DOJ Antitrust Division’s Updates to Long-Standing Leniency Program Trigger Concern

The DOJ has frequently described the Leniency Program as one of its most important tools in detecting criminal antitrust conspiracies.  The Division says that the new updates are intended to increase transparency, predictability, and practical guidance to the public in order to promote trust between the government and those seeking to take advantage of the Leniency Program. The changes include several important developments that those who may be considering taking advantage of the program should note. Members of the defense bar have already voiced concerns regarding several of these updates, which were announced without any notice and comment period, and which some claim lessen the incentives and introduce additional uncertainty into the Leniency Program that may further deter applicants from utilizing it.

Leniency Program Overview

Broadly, the Leniency Program provides immunity from prosecution to the first organization, or individual, to self-report its participation in a criminal antitrust conspiracy and cooperate fully with the Division’s investigation. The Leniency Program contemplates leniency being available in two types of scenarios: first, an applicant may be eligible for leniency when they disclose illegal activity before the Division begins an investigation (“Type A” leniency), and second, an applicant may be eligible for leniency when they disclose illegal activity after the initiation of an investigation and the applicant is the first to report their involvement in the conspiracy, and the Division does not yet have evidence against the applicant that would likely result in a sustainable conviction (“Type B” leniency). Importantly, only one organization or individual can receive leniency per conspiracy. Thus, the Leniency Program creates a “race to the government” whereby companies and individuals seek to be the first to secure a “marker” from the government. This race is an intentional construct designed to incentivize companies to self-report violations as soon as possible.

In addition to being the first to apply for leniency, applicants (including executives and employees) must also fully cooperate with the Division in order to qualify. If an applicant is successful in obtaining a marker, the Division may issue a conditional leniency letter while it determines whether the applicant can meet the criteria to qualify for leniency. The last stage is the issuance of a final leniency letter, which happens after the applicant satisfies its obligations, and typically after the completion of the investigation and any resulting prosecutions.

The Division’s Emphasis On Reporting Illegal Activity “Promptly”

Although the overall structure of the Leniency Program incentivizes applicants to come forward as soon as possible to win the leniency race, the updated guidance now emphasizes that applicants must not only win the race, but must also report their illegal activity “promptly.” During the Spring Meeting, Division officials explained that while the Division had previously required prompt termination of the illegal activity, it has learned through experience that prompt reporting is key in order to enable the Division to deploy aggressive investigative techniques, such as undercover monitoring of emails and other electronic communications, to gather key evidence. Indeed, multiple officials emphasized the importance of getting access to original documents, witnesses, and information at the early stages of their investigations. The requirement also further encourages reporting conspiracies at the earliest possible stages.

The Division does not explicitly define how “promptly” an applicant must report the activity, but Division officials pointed to the updated Frequently Asked Questions (“FAQ”)s (a companion document to the Leniency Policy, that offers examples and explanations to further flesh out the Leniency Program), which offer some guidance. The FAQs suggest that performing a preliminary internal investigation in a timely fashion before self-reporting may be appropriate, while waiting to self-report a discovered violation until after learning that the Division has opened an investigation would render an applicant ineligible for leniency. Division officials also recognized that it may take longer for some companies to confirm violations depending on their size, sophistication, and the nature of the conduct — suggesting that the Division’s determination of whether an applicant has disclosed the violation “promptly” will be a fact-based determination. The FAQs also encourage potential applicants that are uncertain whether particular conduct is criminal to still seek a marker as soon as possible.

Members of the defense bar have already voiced concerns that this new requirement adds additional uncertainty because the Division now has the discretion to disqualify applicants who may have otherwise met the requirements, but who did not, in the Division’s view, report the conduct “promptly.” Thus, it appears possible that a company could be the first to self-report misconduct to the Division, and cooperate fully, including providing access to key witnesses and documents, only to learn that the Division will not, in fact, award the company leniency due to timing concerns.

New Compliance and Remediation Requirements

The updates to the Leniency Program also now require applicants to take remedial measures and improve their corporate compliance programs as a prerequisite to the issuance of a conditional leniency letter. Specifically, according to the FAQs, applicants must “remediate the harm caused and improve or develop its corporate compliance to mitigate the risk of engaging in future illegal activity,” and also “provide its plan for making restitution to injured parties.” Applicants may satisfy their compliance and remediation requirements in a variety of ways, and the Division will consider the compliance initiatives the organization took both prior to, and after, the reported violation. According to the FAQs, such compliance efforts should be “appropriately tailored to the applicant’s size and line of business,” and the Division will assess compliance programs based on the factors laid out in the Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations Guidance, which was published in 2019 when the Division announced for the first time that it would take compliance efforts into account when making charging and sentencing decisions.

In addition to the compliance requirements, applicants may be required to undertake additional remedial measures as a precondition to obtaining leniency. Whether, and what, remediation may be required will depend on the specific nature of the violation, harm, and the applicant’s role. The FAQs suggest that applicants “will be expected to conduct a thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and undertake remedial efforts tailored to address the root causes.” They also suggest that the Division will consider an applicant’s efforts to “discipline or remove its culpable, non-cooperating personnel.”

