Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel ‒ July 2019

07/30/2019
Client Alert

Below, we summarize significant cartel enforcement developments from U.S. and other antitrust enforcers in recent months, including the significant change to longstanding policy by the Department of Justice (DOJ) Antitrust Division (the “Division”) to consider company compliance programs even if the Division determines that a criminal violation of the antitrust laws has occurred. This edition also discusses a federal court’s conclusion that the government “outsourced” its investigation to company’s outside counsel; potential efforts by the Canadian Competition Bureau to entice cartel whistleblowers in Canada; and an enforcement action by the Italian competition authority in broadcasting rights for professional soccer.

The Division Unveils Policy Change to Incentivize Antitrust Compliance Programs

Key Point:  In a significant departure from longstanding policy, the Division announced that it will consider compliance programs at the charging stage in criminal antitrust investigations, making deferred prosecution agreements (DPAs) available for the first time. The move, along with the publication of written guidance for how the Division will consider compliance programs at both the charging and sentencing stages, highlights the value for companies to invest in a robust antitrust compliance program.

On July 11, 2019, Division Assistant Attorney General Makan Delrahim (“AAG Delrahim”) announced that the Division will now consider a company’s antitrust compliance program at the charging stage in criminal antitrust investigations. In his speech announcing the policy change, AAG Delrahim explained that the purpose behind the shift was to “recognize the efforts of companies that invest significantly in robust compliance programs.” The announcement was followed by a change to the DOJ Justice Manual removing language stating that no credit would be given for compliance programs at the charging stage.

The announcement represents a significant change of course for the Division. Historically—outside of the leniency program—the Division has been reluctant to credit companies with compliance programs at either the charging or sentencing stage. Recently the Division has taken steps toward recognizing company compliance programs at the sentencing phase, including reduced fines and other credit for companies that pleaded guilty to conspiracies and had substantially improved their compliance programs in the time after the conspiracy was uncovered. 

Now, however, the Division has made clear that it will take into account compliance at both the charging and sentencing stages of a criminal investigation. Under the new policy, companies with comprehensive compliance programs could receive a DPA, under which a company may eventually have charges dropped in exchange for meeting certain requirements. In evaluating the effectiveness of corporate compliance programs, AAG Delrahim explained that prosecutors look at three “fundamental questions,” consistent with the Justice Manual: (1) whether the compliance program is well designed; (2) whether the program is being applied “earnestly and in good faith”; and (3) whether the program works.

During his speech, AAG Delrahim warned that “a compliance program does not guarantee a DPA.” Instead, Delrahim explained, the availability of a DPA will depend on the consideration of all the relevant factors set forth in the DOJ’s Principles of Federal Prosecutions of Business Organizations. AAG Delrahim also cautioned that the Division would continue to disfavor non-prosecution agreements (NPAs) to preserve complete amnesty from criminal charges for those companies that self-report under the Corporate Leniency Policy.   

The Division released new guidelines on the Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations that will aid companies in understanding how compliance programs will be evaluated at the sentencing stage of an investigation. This guidance discusses the factors that prosecutors will evaluate when making charging and sentencing recommendations. For example, at the charging stage, the guidance indicates that prosecutors will consider three preliminary questions: (1) whether the compliance program addresses and prohibits criminal antitrust violations; (2) whether the compliance program detected and facilitated the reporting of the violation; and (3) to what extent senior management was involved in the violation. The guidance then lists nine factors prosecutors should use to evaluate the effectiveness of the program. 

At the sentencing phase, the guidance details the three ways in which an effective compliance program can impact a corporate defendant’s sentence. First, an effective compliance program could lead to a three-point reduction of the corporation’s culpability score under the U.S. Sentencing Guidelines. Second, an effective compliance program could lead prosecutors to recommend a below-Guidelines fine. Third, the effectiveness of a compliance program will factor into prosecutors’ recommendation for probation or an external corporate monitor. During his speech, AAG Delrahim noted that the Division had not yet recommended the three-point credit under the Guidelines, but had advocated for a reduced fine when a company had taken great efforts to change its corporate culture after a violation.

