Violation Means Compliance Program Was By Definition Ineffective Stark Contrast With New Draft Canadian Guidance In a pair of noteworthy and ultimately disappointing recent speeches, leading U.S. antitrust enforcers delivered the message that while they expect companies to invest substantially in antitrust compliance programs, they will not consider a company’s pre-existing compliance program as a basis for a reduction in punishment for a cartel offense. This stands in stark contrast with the position of other components of the U.S. Department of Justice (“DOJ”), and with recent draft guidance issued by Canada, where enforcers say they will consider a company’s pre-existing compliance program when recommending punishment. It also contrasts with the approach taken (or being developed) to the benefits of competition law compliance in a number of other countries, including the UK and Brazil. The U.S. Antitrust Division Position For two decades the DOJ Antitrust Division (the “Antitrust Division”) has steadfastly refused to consider a company’s pre-existing compliance efforts in mitigation when recommending punishment. U.S. antitrust enforcers take the position that the steep penalties for violations and the opportunity to take advantage of the Antitrust Division’s corporate leniency program, which offers amnesty from criminal prosecution to the first company to agree to cooperate, provide sufficient motivation to companies to invest in antitrust compliance programs. (Notably, the European Commission takes the same view.) In a recent speech entitled “Prosecuting Antitrust Crimes”, Bill Baer, the Assistant Attorney General in charge of the Antitrust Division, offered some significant observations regarding the administration of the Antitrust Division’s corporate leniency program:
- An applicant seeking leniency must rapidly provide information to the Antitrust Division, by “conducting a thorough internal investigation, providing detailed proffers of the reported conduct, producing foreign-located documents, preparing translations, and making witnesses available for interviews.”
- The mere existence of a compliance program will never be sufficient to avoid prosecution or dramatically reduce the penalties for an antitrust violation.
- “[C]orporate compliance starts at the top. The board of directors and senior officers must set the tone for compliance to ensure that the company’s entire managerial workforce not only understand the compliance program but also has the incentive to actively participate in its enforcement.”
- The Antitrust Division will take into account early acceptance of responsibility and meaningful cooperation. Companies that accept responsibility and cooperate will receive a lower fine range under the U.S. Sentencing Guidelines, but the cooperation must be meaningful and complete in order to receive credit from the Antitrust Division.
- Baer expressed skepticism where companies continue to employ culpable senior executives who do not accept responsibility while at the same time claiming that their compliance programs are effective. He said that the Antitrust Division “will have serious doubts about that company’s commitment to implementing a new compliance program or invigorating an existing one.”
Brent Snyder, Deputy Assistant Attorney General for Criminal Enforcement for the Antitrust Division, echoed similar themes in a recent speech entitled “Compliance is a Culture, Not Just a Policy”, Snyder stated that the “existence of a compliance program almost never allows the company to avoid criminal antitrust charges …because a truly effective compliance program would have prevented the crime in the first place or resulted in its early detection. This has been the Division’s position for at least the last twenty years, and it isn’t likely to change.” Snyder offered observations about “what makes an effective compliance program,” noting that while no “one size fits all,” effective programs have several elements in common:
- “[I]t starts at the top.” The board and senior management must be committed to a company’s compliance efforts, by “being knowledgeable about those efforts, proving the necessary resources, and assigning the right people to oversee them.” If a company has a mere “paper program,” employees will pick up on that and will not take compliance seriously.
- A company should educate “all executives and managers, and most employees,” and “when appropriate” should provide training to subsidiaries, distributors, agents, and contractors. It should also allow for anonymous reporting of violations.
- A company should have a “proactive compliance program” by ensuring that “at risk activities are regularly monitored and audited.”
- A company should discipline employees who commit — or fail to prevent — antitrust crimes. While noting that the Antitrust Division will not “insert itself into the personnel matters of companies by requiring the termination of culpable employees,” a company’s decision to retain such employees “raises serious concerns
- A company should change its compliance program as needed to prevent future violations.
