At the recent American Bar Association’s National Institute on White Collar Crime, Deputy Attorney General Lisa O. Monaco and Assistant Attorney General Kenneth A. Polite gave major talks outlining further developments inDepartment of Justice’s Corporate Criminal Enforcement Policy. The new policies are designed to further the DOJ goal of rewarding companies for compliance programs designed to prevent wrongdoing and detect and report wrongdoing promptly if it does occur. A major theme of these initiatives is individual accountability: “Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.”  The latest rollout is a three-year Pilot Program on Compensation Incentives and Clawbacks (Pilot Program), which will require corporations who enter into criminal resolutions with DOJ’s Criminal Division to include “compensation-related criteria” in their corporate compliance programs and “offer fine reductions to companies that seek to clawback compensation from culpable individuals in appropriate cases.” DAG Monaco concluded her remarks by stating: “Let me close on what will always remain the most important priority in corporate enforcement: individual accountability.”

            There are laudable elements to the program, particularly encouraging compensation systems that reward compliance and encouraging a strong document retention policy, including considering the company’s policy on encrypted and ephemeral apps. One aspect of the policy, however, may have unintended consequences if applied in the context of criminal antitrust enforcement: fine reductions for companies who seek to claw back compensation from corporate wrongdoers. Has an overemphasis on holding individuals accountable led to a dearth of cooperating witnesses and successful criminal antitrust prosecutions? It is a possibility worth considering. The paradox is that an overzealous effort to hold every culpable individual accountable may well mean no culpable individuals or companies are held accountable.

            Individual accountability has long been the dominant theme of the Antitrust Division’s criminal enforcement program. When I started in the Division in1980 the emphasis of criminal antitrust enforcement was not only to hold individuals accountable, but also to impose jail time on individuals convicted. The Sherman Act had become a felony in 1974 and we had just begun prosecuting cases that qualified as felonies. The Antitrust Division had a focus not only on holding individuals accountable but convincing courts that this “gentlemen’s crime” was worthy of imposition of jail sentences for those convicted. It is fair to say that the Antitrust Division has been successful both in holding individuals accountable and in securing prison terms for most individuals convicted of price fixing/bid rigging. Individual accountability remain front and center.

            But, (there’s always but) at least with price fixing and bid rigging offenses, there is a competing interest that should also be weighed. It’s important to remember that, at least for criminal antitrust conspiracies, while it is true that [typically] uninvolved shareholders “play no role in the misconduct” that is not to say that shareholders don’t enjoy economic benefits from the cartel misconduct. There is substantial economic literature, reflected in the Sentencing Guidelines, that price fixing and bid rigging increase prices, harm consumers and financially benefit the corporate conspirators involved.  In January 2023, Professors John M. Connor and Robert H. Lande published a paper on SSRN (forthcoming in the book Research Handbook on Cartels, edited by Peter Whelan) in which they discuss the economic impact of price-fixing cartels: “Our empirical results demonstrate that cartels are almost always substantially under-deterred even in the United States, the jurisdiction that imposes the most severe sanctions. A fortiori, the overall levels of cartel sanctions should be increased dramatically worldwide.” If there is underdeterrence of convictedcorporations, it is logical to assume that the underdeterrence is substantially greater if a corporation is not convicted and fined. And while civil suits, especially class action price fixing suits, are a part of the “deterrence package,” civil suits are more difficult against companies that have not been charged.

            There is some conflict in the two major themes in recent DOJ criminal enforcement policies. To corporations: “We want you to come in early.” But with respect to individuals: “We are going to hold you accountable.” Cartels are a covert conspiracy crime. It is difficult for a corporation to “promptly and completely report the wrongdoing’ without the cooperation of insiders—individuals who were part of the conspiracy. If companies cannot induce culpable individuals to “promptly and completely report the wrongdoing” then there may be no uncovering of some cartels.

              Was there an overemphasis on holding individuals accountable in the Antitrust Division’s long running but now ended chicken price fixing investigation? Individuals were held “accountable” by being indicted and tried (in some cases several times) but were not convicted. Only one corporation was convicted in the entire investigation: “In the end, its years-long effort to bring industry executives to trial ends with a single guilty plea, five acquittals, and 11 defendants who had all of their charges dropped….  Pilgrim’s Pride pleaded guilty to price-fixing charges in 2021, agreeing to pay a $107 million criminal fine.”(here). Not to beat a dead chicken, but it was an unusual, and not successful strategy, for the Antitrust Division to charge so many individuals while obtaining just one corporate plea and fine.

            Individual accountability should remain a primary goal of criminal antitrust enforcement, but it should be tempered by the need to also hold corporations accountable. This will sometimes mean that individuals who should be criminally charged are given non-prosecution protection in return for full cooperation. Cartels typically are comprised of many co-conspirators from numerous companies. There is a balancing act—when to “give up” a culpable individual to gain testimony against other individuals and the corporations that benefitted from the cartel (“Big Fish, little fish”). In cartel investigation after investigation such as auto parts, Liquid Crystal Displays (LCDs), and graphite electrodes, the Antitrust Division gave non-prosecution agreements to numerous individuals who could have been prosecuted (whether successfully is another question). As we all know, the first company in may qualify for leniency for itself and cooperating executives. But even after leniency, companies could negotiate non-prosecution for some (but not all) of their cooperating executives as the Antitrust Division built successful prosecutions against more cartel members—both corporate and individual. Was this a failure to hold individuals accountable? Not if you look at the scoreboard at the end of the investigations where record fines for corporations and prison sentences (and extraditions) on many executives were imposed.

            The new clawback policy is not a major development but seems like just one more deterrent to individual cooperation. The uncertainty created around whether individuals will be covered under Type B Leniency is a more significant roadblock for encouraging individual cooperation. While corporations are required to “promptly report wrongdoing,” imagine an Upjohn warning during the internal investigation something like: “It would be of great help to the company if you would tell us everything you know about the cartel but the DOJ has made prosecuting people like you their highest priority.” The executive may ask: “But the company will take care of me if I come forward, right?” Answer: “Well, about that….. Besides firing you, and helping the DOJ to convict you, the DOJ would like us to clawback your salary for the last several years.”

            It is fair to point out, that at least for price fixing and bid rigging offenses, while shareholders may not have been personally involved in the wrongdoing, the economic benefit they reaped should be fair game in the hunt for a more perfect deterrence mix. That may require giving culpable individuals a non-prosecution agreements for timely and complete cooperation as part of a strategy to obtain guilty pleas (or convictions at trial) against other, hopefully more culpable individuals and guilty pleas and fines paid by corporations to disgorge at least some of the profit they may have realized from the wrongdoing. A policy encouraging early cooperation from actual cartel insiders, i.e. culpable individuals, may lead to more successful Corporate Leniency applications which historically have propelled major successful cartel prosecutions against more culpable individuals and the companies that profited from charging consumers inflated rigged prices.

Thanks for reading.

Bob Connolly   

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