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Antitrust sanctions 2.0 – evolving views on behavioral remedies

The increasing frequency with which the Antitrust Division of the Department of Justice (the Division) has sought the imposition of compliance monitors, coupled with its recent willingness to enter into deferred-prosecution and non-prosecution agreements as means of resolving and modifying corporate behavior, are a clear sign that the Division is changing tack on its use of behavioral remedies in criminal antitrust cases.

Where it was previously reluctant to interfere in corporate governance, the Division now appears eager to prevent antitrust violations at their source by assessing companies' controls. While the exact reason for this shift remains unclear, it is all too clear for future corporate and individual defendants that the Division's use of behavioral remedies in conjunction with large fines and long prison sentences represents a harsher enforcement landscape.

In recent years, the Division has punished criminal antitrust offenders with ever-larger fines and ever-longer jail terms. In fiscal year 2014, the Division reported USD1.27 billion in fines imposed on corporate defendants, which is a new high water mark for the Division. It also reported an average prison sentence of 25 months across all defendants, which includes a record prison sentence obtained this year of five years against the convicted ex-President of shipping company Sea Star Line LLC. Despite this apparent focus on punitive measures, however, the Division appears to be warming to the idea of using behavioral remedies such as compliance monitors, deferred-prosecution agreements and non-prosecution agreements.

The most notable example of the imposition of a compliance monitor was seen in the sentencing of AU Optronics (AUO) in 2012 for its involvement in a five-year conspiracy to fix prices in the LCD-TFT screen market. Although the Division did, in classic punitive style, seek to punish AUO with one of the largest corporate fines ever, it also recommended that the court impose an external compliance monitor on the company to tackle what it perceived as a culture of criminal collusion within AUO that could not be addressed by a fine alone. The court agreed with the Division's analysis, and imposed the behavioral remedy as well as the fine. Assistant Attorney General Bill Baer has also formally cautioned the business community to expect the trend of requesting external compliance monitors to continue.

With regard to non-prosecution and deferred-prosecution agreements, the Division used these just three times in the 16 years between 1993 and 2009. It now appears to be changing course, entering into non-prosecution agreements in the Municipal Bonds investigation, pursuant to which multiple corporate defendants took on a number of behavioral obligations. It also entered into a deferred-prosecution agreement with RBS in a LIBOR investigation, under which the bank agreed to institute a compliance program tailored to preventing further benchmark manipulation.

Further, although it has not yet sought behavioral remedies against individuals, this is the likely next step for the Division. Consistent with its use of compliance monitors to modify corporate behavior, disqualification of executives would provide the Division with a more direct way to remove individuals responsible for price-fixing from positions that could lead to repeat offenses or impede a corporation's development of a true compliance culture. This would not be anything new: disqualification is already in use by other antitrust enforcement agencies around the world. Some have argued that disqualification could achieve a deterrent effect similar to prison sentences, but without the societal cost of housing inmates. It has also been suggested that disqualification could be used to punish negligent compliance professionals who fail to detect a cartel violation.

So why is the Division changing its mind on behavioral remedies? In part, the shift may reflect an acknowledgment by the Division that its strategy of seeking ever-increasing punitive penalties has not had the desired effect on general deterrence. Its confidence in this strategy may also have been shaken over recent years by underwhelming support from the judiciary, who seem reluctant to impose harsh penalties on antitrust defendants.

The shift might also be rooted in practical considerations. In an increasingly crowded enforcement environment, settling with antitrust offenders offers a far quicker route to justice than lengthy and expensive court battles. The pursuit of excessively high penalties can drive defendants away from the plea bargaining table toward trial. Further, with cartel defendants now often facing incarceration and fines in multiple jurisdictions, excessive jail sentences and fines seem less appropriate.

Whatever the reason for the Division's expanded use of behavioral remedies, defendants should expect the trend to continue. The pursuit of these remedies is a current reality for corporate defendants and all indications suggest it is only a matter of time until the Division begins incorporating them into punishments for individual defendants as well. But while these remedies no doubt serve as yet another arrow in the Division's quiver, their emergence in the conversation about what constitutes appropriate punishment and deterrence has a potential bright side for defendants. Prior discussions with the Division about resolving criminal antitrust violations were exclusively limited to the contours of a guilty plea and the size and severity of the resulting sentence. As this next enforcement era emerges, the Division's willingness to consider behavioral remedies may open the door for defendants to pursue more creative resolutions with the Division (or the courts where the Division is not persuaded), where jail sentences and fines are reduced, or forced to yield, in favor of more targeted, behavioral relief.

Legal and Regulatory Risk Note
United States