Comparison With the DOJ Criminal Division Position While Snyder may claim that “the [Antitrust] Division is no different than the Department [of Justice] as a whole,” the reality is that the Antitrust Division’s position stands in stark contrast to the DOJ Criminal Division, which enforces the U.S. Foreign Corrupt Practices Act (“FCPA”), and routinely provides credit at sentencing for companies’ compliance efforts. In the “US Department of Justice and US Securities and Exchange Commission, FCPA: A Resource Guide to the US Foreign Corrupt Practices Act”, the enforcers explained: A well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations… These considerations reflect the recognition that a company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective. DOJ and SEC understand that ‘no compliance program can ever prevent all criminal activity by a corporation’s employees,’ and they do not hold companies to a standard of perfection… In appropriate circumstances, DOJ …may decline to pursue charges against a company based on the company’s effective compliance program, or may otherwise seek to reward a company for its program, even when that program did not prevent the particular underlying FCPA violation that gave rise to the investigation. Likewise, the U.S. Sentencing Guidelines recognize that the “failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing criminal conduct.” Sharp Contrast With the Canadian View Last month the Canadian Competition Bureau (“CCB”) released a draft update of its Corporate Compliance Programs Bulletin (“Bulletin”). The Bulletin provides guidance on developing programs to prevent or minimize the risks of contraventions of the Canadian Competition Act, as well as three other federal statutes enforced by CCB, and retains many of the features of the previous version issued in 2010. Not unlike the features highlighted in Baer’s and Snyder’s recent speeches in the U.S., these include several “essential elements” that should be incorporated into every program, namely management involvement; compliance policies and procedures; training and education; monitoring, auditing and reporting mechanisms; and disciplinary measures and incentives for compliance. However, the draft updates to the Bulletin markedly depart from the U.S. approach in proposing the introduction of explicit incentives for companies to implement and maintain compliance programs. While maintaining that the “mere pre-existence of a program” would not automatically result in favorable treatment, the Bulletin proposes that a “credible and effective” compliance program, in itself, could be considered for a discretionary reduction in penalties for leniency applicants – an approach Canada’s Commissioner of Competition, John Pecman, described as “the addition of an incentive program” for corporate compliance initiatives in a speech following the release of the draft Bulletin. Specifically, the draft Bulletin would allow the CCB to recommend a discretionary reduction in penalties, in addition to the leniency discount that otherwise applies, for companies that qualify for leniency and are found to have credible and effective programs in place. This approach reflects a shift from current practice, which recognizes compliance efforts as a mitigating factor under sentencing principles, but does not contemplate a reduction specifically for compliance programs. The CCB will appoint a Chief Compliance Officer to review and evaluate the credibility and effectiveness of compliance programs where a reduction is sought; the burden of proof would rest with the leniency applicant. The draft Bulletin also confirms that a compliance program may impact the initial determination of whether an enforcement action would be pursued by way of the criminal or civil track, where that choice is available, the assessment of due diligence defences where applicable, and the amount of civil fines. Compared to the previous version, the Bulletin is also significantly longer, with the addition of the following elements:
- Emphasis on a risk-based approach: The Bulletin stresses that an assessment of the potential risks faced by a company will allow it to properly design compliance strategies that address those risks. Among the “essential elements” that should be incorporated into every program, the Bulletin points to a corporate compliance risk assessment and recommends that a designated compliance officer work with management to identify key legal risks so as to best develop and tailor its compliance program to its specific needs. The CCB has also flagged specific risk factors, including (i) whether staff participate in trade associations with competitors, (ii) whether the business regularly recruits employees from competitors, (iii) whether markets are characterized by a small number of competitors, (iv) whether it is common practice to have, or it is easy to gain, competitor intelligence within the sector, (v) whether joint ventures among competitors are common, and (vi) whether competitors of the business are also its customers.
- SMEs: As part of its effort to provide a “comprehensive guide” to developing credible and effective compliance programs, bearing in mind that each organization is different, the CCB specifically calls out the small and medium enterprise (“SME”) sector in the Bulletin. While acknowledging that larger businesses generally need more comprehensive programs, the Bulletin makes clear that SMEs are expected to implement and follow their own programs that are commensurate with their size and business activities. Further, the Bulletin notes that while resources will inform the tailoring of a program for each individual business, resource constraints in no way negate the necessity for such programs. Rather, they may heighten the importance of compliance programs in which management takes a leading and active role.
- Monitoring the compliance programs of trade associations and other organizations: In addition to referring to trade associations among key risk factors, the Bulletin recommends that employee participation in trade associations be limited to those that have implemented their own credible and effective compliance programs. More broadly, the Bulletin recommends that the organization encourage third parties “such as trade associations and those acting for the company,” to address risks associated with their operations including, potentially, monitoring those third parties and recommending that they implement their own credible and effective compliance programs.
- Ongoing assessment: Another new “essential element” in the Bulletin is the development of a “Compliance Program Evaluation,” which entails continuous assessment of an organization’s compliance program and monitoring of developments in the law and business activities to identify emerging risks, evaluate the program’s effectiveness, and revise the program as needed.
- Practical Examples: The Bulletin reflects an attempt to provide guidance to all organizations, regardless of size and circumstances, and avoids specific, definitive recommendations. However, the CCB has included several examples throughout the Bulletin and a new appendix containing hypothetical case examples of compliance issues, which is an improvement on the previous version in terms of offering practical, meaningful guidance.
The Bulletin’s the emphasis on tailored, internally developed compliance programs for organizations of all sizes, and vigilance in assessing their effectiveness leaves no doubt that the CCB has high expectations for proactively-managed, effective compliance programs. At the same time, the proposed incentive program indicates that, contrary to the current position in the U.S., it may also be prepared to recognize these investments in proactive compliance in the event of enforcement. Conclusion With respect to cartel offenses and compliance programs, U.S. antitrust enforcers have made clear that they expect companies to invest substantial resources in antitrust compliance programs. However, in contrast to other parts of the DOJ, and the new draft guidance in Canada, in order to motivate companies to do so, they will continue to rely on the heavy stick of severe punishment, without the carrot of a reduced penalty for good-faith compliance efforts that fail to prevent a violation. By Douglas Tween and Arlan Gates