United States: DOJ Warning About Corporate Compliance Programs, Probation, And External Compliance Monitors

Last Updated: November 18 2014
Article by Mark Krotoski

The U.S. Department of Justice, as part of a new policy focus, expects companies to establish compliance programs or risk probation and external corporate monitors in antitrust matters.

Recently, the U.S. Department of Justice (DOJ) announced a significant policy focus on the need for effective corporate compliance programs in antitrust matters. The DOJ expects that companies will operate effective compliance programs or they will risk the consequences for failing to do so. Assistant Attorney General Bill Baer, who leads the DOJ Antitrust Division, made this unmistakably clear by warning: "We reserve the right to insist on probation, including the use of [corporate] monitors, if doing so is necessary to ensure an effective compliance program and to prevent recidivism."1

The same week, Deputy Assistant Attorney General Brent Snyder, who oversees criminal enforcement in the Antitrust Division, identified the central factors that the Antitrust Division will consider in assessing a company's compliance program and whether it will request corporate probation and an external compliance monitor at company expense.2 The emphasis on compliance programs was echoed in a separate speech by Leslie Caldwell, the head of the DOJ Criminal Division.3

Collectively, these major speeches by senior DOJ officials over a three-week period highlight the DOJ's increased focus on the adequacy of company compliance programs. This LawFlash reviews this recent DOJ emphasis and the relevant factors considered by the Antitrust Division.

Role of Compliance Programs

An effective compliance program can advance three significant objectives: prevention, detection, and mitigation. First, a sufficient compliance program may prevent unlawful conduct that could expose a company to significant criminal liability. The potential liability may be substantial, depending on the conduct. Recent criminal fines obtained by the Antitrust Division have exceeded tens and hundreds of millions of dollars.4  

Second, a compliance program may lead to early detection of reportable conduct. Upon detection, a company can assess the best remedial steps. The company may also consider applying for automatic leniency under the Antitrust Division Leniency Program. Under this program, a company may avoid any criminal liability and significantly minimize its civil liability if it is the first to report improper conduct and meets six other conditions of the program.5 As Mr. Baer noted, "Effective compliance programs . . . maximize the chance for a company guilty of price fixing to find out about the conspiracy early enough to qualify for corporate leniency or otherwise cooperate with our investigation."6

Third, once a criminal case has commenced, a strong compliance program can help mitigate the criminal fine and sentencing consequences, including whether the court will place the company on probation for up to five years or impose an independent monitor.7 The DOJ has announced that it will evaluate a company's compliance program as part of the sentencing process.

Five Areas to Evaluate the Effectiveness of an Antitrust Compliance Program

Mr. Snyder highlighted five aspects that the Antitrust "Division looks for when evaluating a company's compliance program":

  • The senior management and the board of directors must "support and cultivate a culture of compliance." Executive leadership sets the tone for compliance in a company.
  • The compliance commitment should pervade the entire company, including executives, managers, and "those with sales and pricing responsibilities." Depending on the circumstances, compliance training and education may also be appropriate for "subsidiaries, distributors, agents, and contractors."
  • The compliance program should be proactive by including training, providing a feedback forum, monitoring and auditing "risk activities," and evaluating the program's effectiveness.
  • The company should "discipline employees who either commit antitrust crimes or fail to take the reasonable steps necessary to stop the criminal conduct in the first place."
  • A company should take steps to prevent a reoccurrence after criminal antitrust conduct has been discovered.8

In early October, Ms. Caldwell separately discussed "the failures of corporate compliance" and reviewed the "hallmarks of good compliance programs."9 Although her comments do not directly apply to antitrust cases, they reinforce similar factors and provide useful guidance to companies establishing a strong compliance program. The guidance includes, for example, periodic review of compliance standards; a strong commitment from company leaders; oversight of the compliance program; training, guidance, internal reporting, and investigation; enforcement of compliance standards; and monitoring and testing. The speech also underscores the recent DOJ focus on the effectiveness of a company's compliance program in making prosecution and sentencing decisions in criminal cases.

