Earlier this month, on the eve of the ABA Antitrust Spring Meeting, the Department of Justice Antitrust Division rolled out significant updates to its Leniency Program, most readily discernible through an augmented, plain-language set of 82 Frequently Asked Questions, as well as the Division’s updated Leniency Policies and Procedures and Model Corporate Conditional Leniency Letter.
The leniency program is widely-regarded as the crown-jewel in the Division’s cartel enforcement arsenal, with the carrot of full criminal immunity for a first-in cooperator motivating companies to race to the Division’s doorstep with incriminating evidence. However, participation in the program and U.S. criminal cartel enforcement generally has waned from a peak five to ten years ago. According to some defense practitioners, that downturn stems in part from the burdens and uncertainties of the leniency program and ACPERA, the statute conditionally limiting liability for leniency applicants in follow-on civil litigation. While the Division’s efforts to increase transparency with its latest updates to the leniency program are welcome, the substantive policy changes erect additional hurdles and create new uncertainties that may deter some potential applicants from pursuing leniency at all, despite the potentially devastating consequences for failing to do so.
This article discusses the key updates in the Division’s Leniency Policy, and then offers some ideas for further changes in law and policy which the Division and Congress may wish to consider to boost participation in the leniency program and ensure continued robust cartel enforcement.
“Prompt” Self-Reporting Is Now Required
Likely the most significant update to the Leniency Program is that it is no longer good enough to be the first company to report cartel conduct; now an applicant must “promptly” report itself to the Division to obtain leniency. This “promptness” determination is left to the sound discretion of the Division, with the burden on the applicant to prove that its self-reporting was prompt.
In its updated FAQs, the Division states that it will make “this assessment based on the facts and circumstances of the illegal activity and the size and complexity of operations of the corporate applicant.” More specifically, the Division states that while an applicant may still be eligible for leniency if it conducts a timely preliminary internal investigation to confirm the existence of a violation before self-reporting, an applicant “that confirms its involvement in illegal activity and then chooses not to self-report until later learning that the Division has opened an investigation will not be eligible for leniency.”
Where in between these examples an applicant might be considered prompt as opposed to unreasonably dilatory is obviously a judgment call, but one with enormous downside consequences for the applicant. Defense counsel are understandably nervous about the uncertainty wrought by this change in policy. Notably, during one of the panel’s at the ABA Spring Meeting, a senior Division official rejected the idea of entertaining hypothetical proffers on this timing issue during the initial marker phase as a means of assuaging applicant concerns in potentially borderline cases.
The Scope of Who Is Responsible for Reporting Has Been Expanded
The impact of the new requirement for prompt reporting is amplified by an expanded definition of whose discovery of a violation within a corporate applicant matters for purposes of starting the “promptness clock.” Under the updated leniency guidance, “[t]he Division generally considers an organization to have discovered the illegal activity at the earliest date on which an authoritative representative of the applicant for legal matters—the board of directors, its counsel (either inside or outside), or a compliance officer—was first informed of the conduct at issue.” This group was previously limited to board members and counsel. Because an applicant is not eligible for leniency if an authoritative representative learns of potential illegal activity and refrains from investigating further, effective compliance and reporting functions have become all the more important.
Applicants Must Make Best Efforts to Remediate Harm and Improve Compliance
To qualify for leniency, applicants must now make “best efforts” to both remediate the harm caused by their illegal activity and improve their compliance programs to prevent recidivism. These requirements are in addition to paying restitution to injured parties.
The Division states in its updated FAQs that what remediation is appropriate depends on the nature of the illegal activity, the nature of any harm caused, and the applicant’s role in it. As to the risk of recidivism, the Division states that it expects an applicant to conduct a thorough root cause analysis on the violation, and to undertake remedial efforts tailored to address those root causes. According to DOJ, these steps may include “demonstrating recognition of the seriousness of the illegal activity, acceptance of responsibility for it, and the implementation of measures to reduce the risk of repetition of the illegal activity, including measures to identify future risks.” The Division states that it may also consider the applicant’s efforts to discipline or terminate culpable, non-cooperating personnel.
