I am at the ABA/IBA International Cartel Worksop in Tokyo. It is the 11th biennial international cartel workshop–and each workshop is becoming more international. There are attorneys from 26 countries and enforcers from 12 different countries at this event. Donald Klawiter and D. Jarrett Arp are the conference co-chairs. The conference is unique (in my experience) in that most of the panels are interactive demonstrations modeling realistic discussions. The demonstrations cover a wide range of scenes from: a) a company board of directors being advised of possible options including leniency when cartel conduct is discovered; b) [actual] regulators from seven jurisdictions coordinating their dawn raids/search warrants; c) subsequent discussions among defense counsel about various strategies in seven jurisdictions; and many more.
The glue of the program is a hypothetical cartel that is discovered during a compliance training session and the action, starting with the rush for leniency/amnesty, flows from there. The hypothetical is very realistic, rich in complexity and factual detail. There was an actual dramatization video of the February 2013 meeting among competitors where the alleged agreement for the hypothetical was reached.
The realistic hypothetical brought to life the pluses and minuses of the leniency program, which, with minor modifications, has been adopted around the world. In the hypothetical, when a company (Acme) conducted competition compliance training at a very recently acquired company, (B-Wheels), counsel learned that B-Wheels was involved in a world-wide bicycle wheel price-fixing/market allocation cartel. The cartel agreement was reached at a private dinner at a trade association event in February 2013. [the key meeting the program created a video tape for]. The President of B-Wheels was the main speaker and strong advocate for the agreement. One competitor, Chelun Ltd, clearly accepted B-Wheels offer to collude. A third competitor, Jit-Ho, a recent disruptive entrant into the market, was noncommittal. Post-meeting prices increased in the market and market shares seemingly aligned with the price/market allocation discussion. There was other evidence of competitor contact after the initial cartel meeting, but it related to B-Wheel and Chelun.
From the demonstrations, you could see why the leniency program is so effective. After the discovery of the B-Wheels cartel at a compliance training session, there really was no other choice for Acme but to seek immunity. Trying to end the cartel and keep quiet was not an option because one of the other companies, or an individual, would likely approach the government when the cartel ended. Waiting was too great a risk to take. The benefits of seeking amnesty/leniency were overwhelming.
Acme/B-wheels considered which major jurisdictions to approach for a leniency marker. Each jurisdiction in the hypo (US, Canada, Mexico, Brazil, EU, Japan, Korea, and South Africa) had a similar leniency/amnesty program: no fine for the illegal activity; not even restitution for the illegal profits made. More, or equally important, the culpable executives would face certain jail time in the United States unless they obtained amnesty. And, while the United States is certain to seek jail for culpable executives, jail is at least a possibility in many other jurisdictions.
Leniency only covers the governmental action and the Acme discussed the private redress/class action cases that would follow around the world. But, even here, there were benefits to getting leniency such as single damages in the United States if the amnesty applicant cooperated with the plaintiffs. I’m not an economist, but it is conceivable that with sufficiently broad leniency coverage, the cartel may turn out to have been profitable for B-Wheels, even with civil damages. Moreover, in the United States, the Antitrust Division will not require any compliance program or other remedial monitoring action be taken by the leniency company. Nonetheless, in my experience, anyone or any company that goes through the leniency process would never consider it to be a “bargain.” Still, leniency does allow a conspirator, even the most culpable (but not the “ringleader”), to escape the brunt of the possible negatives consequences, while “unleashing hell” on its competitors. All in all, the interactive panel demonstrations showed how the incentives for creating a “Race to the Courthouse” is very effective around the world.
All the “carrots” of leniency do not come without a cost, however. As the hypothetical was structured, the leniency company, B-Wheels, clearly seems to be the most culpable actor. But, its role in organizing the cartel would not be enough to be disqualified for leniency. The Antitrust Division’s leniency disqualification standard is: “The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.” B-Wheels did not coerce any participation in the cartel and since the others, or at least Chelun, voluntarily agreed, B-Wheel was not considered the leader. (Besides, who goes in for leniency and describes themselves as having coerced others to go along?). But, having played at least a/the driving role in forming the cartel, B-Wheel will not pay a fine in any jurisdiction in which it obtains leniency while its competitors will. B-Wheel will likely do better in civil damage cases because it does not have guilty plea. And, while the most senior executive in B-Wheels will get personal immunity under the leniency agreement, the government(s) will focus on seeking jail time against its competitors. And, under the Yates memo, the Antitrust Division may seek to indict even more individuals than they had been doing previously.
The way the hypothetical was set up, the ambiguous role of Jit-Ho highlights another potential danger–but one that is common to all prosecutions. In negotiating “full cooperation” in return for leniency, government’s will press hard to get evidence against all culpable actors. There will be some skepticism if B-Wheels story is that Jit-Ho executives were non-committal at the dinner, particularly in light of subsequent market activities where prices have increased and market shares appear to be in line with the agreement B-Wheels proposed.
In the hypothetical, Chelun will also likely “race to the courthouse” to get the substantial reward of being second-in (greatly reduced fines and more favorable plea deals for fewer executives). In order to have substantial cooperation to offer in return for this favorable treatment (a departure from the guidelines range), the pressure will be enormous to say that the Jit-Ho executives at the seminal meeting agreed to go along. In real life there will be no tape of the event, and recollections can be influenced by the need to offer someone to the prosecution in order to “cooperate.” The program illustrated what an incredibly powerful weapon leniency/amnesty is [as are other very favorable deals]. “With great power, comes great responsibility” and while there are certainly differences of opinion in particular cases, on the whole, there is a great deal of respect for the way in which the agencies exercise their power.
The program is just mid-way. As the program continues, it will be interesting to learn the fate of Jit-Ho, both in how the prosecutors view the company/individuals, and what strategy defense lawyers use to defend.
There are many “teachable moments” that have been demonstrated in the hypothetical. Two came to mind right away. The cartel was discovered during competition compliance training after Acme bought B-Wheel. Compliance programs give companies a head’s up even when there is a violation because executives are more likely to know about the leniency program and take action when it seems the cartel may collapse. Also, if Jit-Ho had had some antitrust training the executives would have known how dangerous it is to attend a private dinner with competitors–even if they did not agree. Regardless of what the Jit-Ho executives said, or didn’t say at that dinner meeting, just being there looks bad and is powerful circumstantial evidence that they agreed to collude.
There much more going on at the program, but this is what struck me at the first about the first day.
And, please forgive if there are more typos/run on sentences than normal. The jet lag is still with me.
Thanks for reading.