This article provides critical background on DOJ policy and practice, and highlights some of the steps corporate counsel can take during leniency or plea negotiations to secure non-prosecution protection for the company's employees as part of any antitrust corporate disposition.
Most companies under criminal investigation by the Antitrust Division, U.S. Department of Justice (DOJ), eventually resolve their liability with the government short of going to trial, either by entering into a corporate leniency agreement or, more commonly, by pleading guilty to criminal antitrust charges under a corporate plea agreement. Foremost on the minds of corporate counsel when negotiating these agreements is ensuring that the company pays no criminal fine under leniency or as small a fine as possible under a plea agreement. But it is often equally important for the company to maximize the number of its employees covered by the corporate disposition, thereby eliminating the possibility that those employees will be individually prosecuted. The stakes are enormous for a company trying to obtain non-prosecution or immunity protection for the broadest number of its employees involved in what is commonly referred to as antitrust “cartel” conduct, such as price fixing. Even if a company is able to resolve its own criminal liability, it still cannot put the criminal investigation behind it when some current employees remain under investigation for months or years. Even worse, for those employees taking their chances at trial, the government will inevitably parade cooperating witnesses before the jury and highlight inflammatory company documents, publicly demonstrating the scope of the company’s wrongdoing.
This article provides critical background on DOJ policy and practice, and highlights some of the steps corporate counsel — as well as “spin-off” counsel for individual employees — can take during leniency or plea negotiations to secure non-prosecution protection for the company’s employees as part of any antitrust corporate disposition.
The DOJ’s Goal of ‘Individual Accountability’
As a matter of policy, in corporate dispositions, the DOJ does not provide blanket non-prosecution protection for all “culpable” employees, that is, those employees who engaged in cartel behavior on behalf of their company. This policy has been shaped by the government’s long-standing commitment to the notion of “individual accountability.” According to the DOJ, the most effective way to deter companies from engaging in future cartel activity is to punish culpable employees who participated in the criminal offense. The DOJ has made the prosecution of corporate employees who commit cartel offenses a top priority of its criminal enforcement program, particularly over the last 20 years.
The ‘Carve-Out’ Policy
To further the goal of individual accountability, the DOJ routinely “carves out” certain culpable company employees (as well as directors and officers) from corporate dispositions to ensure that those individuals can be individually prosecuted for their cartel conduct. The DOJ’s “carve-out” policy relates only to current employees, because those individuals, as a group, receive blanket protection in corporate dispositions unless they are specifically carved out of the company leniency or plea agreements. In contrast, former employees do not receive that blanket protection and must, therefore, be individually “carved in” to receive non-prosecution protection. The DOJ makes decisions about employee coverage based on similar considerations in both corporate leniency and plea agreements.
When a company applies for leniency, it does so under either Type A or Type B of the DOJ’s Corporate Leniency Program. Type A leniency can be obtained when the DOJ is unaware of the cartel conduct at the time the company applies for leniency; Type B leniency can be obtained even when the government already has received some information about the cartel conduct.
In Type A situations, all current employees who are willing to cooperate — that is, to admit to their role in, or knowledge of, the cartel violation — will automatically be included in the company’s leniency agreement. In contrast, the DOJ will consider, on an individualized basis, carving in specific former employees who offer “substantial, noncumulative cooperation against remaining potential targets” — that is, other cartel members not yet cooperating in the investigation. See U.S. Dep’t of Justice, Frequently Asked Questions About the Antitrust Division’s Leniency Program and Model Leniency Letters (Jan. 17, 2017) (hereinafter “Leniency FAQs”), at 20-22.
In Type B situations, the DOJ retains the discretion to carve out from the leniency agreement any current employee, especially those deemed “highly culpable.” Leniency FAQs at 20-21. But the DOJ typically does not end up carving out current employees, even highly culpable ones, unless it already has sufficient information to prosecute those highly culpable employees at the time the leniency application is made (which is highly unlikely). The DOJ is usually willing to cover current employees broadly because their cooperation is usually needed to fulfill the company’s leniency obligation to fully cooperate in the DOJ’s cartel investigation. As for former employees, the DOJ will consider, as with Type “A” leniency, carving into the leniency agreement those individuals who offer substantial, noncumulative cooperation against remaining potential targets.