Although AAG Delrahim’s speech emphasized the continued importance of the leniency program, it remains to be seen what impact the new policy will have on leniency applications, which have been on the decline in recent years. As Lisa Phelan and other practitioners noted following the announcement, a company could feel less urgency to be the first one in the door to self-report a violation pursuant to the leniency program. In addition, there are outstanding questions as to how “effective” a compliance program has to be in order to make a DPA available, particularly given the fact-intensive inquiry set forth in the Division’s written guidance. Deputy Assistant Attorney General Andrew Finch commented that the bar would be “high,” but how high can only be determined once the Division begins to apply its policy to actual cases.

Despite these outstanding questions, the Division’s new policy makes clear that companies should take the time to invest in a comprehensive, antitrust-specific compliance program. Doing so helps to (1) prevent potential violations from occurring; (2) discover potential violations more quickly and enable a company to apply for leniency; and now (3) potentially limit exposure at the charging and sentencing stages of a criminal investigation.

Court Finds Outside Counsel Acted as Arm of Government When Conducting Internal Company Investigation into LIBOR Manipulation but Upholds Conviction

Key Point: When companies cooperate with enforcement agencies during investigations, they should avoid any appearance that the government is managing or directing their internal investigations.

On May 2, 2019, Southern District of New York Chief Judge Colleen McMahon found that the federal government had “outsourced” its investigation of Gavin Black, a former Deutsche Bank AG trader, who was accused of manipulating the London Interbank Offered Rate (LIBOR). Chief Judge McMahon found that, as opposed to “conduct[ing] a substantive parallel investigation,” the government “simply gave direction” to Deutsche Bank and its outside counsel to conduct the investigation. Thus, it was as if the government had interviewed Black, calling into question whether he had been afforded his Constitutional rights and protections.

As previously reported here, Black had filed a motion to vacate his October 2018 conviction on the grounds that statements he made to Deutsche Bank’s counsel were attributable to and compelled by the government, in violation of his Fifth Amendment right against self-incrimination.  Black’s arguments were based on the Supreme Court’s decision in Garrity v. New Jersey, 385 U.S. 493 (1967), in which the Court found a Fifth Amendment violation had occurred when incriminating statements were obtained from an employee, a municipal police officer, by his government employer under the threat of termination of employment. As the Second Circuit later recognized in United States v. Stein, 541 F.3d 130 (2d Cir. 2008), this Fifth Amendment protection against self-incrimination extends to the actions of a private employer when its conduct is “fairly attributable to the government” if there is a “close nexus” between the government and the private employer’s actions. Black argued that Garrity was instructional because the government had directed his employer’s investigation, during which he was compelled to provide incriminating information.

Significantly, Chief Judge McMahon concluded that the conduct of Deutsche Bank’s counsel was fairly attributable to the government because it had essentially “outsourced” its investigation. In reaching this decision, the court pointed to the following relevant facts:

  • The Commodity Futures Trading Commission (CFTC) directed Deutsche Bank to investigate Mr. Black, during which Deutsche Bank passed information gleaned from its interviews back to the government.
  • Under his employee contract, Mr. Black was required to cooperate with the internal investigation, leaving him to feel compelled to sit with outside counsel for multiple interviews.
  • There was little evidence of the government conducting its own independent investigation—e.g., the government did not interview any witnesses at Deutsche Bank until after outside company counsel interviewed the relevant witness and passed information from those interviews to the government.
  • After interviews, outside company counsel highlighted important information to the government and “shared a blueprint for what prosecutors should expect, should they finally interview [Mr.] Black on their own.”
  • When outside counsel wanted to interview Mr. Black, it notified the government of its intent to do so and the government gave “considerable direction” on how and when to conduct the interview.
  • The threat of indictment placed a significant amount of pressure on Deutsche Bank to cooperate with the government as much as possible.

