(Photo courtesy of the author)
Over the past few years, the Justice Department has been hard at work on a comprehensive update to the way it detects, investigates, and prosecutes price-fixing cartels. Several recent announcements, including at last week’s ABA White Collar Conference, preview the DOJ Antitrust Division’s next steps in this generational shift—the goals of which are to refine disclosure incentives, promote individual accountability, and obtain trial convictions.
First, on March 7, 2024, Deputy Attorney General Lisa Monaco announced the DOJ is kicking off a 90-day whistleblower “policy sprint”; the finish line is a new program to complement existing regulators’ programs, rewarding qualifying whistleblowers for bringing non-public, previously unknown misconduct to the DOJ’s attention. The Antitrust Division has long sought to encourage individual self-reporting as a complement to its corporate VSD policy, so expect that this initiative will aim to improve that incentive structure. Next, the DOJ updated the Justice Manual to incorporate the M&A safe harbor policy that it announced last fall. Notably for antitrust practitioners, the JM updates included changes to the Antitrust Division’s leniency policy that provide much-needed clarification on how companies that detect potential collusion at an M&A target can avoid inheriting those liabilities by promptly reporting to DOJ. Third, senior Antitrust Division officials continue to emphasize that they are focused on developing investigations through affirmative investigative techniques, such as wiretaps and whistleblowers.
Background
The Antitrust Division’s criminal enforcement program relied for decades on a corporate self-disclosure policy that had been untouched since the early 1990s. That policy remains unique among VSD policies in that it provides nonprosecution protection for the reporting company as well as its cooperating personnel when the disclosure comes before the government is aware of the misconduct—and in that corporate nonprosecution remains available even after the government starts investigating. But as criminal antitrust enforcement expanded beyond corporate resolutions and charges against foreign-located executives (who typically choose to either plead guilty or remain fugitives) and toward more trial work, enforcers learned that investigations fueled by corporate leniency applications often did not uncover the types of evidence most persuasive to a jury—think consensual recordings, wiretaps, and pleading coconspirator witnesses who would readily own up to the misconduct and withstood cross-examination tactics.
Over the past several years, the Antitrust Division’s policy changes have included: crediting compliance at the charging stage (a policy update announced by the then-AAG of the Antitrust Division at NYU’s Program on Corporate Compliance and Enforcement); prioritizing individual accountability by declining to presumptively provide nonprosecution protection for all executives who cooperated as part of a corporate leniency application that comes after the government is aware of the misconduct (in favor of following the Department-wide guidance on individual NPAs); revising its leniency policy to require prompt reporting and better incentivize cooperation that facilitates effective prosecution of co-conspirators; and further revising the policy to require the self-reporting company to make compliance improvements and remediate. These updates signaled a fundamental shift in the way antitrust corporate investigations would proceed in the coming years.
Judging by announcements at the ABA White Collar Conference 2024 and concurrent Justice Manual updates—including changes to the Antitrust Division’s corporate leniency policy—companies and their counsel can expect this trend to continue.
Leniency Policy Changes and Affirmative Investigation Techniques
In April 2022, the DOJ announced the first major revisions to the antitrust leniency policy in almost 30 years. One key change was replacing the requirement that an applicant stop participating in the conspiracy with a new requirement that the applicant self-report. As the updated FAQs explain, this timeline means that applicants must make the disclosure shortly after discovery, allowing for some time to conduct a preliminary internal investigation (think weeks not months). A driving purpose behind this change was the opportunity to use affirmative investigation techniques—such as consensual recordings—to collect compelling evidence of the antitrust conspiracy.
This emphasis on affirmative investigative techniques reflects a broader shift in approach. In recent remarks, a senior official detailed this change, explaining that they “are using all tools…[including] search warrants for electronic evidence… consensually recorded communications (including those being captured by a non-leniency cooperator), undercover agents, and Title III wiretaps. We are also thinking broadly about the types of confidential sources and cooperators best positioned to notice potential crime — not just coconspirators but also whistleblowers not directly involved in the conduct, as well as victims.” With this backdrop, the recent changes to DOJ-wide polices fit into the Antitrust Division’s new approach.
M&A Safe Harbor Policy
Last October, Deputy Attorney General Lisa Monaco announced a new policy designed to incentivize companies engaged in M&A activity to disclose any misconduct uncovered during due diligence. According to the guidelines published in the Justice Manual last week, to qualify, the acquiring entity must promptly and voluntarily disclose criminal misconduct, cooperate with DOJ, and timely and effectively remediate and pay restitution and disgorgement. The self-disclosure must happen within six months of closing, regardless of whether the conduct was discovered before or afterward. The acquiring company has one year from the closing to remediate, although this is subject to negotiation with the DOJ under a reasonableness standard. The qualifying acquiring company will receive a declination and the misconduct will not be considered as part of a recidivism calculation in any later investigation. The acquired entity (to the extent it remains viable) can receive the same benefits if it would otherwise qualify under the relevant voluntary self-disclosure policy of the prosecuting DOJ component, including if there are no aggravating factors present. Aggravating circumstances that may warrant a criminal resolution for the acquired entity include, but are not limited to: involvement by executive management of the company in the misconduct; a significant profit to the company from the misconduct; egregiousness or pervasiveness of the misconduct within the company; or criminal recidivism.
