Author: Luis Blanquez
If you read our articles regularly, you know an antitrust compliance policy is a strong tool to educate directors and employees to avoid risks of anticompetitive conduct. Companies articulating such programs are in a better position to detect and report the existence of unlawful anticompetitive activities, and if necessary, be the first ones to secure corporate leniency from antitrust authorities.
But make no mistake––not any antitrust compliance policy is sufficient to convince the Antitrust Division of the Department of Justice (DOJ) that you are a good corporate citizen. You must show the authorities how your compliance program is truly effective and meets the purpose of preventing and detecting antitrust violations.
And how do you do that? As a start, you should get familiar with the following key documents.
- The DOJ’s new Policy for incentivizing antitrust compliance;
- S. Dep’t of Justice, Antitrust Div., Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations (July 2019);
- S. Dep’t of Justice, Criminal Div., Evaluation of Corporate Compliance Programs (June 2020);
- DOJ updated Justice Manual.
Make sure you read them carefully because they have significantly changed the way DOJ credits compliance programs at the charging stage; and how it evaluates them at the sentencing stage. But that’s not all. For the first time, they also provide public guidance on how DOJ analyzes compliance programs in criminal antitrust investigations.
In this article, we focus on the new DOJ Policy for incentivizing antitrust compliance, as well as the 2019 and 2020 Guidance Documents. We also provide an overview of the most recent Deferred Prosecution Agreements (DPAs) and indictments from DOJ.
If you also want to review the new changes to the Justice Manual, you can see them here. In a nutshell, the new revisions impact the evaluation of compliance programs at the charging and sentencing stage. In the past the Justice Manual stated that “credit should not be given at the charging stage for a compliance program.” That text has now been deleted. The new additions also impact DOJ processes for recommending indictments, plea agreements, and the selection of monitors.
The 2019 DOJ New Policy for Incentivizing Antitrust Compliance
In the past, if a company did not win the race for leniency, the DOJ’s approach was to insist that it plead guilty to a criminal charge with the opportunity to be an early-in cooperator, and potentially receive a substantial penalty reduction for timely, significant, and useful cooperation. This all-or-nothing philosophy highlighted the value of winning the race for leniency. The new Policy departs from this approach.
In July 2019, the DOJ announced the new policy to incentivize antitrust compliance.
The new policy was presented by AAG Makan Delrahim on July 11, 2019, at the Program on Corporate Compliance and Enforcement at the New York University School of Law: Wind of Change: A New Model for Incentivizing Antitrust Compliance Programs. Delrahim explained that, unlike in the past, corporate antitrust compliance programs will now factor into prosecutors’ charging and sentencing decisions and may allow companies to qualify for deferred prosecution agreements (DPAs) or otherwise mitigate exposure, even when they are not the first to self-report criminal conduct.
Mr. Delrahim made similar statements during his May 10, 2019 speech in Buenos Aires, Argentina, “Algo Esta Cambiando”: Innovation and Cooperation Among Antitrust Enforcers in the Americas, where he stated that, unlike in the past, the Antitrust Division may give credit to a company for having a “robust” corporate antitrust compliance program even if that program did not prevent an antitrust violation, although he did not specify what sort of credit may be given.
Why is this such a big deal? Basically, DOJ is able to file criminal charges against a cartel offender, while at the same time deferring actual prosecution. And that’s even in the case that such company is not “first in” under the leniency program.
So, what are the key milestones of this new policy?
Charging Stage: the new big change
Under the new policy, the DOJ considers the effectiveness of the compliance program at the time of the offense, and also at the time of the charging decision.
But the DOJ does not assess compliance programs in vacuum. In order to receive a significant discount up to a Deferred Prosecution Agreement (DPA) for criminal antitrust violations, the company involved must (1) have a robust and effective compliance policy, (2) promptly self-report wrongdoing, (3) cooperate in the DOJ’s investigation, and (4) take remedial action. In other words, the DOJ’s new approach to compliance programs should not be misconstrued as an automatic pass for corporate misconduct.
Indeed, this is consistent with the DOJ past best practices, where it rarely used DPAs to resolve criminal antitrust violations:
- In May 2015, five international banks plead guilty of conspiracy to manipulate the price of U.S. dollars and Euros exchanged in the foreign currency exchange spot market. Barclays, one of the banks involved, was able to get a reduction in its criminal fine by demonstrating to the Antitrust Division the implementation of significant and demonstrable changes to its compliance program and corporate culture.
