The Antitrust Division of the U.S. Department of Justice has historically had a strained and, some would say, antagonistic attitude, toward existing compliance programs. Indeed, when the Department of Justice as a whole issued guidelines for the charging of corporations and included the existence of an effective compliance program as one of the factors to be considered, a special exception was created in those guidelines for the Antitrust Division. This exception had always been the position of Scott Hammond when he was the Deputy Assistant Attorney General in charge of criminal enforcement. With Hammond’s retirement in early 2014, it was hoped that his successor might take a different approach. However, Brent Snyder, who succeeded Hammond, made it clear in a speech in September 2014 that the existence of a compliance program would almost never allow a company to avoid criminal antitrust charges or receive credit at sentencing. I confronted Snyder with his position at the Spring Meeting of the American Bar Association in April of this past year. His response was that it was his belief that an antitrust violation is rarely committed by a rogue employee, and instead typically involved senior management. Indeed, in rather colorful language, he characterized the so-called rogue employee as being as rare as the mythical abominable snowman – the “Yeti.” The involvement of senior management, of course, would disqualify a corporation from avoiding criminal charges in the first instance under the charging guidelines and limit any credit for an existing program under the Sentencing Guidelines in terms of the fine calculation.
However, a key case brought by the Antitrust Division in 2015 indicated that the Division has a different attitude toward some compliance programs initiated after criminal charges had been brought against the corporation.
In October 2015, the Antitrust Division filed a sentencing memorandum and motion for a downward departure in the case of United States v. Kayaba Industry Co. in the Southern District of Ohio. This sentencing memorandum indicated that, although the Antitrust Division may place little weight on an existing compliance program, it places a great deal of weight on the creation of certain compliance programs after a corporation becomes aware of a criminal investigation. This sentencing memorandum is also revealing in terms of the features of a post-violation compliance program that the Antitrust Division will credit.
Kayaba Industry Co. is a Japanese corporation involved in the manufacture of shock absorbers for use on automobiles and motorcycles. In September 2015, the United States filed a one-count criminal information charging the defendant with participating in a conspiracy to suppress and eliminate competition in the automotive parts industry by agreeing to allocate markets, to rig bids and to fix, stabilize and maintain the prices of shock absorbers sold to automobile manufacturers.
In light of the volume of commerce involved, under the U.S. Sentencing Guidelines the defendant faced a possible fine of between $103 million and $207 million. The sentencing memorandum filed by the Antitrust Division in October 2015, however, sought a fine reduction to $62 million.
Although the sentencing memorandum filed by the Antitrust Division emphasized cooperation and acceptance of responsibility as key factors in the requested reduction of the sentence, the amount of reduction permitted under the Sentencing Guidelines for such cooperation and acceptance cannot account for the majority of the reduction. Such a sizable reduction, however, arguably can be attributed to the implementation of the compliance program instituted shortly upon the defendant being notified of the government’s investigation.
One of the key features of the compliance program instituted by the defendant was the required training of senior management and all sales personnel. The sentencing memorandum indicated that, in addition to classroom training, the compliance program provided for one-on-one training with personnel with jobs where there was a high risk of antitrust crimes, such as with salespeople. The sentencing memorandum also indicated that the effectiveness of the training was measured by testing employee awareness of antitrust issues before and after the training.
In addition, the sentencing memorandum stated that the compliance policy required prior approval, where possible, of all contacts with competitors and the reporting of all such contacts if they did occur. These reports were to be audited by in-house counsel. In addition, under the compliance policy, sales personnel were required to certify that all prices were independently determined and that they had not exchanged information or conspired with competitors when determining the price. In addition, an anonymous hotline was set up so that employees could report possible violations of the antitrust laws. Finally, the sentencing memorandum provided that the corporation would discipline its employees who violated these policies.
The foregoing aspects of the compliance program described in the sentencing memorandum would appear to be standard features of an effective compliance program set forth in Section 8B2.1 of the Sentencing Guidelines. So what made the compliance program instituted by Kayaba sufficient that it merited the substantial reduction in the fine requested by the Antitrust Division?
A possible clue to this question can be found in a September 2014 speech by Bill Baer, the Assistant Attorney General in charge of the Antitrust Division for the Department of Justice. In that speech, Baer indicated that the Antitrust Division expected companies to take compliance seriously once they had pleaded guilty or been convicted. He stated that “[t]aking compliance seriously includes making an institutional commitment to change the culture of the company” and that “[c]ompanies should foster a corporate culture that encourages ethical conduct and a commitment to compliance with the law.”
This emphasis on changing the corporate culture is reflected in the sentencing memorandum filed by the Antitrust Division in the Kayaba case. This memorandum indicated that, from the moment the defendant corporation received notification of the government’s investigation, “management committed to instituting policies that would ensure that it would never again violate the antitrust laws.” The memorandum further indicated that the direction to implement such policies came from the defendant’s president and, with the assistance of the defendant’s senior management, “the company sought to change the culture of the company to prevent recurrence of the offense.”
Baer also indicated in his September 2014 speech another aspect of compliance policies instituted after a guilty plea or conviction that also may explain the significant fine reduction requested by the Antitrust Division. Baer stated that a guilty company that continues to employ culpable senior executives can hardly be said to foster a corporate culture of compliance, particularly if the guilty company still employs such individuals in positions with pricing responsibilities. Indeed, he stated that “we will have serious doubts about [a] company’s commitment to implementing a new compliance program or invigorating an existing one” if the company continues to employ such individuals in positions of substantial authority, in positions where they can continue to engage directly or indirectly in collusive conduct, in positions where they supervise the company’s compliance and remediation program, or in positions where they supervise individuals who would be witnesses against them.
This view finds confirmation in the sentencing memorandum in the Kayaba case. Specifically, the sentencing memorandum indicated that two high-ranking employees who were personally involved in the cartel or supervised employees who were involved, were demoted and no longer had sales responsibilities. The memorandum also noted that other, lower-ranking employees who were involved in the conduct may also be disciplined.
The Antitrust Division has given lip-service to the importance of compliance programs, but generally from the perspective that such programs should prevent antitrust violations in the first instance or permit early detection and self-reporting to the government to qualify the corporation for the Antitrust Division’s leniency program. However, the Kayaba case indicates that the Antitrust Division will give credit in sentencing to certain kinds of compliance programs instituted after a guilty plea or conviction that seek to change the culture of the corporation to prevent future violations of the law.