Last Friday, the Department also released an updated version of the Antitrust Division’s leniency policy that incorporates the safe harbor policy as applied to price-fixing crimes that an acquiror detects at the target company. Under the new policy updates, if the conduct the acquiror seeks to disclose is price fixing, the safe harbor is the antitrust leniency policy, which already provides immunity and other benefits for the first company to self-disclose and cooperate. But to obtain “safe harbor” protections for its target’s antitrust crime, the A side must do more than meet the standard criteria for leniency; it must also make the disclosure before the deal closes, and must agree to a merger review period as required by the regulator (either DOJ or FTC) reviewing the transaction. These additional criteria make sense in the context of antitrust crime, because whether one of the parties engaged in collusion is highly relevant to the review of whether the transaction could harm competition. The policy also excludes from eligibility a company seeking to report a criminal antitrust conspiracy between it and its acquisition target. In short, this Department-wide approach to incentivizing companies to root out misconduct has been tailored to the Antitrust Division’s specific enforcement interests and policies.
Antitrust Whistleblower Program
As the DAG announced last week, the DOJ plans to spend the next several months designing a pilot program to pay monetary rewards to whistleblowers of corporate crime. Under the core principles of the program, a whistleblower who discloses previously unknown, non-public misconduct, who was not responsible for directing, planning, or initiating the misconduct, and who otherwise meets the requirements of the program, will be eligible for a monetary reward out of the forfeiture collected as a result of the investigation. Assuming this program follows the general contours of other whistleblower programs (e.g. SEC, CFTC, etc.), then there would be a new, substantial financial incentive for individuals to disclose wrongdoing. After completing the “policy sprint” to design the program, the DOJ will test whether it is a viable long-term solution absent legislation.
Historically, the Antitrust Division has resisted the idea of a bounty-based whistleblower program because of concerns about the quality of the evidence provided, including the credibility of any whistleblower as a testifying witness due to the large financial incentives. This view, however, was not consistent with the experience of other DOJ components, including the Criminal Division, which had experience in this area with qui tam actions in healthcare and government contracting and with financial regulator whistleblower programs. In essence, prosecutors corroborate a whistleblower the same way prosecutors corroborate other cooperating witnesses who seek to gain a significant benefit such as a reduced prison sentence: strong documentary evidence to support the testimony.
In terms of fitting into the existing antitrust enforcement regime, the advent of a whistleblower program creates a new avenue for disclosure outside of leniency. And, presumably, leniency will be unavailable when there is a whistleblower—just as corporate leniency is unavailable if an individual has already reported the misconduct—which adds yet another incentive for companies to disclose.
Why the Need for Change
Recent trial losses underscore the need to develop better evidence in criminal antitrust cases and have led the Antitrust Division to diversify its approach to detecting and investigating cartels. Multiple issues are at the heart of this problem, including the natural evolution of white-collar offenders away from discussing misconduct in easily detectable formats, such as email, to places such as phone calls and ephemeral messaging applications. In addition to the diminished value of the inculpatory evidence received from leniency applicants, experience with the program showed that many applicants were often more concerned about financial exposure in follow-on private litigation than with providing quality cooperation, especially with the Antitrust Division’s oft repeated mantra that the risk of being removed from the program was approximately 0%. Moreover, individuals afforded nonprosecution protection under the corporate leniency application—whose primary criteria for coverage was admitting to participation in the anticompetitive agreement—have not made for quality trial witnesses. Lastly, because a company can receive leniency after the Antitrust Division has opened an investigation, many applicants come forward after some sort of affirmative investigative step, such as a grand jury subpoena or a knock-and-talk interview with employees. This typically results in an applicant cooperating by providing historical information, which does not provide the same value to the Antitrust Division as a whistleblower whose disclosure can facilitate affirmative investigative work.
Time will tell if these changes work as intended. It is clear, however, that the Antitrust Division, and the DOJ more broadly, will continue to adjust their approach to increase the ability to detect, investigate and prosecute corporate misconduct.
For a further discussion of the issues in recent Antitrust Division criminal trials, there will be a panel discussion at NYU Stern School of Business on March 14 at 5:30pm. Panelists will include experience trial counsel from these recent trials. For more information, see ambar.org/att.
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