- Similarly, in September 2015, KYB, a Japanese company, agreed to plead guilty for its role in a conspiracy to fix the prices of shock absorbers installed in cars and motorcycles sold in the United States. The DOJ concluded that: (i) KYB implemented a new compliance policy to educate its employees ensuring that the company would not violate antitrust rules in the future; (ii) the compliance improvements were established from the moment KYB was aware of the government’s investigation; and (iii) the company’s new compliance policy to change the culture of the company was to prevent recurrence of the offense
According to AAG Delrahim, there are three potential ways effective antitrust compliance programs may be relevant to a company’s sentencing:
- The Sentencing Guidelines provide for a three-point reduction in a corporate defendant’s culpability score if the company has an “effective” compliance program. Delay in reporting and the involvement of “high-level” or “substantial authority” personnel, as defined by the Guidelines, often weigh against application of this provision.
- A compliance program may be relevant to determining the appropriate corporate fine to recommend within the Guidelines range, or in extraordinary circumstances, whether to recommend a fine below the Guidelines range.
- A company without an effective compliance program may also face probation under the Sentencing Guidelines. Typically, the DOJ will not seek probation for pleading corporations except in limited circumstances, such as when a company (i) has not accepted responsibility or has received a “penalty plus” fine adjustment for failing to report other cartel conduct at the time of a prior plea, (ii) or has been convicted after trial and still does not accept responsibility, declining to take measures to implement or improve its antitrust compliance program.
In the past, DOJ has never recommended that a corporate defendant receive the three-point credit in its culpability score that the Sentencing Guidelines permit for a defendant with a robust and effective compliance program.
This seems to have also changed under the new Policy, and DOJ might start giving more weight to compliance programs in sentencing recommendations. AAG Delrahim has also indicated that DOJ will provide additional clarity on how they consider compliance programs at sentencing, including their approach to recommending probation and guidance for selecting monitors.
U.S. Dep’t of Justice, Antitrust Division, Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations (July 2019)
The purpose of this Guidance Document is to better assist DOJ prosecutors to evaluate compliance programs at both the charging and sentencing stage of investigations, while at the same time providing compliance officers and the public with greater transparency of the Division’s compliance analysis.
Following the Justice Manual, DOJ explains that it has no formulaic requirements for evaluating the effectiveness of corporate compliance programs. Instead, the Guidance Document asks prosecutors to consider three “fundamental” questions in their evaluation: (1) Is the corporation’s compliance program well designed? (3) Is the program being applied earnestly and in good faith? (3) Does the corporation’s compliance program work?”
The Guidance Document addresses these questions in the criminal antitrust context by identifying nine factors of an effective antitrust compliance program.
AAG Delrahim stressed during his presentation in July 2019 that, while the Guidance Document provides “a lengthy list” of factors to be considered, “the guidance emphasizes that these elements and questions are not a checklist or formula, and not all of them will be relevant in every case” and that “prosecutors evaluate programs on a case-by-case basis.” Moreover, DOJ recognizes that a company’s size affects the resources allocated to antitrust compliance and the breadth of the company’s compliance program.
So, how does DOJ analyze now compliance programs in practice?
First, at the outset of any inquiry into the efficacy of an antitrust compliance program, DOJ prosecutors ask three preliminary questions about a company’s compliance efforts:
- Does the company’s compliance program address and prohibit criminal antitrust violations?
- Did the antitrust compliance program detect and facilitate prompt reporting of the violation?
- To what extent was a company’s senior management involved in the violation?
Second, these questions help DOJ prosecutors to focus their analysis on the factors most relevant to the specific circumstances under review.
The nine factors supporting the effectiveness of an antitrust compliance program
The Design and Comprehensiveness of the Program
Key considerations are the adequacy of the program’s integration into the company’s business (i.e. when was the program first implemented, who is responsible for it, how often is it updated, are there any internal controls, etc.); and the accessibility of antitrust compliance resources to employees and agents (guidance to employees with approval authority for pricing changes, participation in industry meetings, or document destruction and obstruction of justice, among others).
The Justice Manual also requires prosecutors to evaluate whether a compliance program “is merely a ‘paper program’ or whether it was designed, implemented, reviewed, and revised, as appropriate, in an effective manner.” See also Compliance is a Culture, Not Just a Policy, September 2014, from Brent Snyder, former Deputy Assistant Att’y Gen., U.S. Dep’t Justice, Antitrust Div.
The culture of compliance within the company
Support of the program from the company’s top management––through clear articulation and conducting themselves in accordance with the company’s commitment to good corporate citizenship––is critical to the success of an antitrust compliance program.
Responsibility for the compliance program
Those with operational responsibility for the program must have sufficient autonomy, authority, and seniority within the company’s governance structure, as well as adequate resources for training, monitoring, auditing and periodic evaluation of the program.
A key consideration here is the existence of a chief compliance officer or executive within the company, responsible for antitrust compliance, reporting periodically to the Board of Directors, audit committee, or other governing body.