Under these circumstances, Chief Judge McMahon found that the statements that Mr. Black made during outside counsel’s interviews were unconstitutionally compelled and a violation of his Fifth Amendment rights. However, despite finding that Mr. Black’s statements during these interviews were inadmissible at trial, Chief Judge McMahon upheld Mr. Black’s convictions because his statements were not used during the trial and the other evidence against him was “overwhelming.”

Companies are incentivized in a variety of ways to cooperate with the government during investigations in order to gain cooperation credit. This decision has the potential to send conflicting signals to both enforcement agencies and companies.  Counsel can expect enforcers to be somewhat chastened in light of this ruling and moderate any efforts to direct internal or independent investigations by in-house and outside counsel. At the same time, companies must be mindful that internal investigations do not become too entangled with government investigations or appear to be conducted at the direction of government enforcers. In addition, counsel for cooperating companies could use the ruling in discussions with the government to push back if the company feels that the government is too closely managing or directing any internal investigation. 

Canada Contemplates Monetary Awards to Whistleblowers in Order to Incentivize Cartel Tips

Key Point:  Canada’s antitrust enforcer is evaluating new ways to encourage reporting of potential cartel violations in response to declining leniency applications. 

In a recent meet-and-greet event, new Canada Competition Bureau (CCB) Commissioner Matthew commented that the Bureau is considering creating a program that pays whistleblowers for their tips regarding potential cartel activity. The CCB’s Criminal Cartel Whistleblowing Initiative, launched in 2013, encourages individuals to report their employer’s cartel involvement to the Bureau, but does not include any compensation for tipsters. Under this initiative, the CCB conducts a private and strictly confidential evaluation of the whistleblower’s information to determine whether to commence a formal investigation.  

Cartel enforcement actions in Canada were down in 2018. The CCB only imposed one fine of approximately $1 million, which was down from $11.7 million in the year prior. In addition, the CCB reported that it did not grant any leniency markers last year and did not receive any whistleblower tips. According to Boswell, providing monetary awards to whistleblowers could incentivize increased reporting and is a common practice among non-competition agencies in both Canada and the United States.

Commissioner Boswell indicated that significant changes would be necessary before the Bureau would be able to implement its own whistleblower payment program. However, the CCB’s consideration of monetary awards for individuals demonstrates that enforcers are thinking creatively about ways to encourage cooperators to come forward, given the recent downward trend of leniency applications.

Italian Competition Authority Fines Sports Agencies for Rigging Bids on the Sale and Distribution of International Broadcasting Rights for Italian Football Games

Key Point: Resolution illustrates increased antitrust scrutiny into sports distribution rights and signals potential future enforcement action by the EC, which is conducting a related investigation. 

On April 24, 2019, the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato – ICA) fined three sports management agencies—B4 Capital, IMG, and MP & Silva—€67 million ($74.8 million). According to the ICA, the companies had coordinated their bids on over nine tenders for international broadcasting rights of games organized by the country’s top professional football league, Lega Nazionale Professionisti Serie A (LNPA), between 2008 and 2015.

According to the ICA, the investigation was initiated in July 2017 after receiving information from the Milan Public Prosecutor. Also in July 2017, the ICA raided LNPA, Infront Italy S.p.A., and media agencies MP & Silva S.r.l. and B4 Italia. According to reports, IMG filed for leniency. In April 2018, it was reported that the EC raided the London offices of IMG, MP & Silva, and B4 Capital for related conduct.

In its decision, the ICA found that, since 2008, the agencies had coordinated their bids in tenders for the international broadcasting rights sold by the LNPA for the top two tiers of the football league—Serie A and B—and the main domestic cup competitions. According to the ICA, the agencies then allocated the market geographically and shared the revenues from the downstream resale of those rights abroad.

The ICA also found that the collusion hindered the revenue growth of the LNPA. According to the ICA, during the relevant period, the LNPA’s revenue from the assignment of broadcasting rights grew on average only 13.6% per year, while the annual average growth in other European countries (e.g., UK, Spain, France, and Germany) was closer to 21–23%. The ICA noted that the purchase price of the rights in the most recent tender, issued after the start of the authority’s investigation, had already increased, highlighting a direct price effect of the companies’ conduct.

