of unlawful behaviour
Finally, effective compliance training must capture the attention of the audience. A brief, perfunctory statement that there will be 'consequences' is a disservice to the executives and employees who take time out of their busy schedules to attend the seminar. The likelihood of harsh jail sentences and the loss of position, reputation and lifestyle must be made clear and immediate to deter others who might otherwise justify cartel participation as merely doing business or succumb to the pressure of increasing the bottom line no matter what. The leader of the compliance training must make the ruinous consequences of cartel activity come to life. The more detail provided, the better - for example, 'The CEO of X company was caught, pled guilty and served 18 months in a US prison for allocating markets. The structure of that market was virtually identical to ours.' To the extent that non-US executives and employees comprise the audience, they should be advised of the steep penalties imposed upon non-US nationals in the US DRAM, air cargo and marine hose investigations. The company should establish policies that offer every incentive - and reduce every barrier - to reporting cartel activity, such as a company leniency programme pegged to the principles of the US leniency policy.11 Under the programme we propose, if an executive or employee reports conduct that violates the antitrust laws and the company receives amnesty from an enforcement agency, the informant will be protected from termination, demotion and financial penalties. These safeguards would afford an opportunity for corporate executives to come clean if they are involved in anti-competitive conduct, thus potentially limiting the company's risk and costs. We urge companies to consider this corporate leniency programme as a pillar of its corporate governance structure. As to the others who participated in or condoned cartel activity but did not self-report, the company must leave no doubt that serious penalties, including but not limited to immediate termination and automatic forfeiture of corporate benefits such as stock options and retirement and severance packages, will result. This policy should be described in the corporate ethics code, reiterated at compliance meetings and written into employment contracts. Despite the company's best efforts, some will deny the seriousness of cartel activity unless their own self-interest is at stake. At the conclusion of the session, each person should receive a wallet card with contacts and basic information about what to do during an investigation - a 'cheat sheet' if he or she has concerns about potentially anti-competitive conduct or is approached by government officials. Employees should be told repeatedly to call the numbers provided to discuss questionable conduct, report wrongdoing (having received thorough instruction on the advantages of self-reporting) or advise company counsel of unexpected contacts from government officials. The wallet card serves as both a resource and a reminder of the company's commitment to eradicating cartel behaviour long after the training is completed.
Train your purchasing agents to make certain you are not an antitrust victim
While compliance training is usually viewed by corporate officials as a cost - albeit a necessary one - careful study of the corporate procurement process can produce tangible benefits to the corporation in its dealings with suppliers. We propose that compliance training should educate sales and procurement officials about what to look for to determine whether the company's suppliers may be colluding or participating in a cartel. 'Compliance in reverse' teaches employees how to detect suspect patterns in pricing and bidding practices, questionable statements or behaviour by vendors and market conditions that raise the indicia of collusion.12 Giving employees a clearly articulated incentive to look for harmful conduct can provide tangible cost savings and even windfalls for the corporation and its shareholders.
As cartel enforcement has become more aggressive and leniency more pervasive, multi-national corporations need to place even greater emphasis on strong compliance policies. The saga of the marine hose cartel illustrates that rather than implementing traditional programmes as remedial measures, companies should adopt bold and innovative programmes, and view this investment as the necessary cost of doing business in a global marketplace. As evidenced by rapidly increasing criminal and administrative fines, the specter of treble damages, prosecution, incarceration and termination of senior executives and tarnished goodwill, where unlawful cartel activity is concerned, an ounce of prevention is truly worth a pound of cure.
1 See Kurt Eichenwald, The Informant: A True Story (Broadway Books 2001).
2 See Amnesty Int'l USA, One County, 100 Executions: Harris County and Texas - A Lethal Combination, 20 July 2007, available at www.amnesty.org/en/library/asset/AMR51/125/2007/en/dom-AMR511252007en.pdf.
3 See Donald C Klawiter, 'Please Show This to Senior Executives: Risks of Antitrust Investigations in the Courtroom and the Bedroom', Competition Law Int'l at 33 (October 2006).
4 See, eg, Enforcers' Marine Hose Deal Described as a 'Scam', Global Competition Review, 27 March 2008, available at www.globalcompetitionreview.com/news/news_print.cfm?item_id=6538.
5 See 'Marine Hose Three Sentenced', Global Competition Review, 11 June 2008, available at www.globalcompetitionreview.com/news/news_print.cfm?item_id=6854.
6 See 'Marine Hose Executives Appeal', Global Competition Review, 10 July 2008, available at http://www.globalcompetitionreview.cin/news/news_print.cfm?item_id=6983.
7 See, eg, Japan Fair Trade Comm'n, 'Cease and Desist Order and Surcharge Payment Order Against Marine Hose Manufacturers', 22 February 2008, available at www.jftc.go.jp/e-page/pressreleases/2008/February/080222.pdf; Ministry of Justice, Secretariat of Economic Law, Competition Div., SDE Opens Formal Proceedings to Investigate Alleged International Cartel to Rig Bids, Fix Prices, and Allocate Markets for Sales of Marine Hose, 12 November 2007, available at www.mj.gov.br/services/DocumentManagement/FileDownload.EZTSvc.asp?.
8 See, eg, Caroline Byrne, 'Ex-Morgan Crucible Chief Loses Extradition Ruling', 28 July 2008, available at www.bloomberg.com/apps/news?pid=20601102&sid=a6lVNKJ6NMeQ&refer=uk.
9 See William J Kolasky, Deputy Assistant Attorney General, Antitrust Division, US Department of Justice, 'Antitrust Compliance Program: The Government Perspective', 12 July 2002.
10 The Antitrust Division has increased the number of actions for obstruction of justice and false statements - either by separate criminal charges or sentencing enhancements for antitrust charges.
11 See Donald C Klawiter and Jennifer M Driscoll, 'A New Approach to Compliance: True Corporate Leniency for Executives', Antitrust, Vol. 22, No. 3, Summer 2008, pages 77 to 82.
12 For a brief primer on detection issues see, 'Price Fixing, Bid Rigging and Market Allocation Schemes: What They Are and What To Look For, An Antitrust Primer', US Department of Justice, Antitrust Division website, www.usdoj.gov/atr/public/guidelines/primer-ncu.htm.