Antitrust risk assessment techniques
A company’s antitrust compliance program––while being consistent with industry best practices––must be tailored to detect the types of antitrust risk and misconduct most likely to occur in a particular corporation’s line of business.
For instance, an organization that, due to the nature of its business, employs sales personnel who have flexibility to set prices, shall establish standards and procedures designed to prevent and detect price-fixing. Also, if a company bids on contracts, all bid information must be subject to evaluation to detect possible bid-rigging.
Training and communication to employees
An effective antitrust compliance program must include adequate training and communication so that employees understand their antitrust compliance obligations.
It must empower employees to do business confidently by making clear what is and what is not permissible. Training should also address what to do when an employee thinks certain activity is potentially unlawful. For instance, when there is legitimate collaboration between competitors, an employee should understand what to do if it develops into an exchange of competitively sensitive business information or future pricing information.
Periodic review, monitoring and auditing
A critical part of this activity is the effort to review the compliance program, while it continues to address the company’s antitrust risks. Thus, it must include monitoring and auditing functions to ensure that employees follow the compliance program.
For example, by creating a compliance committee that meets periodically; through routine or unannounced audits; or the use of screens, communications monitoring tool, or statistical testing designed to identify potential antitrust violations.
Reporting mechanisms are those reasonably designed to provide management and directors with timely and accurate information sufficient to allow them to reach an informed decision about the organization’s compliance with the law.
Employees can also use them to report potential antitrust violations anonymously or confidentially and without fear of retaliation.
Incentives and discipline
Also relevant to an antitrust compliance program’s effectiveness are the systems of incentives and discipline––such as promotions or awards denied, or bonuses clawed back––that ensure a compliance program is well-integrated into the company’s operations and workforce.
Remediation and Role of the Compliance Program in the Discovery of the Violation
The thoroughness of the company’s remedial efforts is also relevant to whether the antitrust compliance program is effective both, at the time of the antitrust violation, and at the time of a charging decision or sentencing recommendation.
If a compliance program did effectively identify misconduct––including allowing for timely remediation and self-reporting––a prosecutor should view the occurrence as a strong indicator that the compliance program was working effectively.
Thus, the DOJ considers: (1) whether and how the company conducted a comprehensive review of its compliance training, monitoring, auditing, and risk control functions following an antitrust violation; (2) what modifications and revisions the company implemented to help prevent similar violations from reoccurring; (3) and what methods the company will use to evaluate the effectiveness of its antitrust compliance program going forward
Last, the Guidance Document also provides some Sentencing and Probation considerations, all of them in line with Delrahim previous presentation on July 2019.
S. Dep’t of Justice, Criminal Division, Evaluation of Corporate Compliance Programs (June 2020): The Revised Guidance
On June 1, 2020, the Criminal Division of the DOJ issued the Revised Guidance, which includes additional information to assist prosecutors––both in antitrust and other investigations, such as the Foreign Corrupt Practices Act––in making informed decisions as to whether, and to what extent, a corporation’s compliance program was effective at the time of the offense, and at the time of a charging decision or resolution, for purposes of determining the appropriate (1) form of any resolution or prosecution; (2) monetary penalty, if any; and (3) compliance obligations contained in any corporate criminal resolution (e.g., monitorship or reporting obligations).
In a nutshell, the additional updates are:
- No “one-size-fits-all” model: In line with the 2019 Guidance from the Antitrust Division, the Revised Guidance from the Criminal Division outline new factors that DOJ will use to make individualized determinations of the effectiveness of corporate compliance programs, “including but not limited to, the company’s size, industry, geographic footprint, regulatory landscape, and other factors, both internal and external to the company’s operations, that might impact its compliance program.”
- Compliance programs applied earnestly and in good faith: To confirm this point, the DOJ will analyze whether the program is “adequately resourced and empowered to function effectively.”
- Periodic updates and revisions: In the context of risk assessment, DOJ will specifically look at periodic reviews to confirm whether: (i) those are just limited to a “snapshot” in time or based upon continuous access to operational data and information across functions, (ii) have led to updates in policies, procedures, and controls, (iii) and whether the company has a process for tracking and incorporating into its periodic risk assessment lessons learned.
- Publication and tracking of policies and procedures: DOJ will analyze how a company communicates its policies and procedures to all employees and relevant third parties, and which of them attract more attention from relevant employees. The Revised Guidance include an entire new subsection “Data Resources and Access” to address the extent to which compliance and control personnel have sufficient direct or indirect access to relevant sources of data to allow for timely and effective monitoring and/or testing of policies, controls, and transactions.