With respect to compliance, the updated FAQs emphasize that this will be a fact-specific inquiry, without a checklist or formula for determining whether a compliance program is effective. The Division states that it will consider the applicant’s compliance program both at the time of the antitrust violation and when it makes subsequent improvements.
Applicants Must Present Concrete, Reasonably Achievable Plans to Pay Restitution
With its updated policy, the Division also appears to have upped the requirements for applicants to pay restitution, which previously only mandated that applicants make restitution “where possible.” Now to obtain a conditional leniency letter, an applicant “must present concrete reasonably achievable plans” to make restitution to parties injured by the illegal activity. While the updated Leniency Policy is couched in a requirement to use “best efforts” to make restitution, the FAQs make clear that qualifier is only intended to cover “situations when providing full restitution is impossible in the specific circumstances of the applicant or the victim,” such as when the applicant is bankruptcy. Moreover, the FAQs state that to receive a final leniency letter, “applicants must actually pay restitution.”
Type B Leniency To No Longer Presumptively Protect Cooperating Individuals
Written updates to the leniency policy coupled with comments by Division officials at the Spring Meeting also suggest a change in approach to the protections typically given to cooperating directors, officers and employees of companies admitting to violations in Type B leniency scenarios (where the Division has already opened an investigation at the time of the applicant’s reporting, but does not yet have evidence against the applicant likely to result in a conviction). Previously, such individuals were presumptively afforded leniency protections. Under the updated guidance, in Type B applications, the Division is clear that non-prosecution protection for directors, officers, and employees is not guaranteed. Rather, the Division will assesses non-prosecution protection for such individuals on a case-by-case basis, including assessment of the individual’s level of cooperation, whether the cooperation or knowledge of the individual is duplicative of information the Division already has, and the extent to which the individual was involved in the misconduct. This is in contrast to the protections afforded directors, officers, and employees of a Type A applicant, for whom non-prosecution protection is guaranteed so long as they provide timely, truthful, continuing and complete cooperation.
Some of the DOJ’s Positions Concerning ACPERA Have Been Clarified
The updated leniency guidance also speaks for the first time to the Antitrust Criminal Penalty Enhancement Reform Act (ACPERA), which was enacted in 2004 to provide greater incentives for corporations to self-report and cooperate under the Leniency Program. Under ACPERA, a defendant that fulfills the DOJ’s leniency requirements can also limit its liability in subsequent civil lawsuits to the “actual damages” caused by the defendant’s illegal conduct, meaning it would not face either the treble damages or joint and several liability typically associated with civil antitrust actions. However, a leniency applicant is only entitled to ACPERA protection if its provides “timely” and “satisfactory cooperation” to civil plaintiffs. As this author and others have observed, these terms are ambiguous, and only at the end of litigation will the judge determine whether a civil defendant has satisfactorily performed its role and earned the sought protection under ACPERA. This lack of clarity calls into question just how effective ACPERA’s protections are in getting conspirators to come forward, and for those that do, invites contentious litigation as to what exactly constitutes qualifying cooperation.
DOJ’s latest FAQs address a few of the difficult issues leniency applicants have faced navigating ACPERA in civil litigation. For instance, the Division states that an applicant should not be disqualified from reduced civil liability simply because it does not satisfy unreasonable requests made by plaintiffs or does not “provide information not relevant to the conspiracy identified in the leniency letter.” Of course, where to draw those lines may be in the eye of the beholder.
But the updated guidance does not resolve what would constitute “timely” and “satisfactory cooperation” in many of the scenarios where these issues are contested in civil litigation. Moreover, the FAQs encourage applicants “to work with civil plaintiffs and the court to streamline damages determinations so that restitution to victims happens as swiftly as possible,” arguably casting doubt on a legitimate and not uncommon strategy of waiting for civil litigation to progress before committing to specific settlements.