The ICA fined MP & Silva and B4 Capital €64 million ($72.3 million) and €3.1 million ($3.5 million), respectively. The ICA indicated that it was imposing these relatively harsh fines because of the gravity and length of the infringement. IMG incurred the lowest fine €343,645 ($388,030), benefiting from a 40% reduction for cooperating with the investigation as a leniency applicant and an additional 5% discount for putting in place a compliance program. Under the ICA’s Leniency Notice, the ICA will grant full immunity to the first cartel participant who reports by its own initiative the illegal activity to the ICA. In addition, the ICA will reduce fines by up to 50% for subsequent applicants who submit evidence of cartel behavior that significantly strengthens, by its very nature or level of detail, evidence already in the ICA’s possession.

European Commission Fines Five Banks over Anticompetitive Conduct in the Foreign Exchange Spot Trading Market

Key Point: The fine signals the EC’s continued efforts to investigate financial institutions for conduct that could potentially distort competition. 

On May 16, 2019, the EC imposed fines totalling €1.07 billion ($1.2 billion) on five large financial institutions for their alleged anticompetitive conduct in the foreign exchange spot trading market for 11 currencies, including the euro, the U.S. dollar, the pound, and the yen.

According to the EC, the EC’s investigation began in September 2013 with a leniency application, which revealed that traders at the banks used various professional chatrooms to exchange sensitive information and trading plans between 2007 and 2013 in the foreign exchange market. The EC also found that the traders coordinated their trading strategies at various times throughout the relevant time period. For instance, some traders would refrain temporarily from trading so as not to interfere with the activity of another trader within the chatroom.

The leniency applicant was granted full immunity, avoiding a total fine of €285 million ($321.8 million). All but one of the other banks subsequently applied for leniency and benefited from a reduction for cooperating with the EC. Under the EC’s Leniency Program, the EC will grant full immunity to the first cartel participant who reports by its own initiative the illegal activity to the EC and meets other qualifications of the Program. Applicants who do not qualify for full immunity may still be eligible to benefit from a partial reduction in any fine if they provide “significant added value” to information already in the EC’s possession and cooperate with the investigation. After an investigation begins, subsequent applicants may still be eligible for a reduction of up to 50% of any fine (similar to the Italian system, discussed in the previous article). Here, the banks also received an additional 10% fine reduction under the EC’s settlement procedure for acknowledging their participation in the cartel and their liability. The addressees of the EC’s decision are now also exposed to possible civil claims for damages by victims of the anticompetitive behavior.

The fine resolves one of a series of ongoing investigations targeting major banks for anticompetitive conduct in the financial sector, frequently involving the use of professional chatrooms to coordinate with one another. As previously discussed here, in January 2019, the EC accused eight banks of exchanging sensitive information and coordinating trading strategies in the European government bonds market. In December 2018, the EC announced an investigation into four banks for allegedly coordinating on prices while dealing in secondary trading of U.S. dollar-denominated supranational, sub-sovereign, and agency bonds.

Settlements in Class Action Antitrust Litigation Approach the $20 Billion Mark for Last Five Years

Key Point: Monetary settlements in class action antitrust litigation are nearing unprecedented levels, despite a recent dip in government enforcement, underscoring the continuing need for companies to adopt robust compliance programs. 

A recently released report by the University of San Francisco School of Law found that, between 2013 and 2018, private antitrust settlements totaled over $19 billion. The report illustrates that while there has been a recent downward trend in criminal antitrust enforcement actions and fine totals in the past few years, plaintiffs in private class action litigation have been securing large monetary settlements in values that have not been previously achieved. For example, in 2018 alone, civil class action settlements totaled $5 billion. The Division issued $406 million in criminal enforcement fines in the same time period.  