Division officials have explained that these changes are intended to prevent recidivism and to protect the public from similar harm in the future. Indeed, the Division will now be specifically looking at criminal history when considering Type B leniency applicants. However, members of the defense bar have pointed out that these additional pre-conditions could impose significant obligations on applicants that may further deter them from seeking leniency in the first place. And the suggestion that it may now be necessary to terminate culpable employees triggers difficulties in making those individuals available to cooperate with the Division’s investigation. It potentially puts companies in a Catch-22 position, as the new rules encourage targets to terminate culpable employees, but simultaneously demand cooperation, which is difficult without the cooperation of the culpable employees.

Leniency for Individuals No Longer Presumed for Type B

The Leniency Policy updates, and comments by Division officials during the Spring Meeting, also suggest a significant change to the protections afforded to directors, officers, and employees of companies that admit to antitrust crimes in Type B leniency situations. The Division’s prior approach presumptively afforded protections to such individuals; however, that presumption will no longer apply. Instead, when a company seeks Type B leniency, whether the protection is extended to individual executives and employees will depend on an individual-by-individual assessment. Factors to be considered include the individual’s level of cooperation, whether the cooperation or knowledge of the individual is duplicative of information the Division already has, and the extent to which the individual was involved in the misconduct.

The FAQs highlight an important distinction between personnel of Type A leniency and Type B leniency applicants. Personnel of Type A leniency applicants are guaranteed protection “so long as they provide timely, truthful, continuing and complete cooperation.” In addition, the updates make clear that such personnel are not required to admit their wrongdoing, as previously required. Division officials explained that they implemented this change in order to be able to provide protections to non-culpable cooperating personnel, who are often valuable resources to Division investigations. As noted above, personnel of Type B applicants are not guaranteed protections. The FAQs indicate that the Division will follow the Principles of Federal Prosecution’s standard for individual non-prosecution when considering whether to grant protections to a Type B applicant’s personnel.

Restitution and ACPERA Changes

Another pre-condition to receiving a conditional leniency letter is that applicants “must present concrete, reasonably achievable plans about how they will make restitution.” To receive a final leniency letter, applicants must actually pay restitution. In most cases, restitution is satisfied through settlements negotiated directly with victims or in parallel private civil actions. However, under the Antitrust Criminal Penalty Enhancements and Reform Act of 2004 (“ACPERA”), successful leniency applicants are entitled to additional protections in related private actions. Most importantly ACPERA allows leniency applicants to face only single damages (not treble), and removes joint & several liability for the applicant in civil cases. Congress permanently re-authorized ACPERA in 2020 basically unchanged.

Historically, the Division has not been extensively involved in ACPERA’s application. However, the updated FAQs now provide detailed guidance about how an applicant can qualify for ACPERA benefits (timely and full cooperation with the Division and civil plaintiffs are key) and indicate that the Division is committed to “fully advise” courts of an applicant’s cooperation under the Leniency Program, if requested. Importantly, the FAQs recognize that applicants should not be disqualified from ACPERA benefits when a plaintiff makes unreasonable requests, and that applicants are not expected to provide civil plaintiffs with information not relevant to the conspiracy identified in the leniency letter. This new language diving into ACPERA has triggered consternation among some defense lawyers. In particular, the Division’s changes seem to now require the leniency applicant in an antitrust investigation to “go first” in negotiating settlements with harmed consumers and customers. Previously, leniency applicants embroiled in civil litigation related to a criminal investigation often provided early cooperation to the plaintiffs and waited to settle until after other corporate defendants had negotiated (bigger) settlements with the plaintiffs. Civil exposure often is a significant deterrent in a company’s analysis about whether to seek leniency. The apparent new requirement that a leniency applicant will now have to demonstrate to the Division that it has provided restitution to consumers or other harmed parties may further sour the appeal of seeking leniency.

Conclusion

Overall, the updates to the Leniency Program appear to be reflective of the increased attention being paid to antitrust enforcement, given the current administrations focus on further promoting competition in U.S. markets. As the Division seeks to further those objectives, it is natural for it to update its guidance in order to provide transparency and clarity to the public about its enforcement policies. Indeed, those qualities are especially important in the leniency context in order to build the trust required between the Division and an applicant so that each can fully benefit from cooperation with one another.

However, in recent years the number of leniency applicants has declined, and it remains to be seen whether these new changes will ultimately encourage or deter companies from utilizing the Leniency Program. Without question, the updates complicate the analysis about whether to seek leniency. The main benefit of leniency — corporate immunity and, depending on the type of leniency, immunity for executives and employees, remains very valuable. However, the path to win the leniency race just became rockier. Those who find themselves grappling with the decision would be wise to consult with experienced counsel to fully understand the risks and benefits involved.