Antitrust Corporate Probation Factors

As part of any corporate sentencing, one question the Antitrust Division now considers is whether a company should be placed on probation. Under U.S. sentencing laws, a company may be placed on probation as part of the final sentence10 for a period of up to five years.11 A company under probation must comply with certain conditions during the probation period, including visits and inspections by a probation officer. Standard probation conditions typically include requirements to obey all laws, complete fine payments and community service, and satisfy any other special conditions imposed by the court.12 Another condition under the Sentencing Guidelines is for a company to "develop and submit to the court an effective compliance and ethics program."13

In recent years, it has generally been uncommon for the Antitrust Division to request corporate probation after a company agrees to plead guilty and pay a negotiated criminal fine. However, as announced in the recent speeches, the Antitrust Division has now indicated a greater willingness to insist on or request that the court impose a term of corporate probation.

Mr. Snyder noted that an effective compliance program is one central factor that the Antitrust Division will consider in deciding whether to request corporate probation:

If a company has no preexisting compliance program or makes no efforts to strengthen a compliance program that has proved ineffective, then that company is a likely candidate for probation. . . . This is where a company's decision to retain culpable individuals who do not accept responsibility in key management positions will be considered in deciding whether the company demonstrates a commitment to effective compliance. Conversely, companies that can demonstrate they have adopted or strengthened existing compliance programs may be able to avoid probation.14

He added that the Antitrust Division is considering how to "credit companies that proactively adopt or strengthen compliance programs after coming under investigation."15

External Corporate Compliance Monitors

The Antitrust Division speeches also warn about the enhanced possibility of imposing an external corporate monitor at company expense for "the most egregious cases."16 According to Mr. Snyder, a corporate monitor may be requested to ensure that the company adopts an effective compliance program. An independent monitor will be considered for companies "that refuse to accept responsibility or acknowledge the illegality of their conduct" or where there is a heightened "risk of recidivism."17 Mr. Snyder anticipates that the Antitrust "Division will more frequently request it [a corporate monitor] in the future."18

Thus far, a corporate monitor has been imposed in one criminal antitrust case and one civil case. These cases provide guidance on how the Antitrust Division may proceed in any request for an external corporate monitor.

When it comes to external compliance monitors in criminal cases, the failure of a company to have an effective compliance program and demonstrate acceptance of responsibility and reform will invite a request for probation and an independent monitor by the Antitrust Division. Courts often impose an external corporate monitor at company expense and authorize the monitor to review and inspect compliance and related issues. Mr. Baer stated, "Consistent with the division's willingness to request external monitors in the civil context, the division will consider seeking conditions of criminal probation that include independent monitors when faced with circumstances in which the division is not persuaded that penalties alone will deter future illegal behavior."19

The Need for a Tailored Compliance Program

Finally, the DOJ speeches recognize the reality that there is no uniform compliance program (or "one size fits all").20 The core compliance features should be tailored to fit the company and industry. Mr. Snyder explained as follows:

Compliance programs should be designed to account for the nature of a company's business and for the      markets in which it operates. A multinational auto parts manufacturer with plants and sales all over the world likely requires a different approach to compliance than a road-building contractor that operates in a single state. Both companies have a need for effective compliance, but the necessary approach may be very different.21

Ms. Caldwell indicated that the government would be particularly focused on a company's "culture of compliance" and the manner in which it communicates with its employees regarding its compliance program. She stated, "Compliance programs must be put into place and—more importantly—communicated repeatedly and enforced properly throughout the entire organization. The emphasis on compliance must be heard not only in the executive suites at headquarters, but wherever the company operates around the globe."22

Ultimately, a compliance program should be tailored to a specific company, industry, and risks.23 Ms. Caldwell has explained that the DOJ focuses on the following components of a compliance program when evaluating its effectiveness in conjunction with criminal investigation, prosecution, and sentencing issues:

  • High-level commitment
  • Written policies
  • Periodic risk-based review
  • Proper oversight and independence
  • Training and guidance
  • Internal reporting
  • Investigation
  • Enforcement and discipline
  • Third-party relationships
  • Monitoring and testing24

Conclusion

Collectively, the recent policy speeches send a strong and clear message about the DOJ's high priority and focus on corporate compliance in antitrust and other investigations. An effective compliance program may prevent conduct that would otherwise invite an antitrust investigation. A compliance program can help detect reportable conduct that may be remedied or considered in a leniency application. If a criminal case is already under way, a strong compliance program may mitigate the consequences of the sentence, including whether corporate probation and a corporate monitor should be imposed.

