DealLawyers.com Blog

From Womble Carlyle:

The Antitrust Division (“AD”) of the Department of Justice recently issued revised model conditional leniency letters for companies seeking to avoid criminal prosecution for antitrust violations in the wake of a U.S. Court of Appeals decision to dismiss an indictment against a company the AD removed from the Leniency Program. The AD has now made it easier to revoke a company’s amnesty if it determines that there was a significant gap in time between when the company first discovered the anticompetitive activity and when it ultimately terminated its involvement in the alleged antitrust scheme.

The Stolt-Nielsen Case

Stolt-Nielsen Transportation Group, Ltd., an international shipping company, disclosed to the AD its involvement in an illegal market-division plan and obtained an amnesty agreement for all of its behavior prior to the date of the agreement. After conducting its own investigation, however, the AD alleged that Stolt-Nielsen continued to engage in the customer-allocation conspiracy months after the scheme was first discovered by the company’s general counsel.

For the first time in the leniency program’s thirty-year history, the AD revoked Stolt-Nielsen’s amnesty and indicted Stolt-Nielsen and its two subsidiaries (even after a federal district court had ruled that Stolt-Nielsen substantially performed its end of the amnesty agreement). After the Court of Appeals for the Third Circuit had ruled that the lower court could not enjoin the AD from issuing an indictment, on remand Stolt still succeeded in securing dismissal of the indictment on breach-of-contract grounds.

The DOJ’s Leniency Program After Stolt-Nielsen

The three fundamental aspects of the leniency program are not affected by the AD’s recent revisions to the conditional leniency letter: (1) amnesty is automatic if there is no pre-existing investigation; (2) amnesty may still be available even if cooperation begins after the DOJ’s investigation is underway; and (3) all officers, directors, and employees who cooperate are protected from criminal prosecution.

By the addition of footnote two to the model conditional leniency letter, however, the AD has effectively shifted the burden to the company seeking amnesty to prove that it promptly terminated the anticompetitive activity after the company’s general counsel or board of directors discovers the activity.

Because the AD grants amnesty only to the first company that reports the illegal activity, the revised leniency policy now provides a marker system to compensate for the tension between being the first to disclose and the necessity of approaching the AD with freshly cleaned hands. Under this approach, the AD will hold a leniency applicant’s place in the front of the line for a finite period in order for the applicant to perform the due diligence necessary to perfect its application.

Being the second to disclose can – and has – cost companies tens of millions of dollars and resulted in prison sentences for their top executives. A “reform first, repent later” approach can therefore be extremely counter-productive. Timing is thus more important than ever under the AD’s revised leniency program.