- More tailored training and communications: For example, through (i) shorter, more targeted training sessions that enable employees to timely identify and raise issues to appropriate compliance, internal audit, or other risk management functions, (ii) trainings that adequately cover prior compliance incidents or address lessons learned from prior compliance incidents, (iii) mechanisms that allow employees to ask questions after the training, (iv) or trainings that have an impact on employee behavior or operations, among others.
- Third party management: DOJ states that a well-designed compliance program should also apply risk-based due diligence to its third-party relationships. DOJ will specifically look at how the company trains its third party relationship managers about compliance risks, how it incentivizes compliance and ethical behavior by third parties, and whether it engages in risk management of third parties throughout the lifespan of the relationship, or primarily during the onboarding process, among others.
- Mergers & acquisitions: The Revised Guidance mention that a compliance program should now have a process for timely and orderly integration of the acquired entity into the existing compliance program structures and internal controls of the acquiring company. DOJ will also start asking about post-acquisition audits at newly acquired entities.
First DPAs Under the New Policy Incentivizing Compliance
As a result of the new Policy incentivizing compliance, we have recently seen the first Deferred Prosecution Agreements, or DPAs, arising from DOJ’s investigation into the generic pharmaceutical industry:
On May 30, 2019, Heritage Pharmaceuticals Inc. and DOJ entered into the first DPA as a result of a criminal investigation.
According to the DOJ investigation, from April 2014 until at least December 2015, Heritage participated in a criminal antitrust conspiracy with other companies and individuals engaged in the production and sale of generic pharmaceuticals, a purpose of which was to fix prices, rig bids, and allocate customers for glyburide, a medicine used to treat diabetes.
In December 2019 Rising Pharmaceuticals Inc and DOJ entered into a three-year DPA, agreeing to resolve allegations that, from April 2014 until at least September 2015, Rising participated in a criminal antitrust conspiracy with a competing manufacturer of generic drugs and its executives to fix prices and allocate customers for Benazepril HCTZ, a medicine used to treat hypertension.
On March 2, 2020, Sandoz Inc., a generic pharmaceutical company headquartered in New Jersey, entered into a DPA with DOJ to resolve four criminal conspiracy charges, each with a competing manufacturer of generic drugs and various individuals. The charged conspiracies took place between 2013 and 2015.
On April 30, 2020, Florida Cancer Specialists & Research Institute LLC (FCS), a Florida oncology group, entered into a DPA with the DOJ to resolve allegations that, starting in 1999, FCS conspired not to compete with other companies to provide chemotherapy and radiation treatments to cancer patients in Southwest Florida.
On May 6, 2020, Apotex Corp., a generic pharmaceutical company headquartered in Florida, entered into a three-year DPA with DOJ and the United States Attorney’s Office for the Eastern District of Pennsylvania.
Apotex Corp. was charged with fixing the price of the generic drug pravastatin. According to the one-count felony charge filed in the U.S. District Court for the Eastern District of Pennsylvania in Philadelphia, Apotex and other generic drug companies agreed to increase and maintain the price of pravastatin, a commonly prescribed cholesterol medication that lowers the risk of heart disease and stroke.
In July 2020, DOJ reached a DPA with Taro Pharmaceuticals U.S.A. to resolve charges of participating in two criminal antitrust conspiracies, between 2013 and 2015.
Count One charged Taro U.S.A. for its role in a conspiracy with Sandoz Inc., former Taro U.S.A. Vice President of Sales and Marketing Ara Aprahamian, and other individuals, from at least as early as March 2013 and continuing until at least December 2015.
Count Two charged Taro U.S.A. for its role in a second conspiracy with a generic drug company based in Pennsylvania and other individuals, from at least as early as May 2013 and continuing until at least December 2015. According to the charge and DPA, Taro U.S.A. and its co-conspirators agreed to fix prices, allocate customers, and rig bids for numerous generic drugs, including medications used to prevent and control seizures and treat bipolar disorder, pain and arthritis, and various skin conditions.
Conclusions and Takeaways
The Department of Justice has provided companies with a roadmap to design and implement truly robust and effective compliance programs.
DOJ is considering for the first time the existence of effective antitrust compliance programs at the charging stage of criminal antitrust investigations. This provides cartel participants with the possibility to avoid prosecution even if they are not a first-in leniency applicant––an option it has been reluctant to accept in the past.
But remember, a compliance program does not guarantee a Deferred Prosecution Agreement. As the Justice Manual points out “the existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for criminal misconduct. Instead, DOJ prosecutors are directed to conduct a fact-specific inquiry into whether the program at issue is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees. In making a charging recommendation, DOJ will evaluate the compliance program’s effectiveness or lack thereof, together with all the other relevant factors.
At the same time, DOJ’s leniency program, which has been an integral part of the Antitrust Division’s criminal enforcement program, and also offers NPAs to companies that are the first to self-report wrongdoing, still remains in place.