Conversely, the recent policy statements send a firm warning that probation and a corporate monitor will be considered in future antitrust cases. The prospect of potentially being placed on probation and saddled with the significant financial, administrative, and operational burdens associated with a corporate monitor should be strong motivation for companies to assess the current effectiveness of their compliance programs against the recently identified DOJ factors.

Footnotes

1 Bill Baer, Ass't Att'y Gen., Antitrust Div., DOJ, Prosecuting Antitrust Crimes, at 8 (Sept. 10, 2014) [hereinafter Prosecuting Antitrust Crimes], available here.

2 Brent Snyder, Deputy Ass't Att'y Gen., Antitrust Div., DOJ, Compliance is a Culture, Not Just a Policy (Sept. 9, 2014) [hereinafter Compliance is a Culture], available here.

3 Leslie Caldwell, Ass't Att'y Gen., Antitrust Div., DOJ, 22nd Annual Ethics and Compliance Conference (Oct. 1, 2014) [hereinafter Ethics and Compliance], available here.

4 For a list of corporate fines exceeding $10 million, as updated by the Antitrust Division, see here.

5 The DOJ Antitrust Corporate Leniency Policy is available here. Type A leniency is automatic upon satisfying six conditions. Type B leniency may be granted where the Antitrust Division is already aware of the conduct but "does not yet have evidence against the company that is likely to result in a sustainable conviction" and where other specific conditions are met. 

6 Prosecuting Antitrust Crimes, supra note 1, at 7.

7 U.S.S.G. Chap. 8 (Introductory Commentary) (noting "the existence of an effective compliance and ethics program" may "mitigate the ultimate punishment of" a company).

8 Compliance is a Culture, supra note 2, at 4–7.

9 Ethics and Compliance, supra note 3.

10 18 U.S.C. § 3561(a); U.S.S.G. § 8D1.1 (Imposition of Probation - Organizations).

11 U.S.S.G. § 8D1.2(a) (Term of Probation - Organizations).

12 18 U.S.C. § 3563 (Conditions of probation); U.S.S.G. §§ 8D1.3 (Conditions of Probation - Organizations), 8D1.4 (Recommended Conditions of Probation – Organizations); 18 U.S.C. § 3563(a) (mandatory and discretionary conditions of probation).

13 U.S.S.G. §8D1.4(b)(1); see also U.S.S.G. § 8B2.1 (Effective Compliance and Ethics Program).

14 Compliance is a Culture, supra note 2, at 8–9.

15 Id. at 9.

16 Id.

17 Id.

18 Id. at 10.

19 Bill Baer, Ass't Att'y Gen., Antitrust Div., DOJ, Remedies Matter: The Importance of Achieving Effective Antitrust Outcomes, at 11–12 (Sept. 25, 2013), available here.

20 See Compliance is a Culture, supra note 2, at 4 (noting there is no "one size fits all" approach to compliance programs); Ethics and Compliance, supra note 3 ("There is, of course, no 'off the rack' compliance program that can be installed at every company. Effective compliance programs must be tailored to the unique needs and risks faced by each company.").

21 Compliance is a Culture, supra note 2, at 4.

22 Ethics and Compliance, supra note 3.

23 For other guidance on compliance programs, see U.S.S.G. § 8B2.1 (listing minimum requirements for an "Effective Compliance and Ethics Program"); see also ICC Commission on Competition, International Chamber of Commerce Antitrust Compliance Toolkit (2013).

24 Ethics and Compliance, supra note 3.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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