In corporate plea agreements, the DOJ provides blanket non-prosecution protection to current cooperating employees, except for those specifically “carved out.” Potential carve-outs are current executives who participated, to varying degrees, in the cartel, and who will likely face separate prosecution. In contrast, the DOJ does not extend blanket coverage to former employees; it can decide, however, to “carve in” specific former employees who, in its view, can significantly advance the government’s investigation against remaining potential targets.
The DOJ generally takes three factors into account in deciding which current culpable employees to carve out of corporate plea agreements. First, an individual’s culpability — his or her role in the cartel offense — is a highly important consideration. To assess culpability, the DOJ will evaluate the nature of the individual’s participation in the cartel activity, as well as the length of time he or she engaged in it.
For instance, employees entering into and enforcing collusive agreements for many years will be viewed as highly culpable, and the DOJ will view these individuals as presumptive carve-outs.
Second, culpable senior executives are likely carve-outs as well. That is because high-level executives who used their substantial authority within the company to direct or encourage criminal activity, or who had the authority to stop the company’s cartel behavior but did not exercise it, will be deemed most deserving of criminal prosecution.
Finally, an employee’s potential cooperation could, in some instances, overcome the DOJ’s initial inclination to carve that individual out of the company plea agreement. This is particularly true for employees who fully participated in the conspiracy, but were not among the company’s most culpable or senior participants. Cooperation has many facets and can, in many instances, be considered “substantial” to antitrust enforcers, depending on its nature and when it is offered. For instance, highly valued cooperation can include an employee’s ability to provide detailed, firsthand accounts of the potential targets’ cartel activities. Significant cooperation can also be based on the employee’s ability to explain the context and substance of incriminating emails involving the employee and a potential target. And if this type of information is offered before most other companies have cooperated, then it will more likely be considered noncumulative and substantial cooperation.
Strategies for Obtaining Broader Employee Coverage
How corporate counsel proffers information on behalf of a company employee can significantly determine that employee’s chances of being covered under corporate dispositions. That information should include the employee’s culpability and position in the company. But how that employee’s potential cooperation is framed will be particularly critical to the DOJ’s carve-out decision.
To start, counsel needs to provide the DOJ with a detailed summary of what type of incriminating information the employee can offer against the remaining potential targets. Counsel can attempt to learn the identities of those targets for the purpose of proffering the employee’s potential cooperation against such individuals. For instance, DOJ prosecutors may be willing to share with counsel ways in which an employee can provide valuable cooperation against specific individuals involved in cartel activities.
Next, for company counsel representing multiple employees, which often occurs in leniency negotiations, providing the government with an individualized assessment of each employee’s potential cooperation is essential. For example, in some cases, not every culpable employee from the company attended the same cartel meeting, participated for the same period, or heard the same incriminating statements made by potential targets. Thus, counsel should highlight those aspects of each employee’s cooperation that is not cumulative of that provided by other company employees.
Finally, company counsel should also highlight that part of an employee’s cooperation that could be deemed “substantial” by DOJ prosecutors. For instance, significant cooperation should be framed in terms of the employee’s ability to offer admissible evidence against potential targets, such as admissions made by, or co-conspirator statements made about, those individuals. Moreover, DOJ prosecutors are always thinking about whether an employee would be a credible and effective government witness at trial. Thus, an employee’s ability to recall significant events in detail and truthfully testify about them should be included in any proffer about that employee’s potential cooperation.
In the end, corporate counsel must adopt a strategy in leniency and plea negotiations to obtain non-prosecution protections for the greatest number of company employees.
Marc Siegel is a partner in the San Francisco office of Jones Day. The views and opinions set forth herein are the personal views or opinions of the author; they do not necessarily reflect views or opinions of the law firm with which he is associated.