7. Global antitrust investigations

Protecting your position in an era of tough enforcement

Recent developments in global cartel enforcement – raising the stakes

With around 130 competition authorities across the world, and extensive co-operation arrangements in place, firms that engage in cartels face a risk of both public and private enforcement actions in an ever-increasing number of countries.

As an example, in the past five years, more than 50 companies involved in the global auto parts cartel have faced public and/or private prosecution in 10 different jurisdictions (Australia, Brazil, Canada, China, the EU, Japan, Korea, Mexico, Singapore and the US), while other agencies, including in South Africa, continue to investigate.

In spite of these developments, a number of competition agencies remain concerned that cartel activity may still be underdetected and insufficiently deterred, leading to enhanced detection techniques and demands for increased sanctions.

New means of cartel detection

Since the 1990s, the burgeoning use of leniency or amnesty programmes has proved to be a highly successful means of enabling competition agencies to find direct evidence of antitrust infringements. More than 50 jurisdictions now have such programmes in place.

Recognising, however, that they should not be over-reliant on leniency applications, many competition authorities are developing a range of other detection mechanisms to collect evidence, particularly through:

  • encouraging complaints and whistleblowing from employees, purchasers, procurement officers and/or the general public (while at the same time seeking to ensure that whistleblowers are protected from retaliation in the workplace);
  • using structural and behavioural screens; and
  • honing their own intelligence and information gathering procedures.

The European Commission recently developed a whistleblowing tool (similar to that introduced in Germany in 2012), encouraging any individual to provide it with information about cartel behaviour or other anti-competitive business practices. In the UK, regulators offer financial rewards to informers, and the Korea Fair Trade Commission (KFTC) uses a Bid Rigging Indicator Analysis System (BRIAS), which automatically quantifies the statistical likelihood of collusive tendering in public procurement markets. The KFTC has used BRIAS to bring a number of successful bid-rigging prosecutions, including in the construction sector.

As competition agencies increase their range of detection techniques, the risk of cartels being uncovered grows. In Germany, the FCO has stated that it has received more than 1,400 pieces of information under the whistleblowing tool it introduced in 2012, and that the information received has led it to initiate a number of proceedings.

Tobias Klose, Antitrust Partner, Düsseldorf

Greater sanctions for cartelists and their employees

As well as working together to co-ordinate their investigations and to bolster enforcement, many competition authorities are carefully considering how best to sanction infringements. Although corporate fines are continuing to escalate (the European Commission imposed nearly €2bn in cartel fines in 2017), a view taking hold is that fines may not be sufficient on their own to deter cartel behaviour.

A growing number of jurisdictions also provide for criminal or civil sanctions for responsible individuals (eg imprisonment and fines), non-monetary civil sanctions for both individuals and corporations (eg individual director disqualification orders and debarment), and/or are encouraging private damages litigation by those that have suffered loss in consequence of an infringement.

In the US, for example, not only have companies been fined more than $2.9bn in relation to the auto parts cartel, but more than 65 individual executives have been charged as a result of their connected activity, and private settlements are likely to result in more than $2bn in damages paid to class action plaintiffs.

The increased risk of detection and the broader array of penalties are raising the stakes in cartel proceedings, highlighting the need for firms to ensure that:

  • their compliance programmes are robust, and not merely a box-ticking exercise;
  • they are prepared for agency investigations; and
  • they give careful consideration to leniency applications, which offer the prospect of immunity from (or reductions in) fines and other sanctions but raise the risk of increased exposure to damages actions.

Although the benefits of successful leniency applications are growing, the wider enforcement picture creates greater complexity and risk for such applicants.

Effective compliance programmes are not optional

Businesses must ensure that they operate a carefully constructed competition compliance programme, backed by audits, monitoring reviews and risk assessments, which will both prevent illegal conduct from occurring and ensure that prohibited practices are detected quickly. Although not all jurisdictions reduce penalties for companies that maintain effective compliance and ethics programmes, the US Sentencing Guidelines reduce criminal fines for such firms, and the German Federal Supreme Court has held that compliance efforts are to be taken into account in the setting of a (criminal) fine in Germany.

The US DOJ recently granted a defendant a 40 per cent reduction in fine, based on both the company’s co-operation with the DOJ and its institution of an effective compliance programme. In its sentencing memorandum, the DOJ emphasised that the company’s compliance programme: (i) was directed by senior management, making antitrust compliance ‘a true corporate priority’; (ii) included both classroom training and one-on-one training for personnel at high risk for antitrust violations, such as sales personnel; (iii) required prior approval of contact with competitors where possible, and required reports of contact with competitors, which were audited by in-house counsel; (iv) required sales personnel to certify that all prices had been independently determined; and (v) established an anonymous hotline for employees to report possible violations.