Whistleblower Protection May Be Available in Absence of Individual Leniency
Finally, the Division’s updated FAQs encourage individuals with knowledge of cartel activity, but no personal involvement in it, to still report that conduct, noting that the reporting individual could qualify for whistleblower protection under the Criminal Antitrust Anti-Retaliation Act (CAARA), passed in December 2020. CAARA prohibits employers from retaliating against employees who report potential antitrust crimes or assist a federal government investigation, and whistleblowers who believe that they have suffered retaliation in violation of CAARA may file a retaliation complaint with the Occupational Safety and Health Administration, potentially followed by an action in federal district court.
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Some Suggestions to Boost Leniency Program Participation and Cartel Enforcement
Decisions to seek antitrust leniency have always been complicated and fraught with competing considerations, typically in the face of extreme time pressure and imperfect information. The Division has understandably capitalized on the prisoner’s dilemma of a conspirator’s concern that it must immediately self-report and seek immunity or risk its co-conspirators doing so. Uncertainty in that context is unquestionably a boon to enforcement.
But uncertainty as to what a potential leniency applicant is securing for itself and its employees by seeking leniency—including satisfaction of all gating and continuing obligations to the Division, along with potentially ruinous civil exposure—will likely hinder enforcement by lowering the overall number of leniency applications made and cartels discovered.
Here are a few ideas for Congress and the Division to consider to make the decision to seek leniency an easier sell:
Clarify Important Areas of Uncertainty in the Updated Leniency Policy
To the extent possible, the Division should endeavor to provide further guidance and precedent on the issues where the defense bar has expressed concern there is material uncertainty. In particular, concerns with potential disqualification of otherwise conforming leniency applications based on lack of prompt reporting—presumably resulting in full, self-reported criminal exposure—could be addressed with further guidance, including the potential for real time hypothetical exploration of particular fact patterns in the initial process to obtain a marker. So, too, further guidance on what would constitute “reasonably achievable plans” to make restitution before an applicant has obtained conditional amnesty could alleviate concerns that this is an unmanageable new requirement.
Make ACPERA’s Reduced Civil Liability Automatic for Leniency Applicants
This author has previously argued in both 2011 and 2020 that one of the most effective ways to eliminate the prevailing “cooperation confusion” under ACPERA and substantially sweeten the carrot offered by the Division’s leniency program would be to eliminate ACPERA’s “timely” and “satisfactory cooperation” requirement altogether. Under such a scheme, an applicant who fulfills all of the requirements of DOJ’s leniency program (including as enhanced by recent updates) would automatically receive both criminal amnesty and reduced civil liability (no treble damages or joint and several liability). Provided that all of the cooperation provided to the DOJ is ultimately provided to private plaintiffs (and indeed, copies of complete productions to DOJ often are document request No. 1), there is no further, amorphous “cooperation” requirement for the applicant to worry about. The applicant’s cost-benefit analysis in deciding whether to apply for leniency becomes crystal clear. For those who believe ACPERA’s uncertainty has been deterring leniency applicants, there is no question that this approach would summarily resolve the problem.
Give Antitrust Whistleblowers Financial Incentives to Report
Finally, this author argued last year that Congress missed an important and easy opportunity to bolster flagging cartel enforcement when it passed the CAARA whistleblower protection law. Notably absent among the remedies for the reporting individual under CAARA (or ACPERA) is a percentage of the recovery obtained through government prosecution of the illegal underlying conduct. CAARA was meant to encourage reporting amongst workers and offset fears that a whistleblower might face retaliation. If the goal is to encourage reporting and cooperation, it would seem fitting to give the whistleblower a stake in the outcome, and the increased likelihood of whistleblower reporting would certainly heighten incentives for companies to apply for leniency.
That Congress neglected to do so may represent a concern about giving antitrust whistleblowers an “economic incentive to bring forth false claims.” But this concern did not stop Congress from enacting similar programs in other contexts. Section 922 of the Dodd Frank Act, for example, allots whistleblowers ten to thirty percent of the recovery when the Securities and Exchange Commission wins a recovery of over $1 million. Similarly, section 3730 of the False Claims Act gives whistleblowers fifteen to thirty percent of the recovery in successful qui tam actions. Both programs are significant drivers of enforcement actions, and omission of a reward in the CAARA and ACPERA schemes is a missed opportunity to bolster cartel enforcement.