In the United States, private plaintiffs typically file lawsuits following on Division investigations. For example, as previously discussed here, the Division recently levied a $100 million criminal fine against StarKist Co. for its role in a multi-year conspiracy to fix prices of canned tuna, while competitor Bumble Bee Foods, LLC, received a $25 million penalty. StarKist and Bumble Bee, along with Chicken of the Sea (reportedly the amnesty applicant in the criminal investigation), now face a multidistrict litigation comprised of over 70 consolidated lawsuits in the Northern District of California. StarKist has already agreed to pay upwards of $55 million in civil settlements with several large retailers, and Chicken of the Sea has also reached seven‑figure deals with members of a proposed class of tuna buyers. 

Recently, plaintiffs have been filing antitrust lawsuits ahead of any criminal investigation by the Division. For example, class action litigation alleging that chicken processors have fixed prices on broiler chickens has been ongoing since 2016 and advanced through discovery. Just this month, the Division filed a motion to intervene in the litigation, acknowledging that it has opened an investigation into chicken processors for allegedly manipulating chicken prices.

Thus, even with a current slowdown in criminal enforcement actions, the threat of private litigation (combined with the fact that plaintiffs can obtain treble damages, attorneys’ fees, and joint and several liability) underscores the continuing importance of robust compliance programs to deter and uncover potential cartel conduct. 

Insulation Contractor Pleads Guilty to Bid-Rigging, Fraud Scheme

Key Point: First prosecution by the Division in its ongoing investigation of bid rigging on insulation contracts suggests that there could be more enforcement actions to come in this industry. 

In April, the Division announced that Gary DeVoe, a branch manager for the New England division of an insulation contractor, had pleaded guilty to bid rigging and fraud charges. These are the first announced charges in the investigation. According to the Division, Mr. DeVoe conspired with other insulation installation contractors—who install insulation around pipes and ducts, oftentimes acting as subcontractors for large new construction and renovation projects—to rig bids in Connecticut, New York, and Massachusetts from October 2011 and continuing into March 2018. The Division indicated that Mr. DeVoe and his alleged co-conspirators used text messaging, fax, email, burner phones, and an ephemeral and encrypted messaging application named “Confide.”

According to the plea agreement, Mr. DeVoe, who managed the scheme, and his alleged co-conspirators shared bids for the purpose of allocating insulation contracts and pricing them higher than if the conspirators had competed against one another. 

Mr. DeVoe has not yet been sentenced. However, he faces a term of imprisonment of 63 to 78 months, along with a fine range of $25,000 to $250,000. The Division found that the scheme affected at least $45 million worth of installation projects and inflated bid prices by at least 10%. The alleged loss attributable to Mr. DeVoe is $4.5 million.  

Spanish Competition Authority Uncovers Illegal Software That Facilitated Information Exchange in the Tobacco Market

Key point: Exchange of competitively sensitive information among competitors, regardless of whether it is through a third party or new technology, can violate global competition laws. In-house counsel must ensure that any disclosure of competitively sensitive information outside of the company complies with the law. 

On April 10, 2019, the Spanish Competition Authority (Comisión Nacional de los Mercados y la Competencia – CNMC) fined leading tobacco manufacturers Philip Morris Spain, Altadis, and JT International Iberia, as well as wholesale distributor Logista, €57.7 million ($61.2 million) for exchanging commercially sensitive information.

Specifically, the CNMC found that Logista, Spain’s largest tobacco wholesale distributor with a market share of 99%, provided the manufacturers with access to daily sales figures by cigarette brands and the specific location of the sales. This information was made available through a software platform that Logista put in place. According to the CNMC, Logista required each participating manufacturer to allow its competitors’ access to their own sales information. This scheme lasted from 2008 until at least 2017.

According to the CNMC’s decision, the practices (1) consolidated Logista’s position as the strongest wholesale distributor and prevented the expansion or entry of other players (by virtue of the fact that Logista served as the access point for manufacturers to obtain competitor sales information), and (2) allowed for the stabilization of market shares among the three leading competitors as a result of their access to sensitive information. In reaching its decision, the CNMC focused on the anticompetitive effect of the information exchange rather than the existence of an agreement between the manufacturers themselves.

Logista received the largest fine of €21 million ($27.3 million) for its role as a facilitator. All four companies indicated that they would appeal the CNMC’s decision.

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