Companies must be prepared to respond decisively during investigations

Companies must prepare their officers and employees to defend corporate rights in the event of agency investigations, such as dawn raids. Moving beyond phone lists and printed checklists, companies are increasingly utilising dawn raid apps that allow secure, real-time, privileged communications with external counsel and help counsel to co-ordinate their defence across different sites and continents.

Assessing the pros and cons of leniency applications

Although intuitively the attractiveness of a leniency application increases in line with the increased risk of severe penalties for cartel infringements, the rising stakes and developing enforcement picture mean that such applications are not without some risk and cost. Firms that uncover unlawful cartel activity must carefully consider the question of whether to make co-ordinated leniency applications in all jurisdictions where a violation might have been committed, taking account of those risks and the possibility of a hidden price tag. In particular, firms should be aware of a number of issues.

  • Inherent in most leniency situations is the requirement to make admissions to the agencies concerned about the commission of infringing conduct. Although in a number of jurisdictions immunity recipients may be protected from punitive damages, and/or joint and several liability, these admissions of course facilitate private damages actions and potential claims in multiple jurisdictions as appetite for antitrust litigation continues to grow (see further in theme 8).
DOJ is increasingly focused on corporate compliance programs, including in the antitrust context. In addition to preventing or detecting crimes, adopting and implementing an effective program can lead to reduced fines where misconduct nonetheless occurs.

Brent Wible, Dispute Resolution Counsel, Washington DC

  • There is some risk that authorities will share leniency evidence with other competition agencies or disclose the details in private litigation. There is an absolute bar on the disclosure of leniency statements in civil litigation in some jurisdictions, but authorities have not adopted a uniform approach to this issue globally.
  • The question of where to apply for leniency can be a complex one. Failing to seek leniency from a jurisdiction that might investigate the conduct will be a costly mistake. For example, there are a number of instances in which, following leniency applications made in the US and the EU, competition authorities in Brazil and South Africa opened investigations. Conversely, seeking leniency from an authority that might not otherwise have investigated the conduct may also prove problematic. In the EU, for example, a category of information sharing is treated, and sanctioned, as hard-core cartel conduct. Such conduct may, however, not be treated so severely (or even prosecuted) in the US.
  • Although the European Commission is seeking to address some of the complexities and hazards associated with multiple leniency applications in the EU, the Commission is not currently envisaging a ‘one-stop-shop’ EU leniency regime (in which, for example, a party makes a single leniency application to the Commission).
  • Current and former employees of firms seeking leniency may remain exposed to individual liability, including the risk of extradition to, and criminal prosecution in, the US. Indeed, in addition to detaining many foreign executives who are in, or who have travelled to, the US, since 2010 the DOJ Antitrust Division has successfully extradited a number of defendants (including from Bulgaria, Canada, Germany, Israel and the UK). These risks often create conflicts of interest between companies and employees and might well reduce an individual’s appetite for co-operating either with the authorities or with a company’s internal investigation. Companies may therefore need to consider the introduction of internal amnesty programmes to incentivise individuals to come forward.
In multijurisdictional proceedings, companies must take into account employee considerations when deciding whether to seek leniency or to co-operate with cartel enforcers. Unless the company has first-in leniency status in criminal jurisdictions such as the US, co-operation in the investigation likely places its culpable employees at risk of criminal prosecution. This risk, which must be understood by the relevant employees, could impact on the level of co-operation that the company can provide.

Bruce McCulloch, Antitrust Partner, Washington DC

  • The time and cost of complying with different agency demands during the leniency process is significant. Indeed, the time from marker request to completion of the leniency process can span more than a decade.
  • Finally, successful leniency applications protect the applicant from antitrust liability, but not from liability for other violations, such as bribery, that are not typically deemed to be ‘integral to’ the underlying antitrust offence. Most recently, in financial services investigations, successful leniency applicants have paid hundreds of millions of dollars in plea agreements with the DOJ’s Criminal Fraud section for related conduct. Companies must therefore assess the impact of the conduct more broadly, and beyond its compatibility with antitrust or financial services laws.
As the risk of detection grows, companies which become aware of misconduct are increasingly having to grapple with the complex decision of whether, and if so where, to apply for leniency. Any decision to do so must be taken with a full understanding of the costs, risks and obligations it will entail, as well as the undeniable benefits.

Bea Tormey, Antitrust and Dispute Resolution Partner, London

Looking ahead in 2018

  • Deciding whether to apply for leniency from an antitrust authority is an increasingly difficult calculation, particularly when these decisions must be taken under tight time constraints.
  • Take particular care to ensure you understand the full implications of private damages actions that are likely to follow, possibly in multiple jurisdictions.
  • Ensure you take account of all possible areas of civil and criminal exposure for your business and its individuals from the outset.