As the third in a triumvirate of releases on compliance programs, the Department of Justice (DOJ) Antitrust Division released its Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations(Antitrust compliance program) in July. This follows the DOJ’s Criminal Division’s release of its Evaluation of Corporate Compliance Programs, (2019 Guidance) in April and the Office of Foreign Asset Control (OFAC) release of A Framework for OFAC Compliance Commitments, in May. These three documents go a long way in cementing the need for robust and effective compliance for corporations. Previously, I considered the nine elements of an effective antitrust compliance program. Today, I want to discuss how all of this will be used in Sentencing Considerations.
Interestingly, the Antitrust compliance program provides for sanction and penalty reduction at two different times during the investigative process; at the charging phase and at the sentencing phase. According to the Morrison & Foerster LLP newsletter, Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel ‒ July 2019, “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.”
However, at the sentencing phase, the Antitrust compliance program “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 announcing the Antitrust compliance program, Assistant Attorney General Makan 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.”
The three-point reductions are not available where there has been, according to the Antitrust compliance program, “an unreasonable delay in reporting the illegal conduct to the government.” Acknowledging that there is a rebuttal presumption that antitrust compliance programs are not effective. To overcome this presumption, prosecutors are directed to make a five-step inquiry of the following issues: “(i) individuals with operational responsibility for the compliance program had direct reporting obligations to the governing authority of the company (e.g., an audit committee of the Board of Directors if applicable); (ii) the compliance program detected the antitrust violation before discovery outside of the company or before such discovery was reasonably likely; (iii) the company promptly reported the violation to the Antitrust Division; and, (iv) no individual with operational responsibility for the compliance program “participated in, condoned, or was willfully ignorant” of the antitrust violation.”
In criminal cases where the Antitrust Division is determining whether or not to recommend probation, a key inquiry is whether the culpable individuals have left the company. This is even if the company has accepted responsibility for its actions and fully cooperated with the DOJ. Finally, if a company did not have an antitrust compliance program in place at the time of the violation(s), all is not lost. If a company puts a compliance program in place those actions can be evaluated. Moreover, “If the company has not established an adequate compliance program, the Division may recommend probation and, in appropriate cases, periodic compliance reports as a condition of probation. The Division also will consider whether an external monitor is necessary to ensure implementation of a compliance program and timely reports.”
Finally, the Antitrust compliance program also has a mechanism for reducing the overall fine and penalty, stating, “In determining whether to impose a fine, and the amount and timing of that fine, courts shall consider any measure taken by a company to discipline personnel responsible for the offense and to prevent recurrence of the offense. Division prosecutors thus should consider whether a company’s extraordinary post-violation compliance efforts warrant a fine reduction.”
What must a company do to “warrant a fine reduction”? It begins with a “dedicated effort” to change the company’s culture to one of compliance. The Antitrust compliance program then lays out four other inquiries:
- Tone at the Top– What steps has senior management taken to require and incentivize lawful behavior and participation in compliance training? Has the company demonstrated that ensuring future compliance and culture change is paramount?
- Improvements to Pre-Existing Compliance Program– Has the company conducted a comprehensive review of its compliance, training, monitoring, auditing, and risk control functions following the antitrust violation? How did the company modify and revise its compliance program to prevent similar conduct from reoccurring?
- Creation of Compliance Program– Did the company create a robust program tailored to the company’s business and aimed at preventing recurrence of an antitrust violation? Does the company’s new antitrust compliance program educate employees about the illegal conduct that occurred as well as other antitrust risks?
- Disciplinary Procedure – Did the company have or create disciplinary procedures for employees who violate the law or the company’s compliance program? Did the company discipline employees who engaged in the violation?
As usually happens when I get into a topic, I just keep writing but I promise to end this series in my next entry which will detail lessons for the anticorruption compliance practitioner.
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© Thomas R. Fox, 2019