United States: District Court Requires The Antitrust Division Of The Department Of Justice To Honor An Amnesty Agreement In A Criminal Antitrust Investigation

A federal district court in the Eastern District of Pennsylvania recently held that the Antitrust Division of the Department of Justice ("DOJ") may not unilaterally withdraw from an agreement granting amnesty for criminal antitrust violations without a prior court ruling that the cooperating company had actually breached the agreement. The court’s decision in Stolt- Nielsen SA v. United States called into question the scope of the Division’s ability to decide the fate of cooperating witnesses in an antitrust investigation. The decision also highlighted the importance of amnesty agreements as a way to limit both corporate and individual criminal liability once a potential antitrust violation has been discovered.

A criminal antitrust investigation routinely lasts three to five years and the targets of investigations face penalties that include restitution to victims, jail time for offenders, and criminal fines that often exceed $100 million. In addition, criminal investigations frequently spawn other legal actions, including civil suits seeking treble damages, antitrust prosecution by foreign jurisdictions, and even state antitrust prosecutions. As a consequence, once corporate counsel discovers evidence of an antirust violation, all options that limit the liability of the corporation and its employees must be weighed, including an important, but potentially overlooked, option—the Antitrust Division’s Corporate Leniency Program, or amnesty program.

Over the past ten years, the prosecution of antitrust violations has changed significantly. The combination of stronger antitrust enforcement, increased fines and jail terms and the amnesty program has contributed to a sharp increase in criminal antitrust prosecutions. Criminal antitrust activities are inherently secretive and are therefore difficult to detect. In recent years, however, the Antitrust Division has added tools beyond the use of investigative grand juries and cooperating informants, including its aggressive use of search warrants, consensual monitoring with sophisticated audio and video surveillance equipment, cooperation with foreign authorities, and its expansion of the amnesty program to obtain evidence from co-conspirators about conspiracies.

Given the significant penalties for antitrust violations and the fact that an amnesty recipient may be able to limit civil damages to single, rather than treble damages, corporate counsel faced with evidence of a criminal antitrust violation must promptly consider seeking amnesty. Timing is crucial. Under the program, the first company to report a violation can receive protection from prosecution, including complete immunity for it, and for its directors, officers and employees, from criminal convictions and fines if the Antitrust Division has not already received information about the illegal activity, and the following other conditions are met:

• The amnesty applicant took prompt and effective action to cease the activity upon its discovery;
• The applicant’s cooperation is candid and complete and continuing and is truly a corporate act;
• The applicant makes restitution to the victims (where possible); and
• The applicant was not the leader or originator of the illegal activity and did not coerce another party.

While it is possible to receive immunity after the Antitrust Division has opened an investigation, the chances of obtaining a grant of amnesty are exceedingly low where the investigation has already yielded significant evidence of a criminal violation.

The scope of the amnesty being sought is also important under the Division’s Amnesty Plus program. By reporting any other activities in a separate industry, a company may qualify for amnesty in the other industries and receive a reduction in sentence for the first industry even if it was not first to report. Companies that know of other potential antitrust violations but elect not to report and take advantage of the Amnesty Plus opportunity risk harsh consequences, as the Division will urge the sentencing court to consider the failure to report as an aggravating factor.

As mentioned above, the recipient has considerable responsibilities in return for receiving amnesty. Failure to report related illegal activity jeopardizes participation in the program.

In Stolt-Nielsen, the amnesty applicant was a global operator of tanker vessels for bulk transportation of liquid chemicals. In mid-1998, the company’s employees entered into illegal arrangements to allocate customers with its two primary competitors. After corporate counsel learned of these activities, the company obtained outside counsel who approached the Antitrust Division about acceptance into the amnesty program. When that contact occurred, neither the company’s outside counsel, nor the Antitrust Division, could confirm that a criminal violation of the antitrust laws had occurred. Thus, in accordance with the Antitrust Division’s informal policy, the outside counsel sought an amnesty "marker" for the company to establish that it had priority over other conspirators if they later sought amnesty. The Antitrust Division granted the marker, and the company commenced an internal investigation.

Approximately one month later, an official proffer was taken and the company admitted to engaging in an illegal customer allocation. The issue of whether it had ceased all illegal activity was not addressed at the proffer, but based on the proffer and the fact that it had instituted a more stringent antitrust compliance program, the Antitrust Division accepted the company into the amnesty program. The amnesty agreement extended complete immunity for any illegal activity engaged in prior to January 15, 2003.

As is usually the case, the agreement mandated full and complete cooperation with the government’s investigation and the company was required to make restitution to any victims. The company also had to represent that it "took prompt and effective action to terminate its part in the anticompetitive activity being reported upon discovery of the activity." The agreement did not elaborate on what was considered "prompt and effective," nor did it specify when the illegal activity began or ended.

The company provided the government access to numerous incriminating documents, and several company employees detailed the company’s involvement in the customer allocation scheme. As a result of this cooperation, the Antitrust Division charged the company’s two primary competitors with a five-year conspiracy to allocate customers, rig bids and fix prices. Both co-conspirators plead guilty to the charges and paid fines totaling over $60 million. Several executives of these companies also plead guilty to the conspiracy charges and agreed to serve various jail sentences.

After amnesty was granted, the Antitrust Division learned that the company had not ceased the illegal activities when they were discovered in March 2002 (the date when the company’s in-house counsel had expressed concerns over possible antitrust liability), and had continued the illegal conduct after the company first reported it to the DOJ. Thus, the DOJ did not believe "prompt and effective" steps to determine the conduct occurred and decided to revoke the amnesty even though the amnesty agreement extended immunity to all activities engaged in prior to January 15, 2003. The government subsequently arrested a company executive and charged him with participation in a criminal conspiracy. When the government indicated that it also intended to prosecute the company, outside counsel sought an injunction to bar the DOJ from seeking an indictment.

In its analysis, the court noted that cooperation under an amnesty agreement impacts a company’s due process protections because it must forfeit valuable constitutional rights in return for leniency by providing evidence that is both essential to the prosecution of its co-conspirators and self-incriminating. Thus, any ambiguities should be construed against the government. The court held that, once a company has given the Antitrust Division "the benefit of its bargain," the government cannot rescind the amnesty agreement simply because prosecutors believed that the promises negotiated prior to the agreement were not fulfilled. Because the Antitrust Division had drafted the agreement, and because the agreement could have covered a specific time frame, the court enjoined the Antitrust Division from prosecuting both the employee and the company. Also important to the court was that the company had not made a representation in the amnesty agreement as to the date it terminated the illegal conduct.

Stolt-Nielsen is a reminder that companies and individuals facing antitrust investigations or prosecutions face increased penalties for criminal antitrust violations broader than the investigations. It has become even more important to consider whether and how to obtain immunity through cooperation under the amnesty program. Counsel must quickly identify when the suspected illegal activity began, when it ended, and what steps were taken to ensure that the activity had ceased. Additionally, counsel should determine the scope of any illegal conduct to determine if other products or businesses were in illegal activities. After this decision, it is likely that the DOJ will seek more detailed information and the negotiations for amnesty and the drafting of the agreement will be more complicated.