For DOJ, Tougher Enforcement Also Brings Lack of Predictability

The Department of Justice (DOJ) announced changes to its leniency program on April 4 that may translate into a tougher stance on enforcement.

However, Heather Nyong’o, partner at Cleary Gottlieb Steen & Hamilton, told PYMNTS that this new approach will affect the predictability for companies that may be considering applying for leniency.

Under the Corporate Leniency Policy, the antitrust division provides complete immunity from criminal prosecution and fines to the first company that reports a criminal antitrust violation and fully cooperates with the investigation. Most of the time, this leniency is also extended to the company’s current officers, directors and employees. But usually, only one company — the first to report it — can obtain leniency, thus leading to a race to be the first.

Normally, a company approaches the DOJ to ask if somebody has reported anything in the industry, and if they say no, then the company can get more granular and report that they have a factual basis for a leniency case, Nyong’o explained. This is called a marker.

Prior to the DOJ’s announcement, there was no requirement specifying when a company must seek a marker in order to get leniency. Now, the DOJ is encouraging companies to seek this marker “promptly” at the first indication of wrongdoing. The problem, according to Nyong’o, is that “if you don’t promptly report it, then they might deny you after reporting the conduct — they might say, well, that wasn’t prompt enough.”

This may have a significant impact on the way companies act when they discover any wrongdoing, Nyong’o argued. Companies have clear incentives to be the first in reporting cartel activity, as the difference between obtaining leniency or not means facing litigation, treble damages and even jail time — not only for a director, but also for employees.

The uncertainty introduced with the redefinition of marker takes away the predictability that companies need in order to collaborate.

“I still don’t quite understand why they felt the need to add this sort of very discretionary thing into it, because, essentially, there was always an incentive to be prompt because there was a race to leniency,” Nyong’o said. “If you’re the second in the door, you have lost out entirely.”

Another new requirement that will make it harder for companies to benefit from leniency is that the applicant needs to figure out the damages and pay restitution to the purported victims even before the civil litigation has taken its full course. This is another element that will affect the incentives for companies to report.

Some companies will still report and seek leniency. For instance, for companies that see hardcore conducts that they know they will have to plead guilty to if they were discovered, there is no real defense and they will go for leniency, Nyong’o argued. However, for other cases that are not so clear, companies may think twice before reporting anything, especially if the conduct ended a few years ago.

The DOJ is adopting a new enforcement approach where they want to prosecute tough cases. According to Nyong’o, there is a perception in the government that there is bad behavior happening — and while it may be harder to prove, these are the tough cases the DOJ wants to prosecute to deter this behavior.

But if DOJ is going down this road, Nyong’o suggested that the division should open up the lines of communication with defense counsel earlier. Additionally, if they decide that it is a prosecutable case, they should at least “allow the process all the way up to the highest ranks of the division again and listen to the legal arguments, because there are a lot of novel legal theories that they are trying.”

This tougher enforcement approach adopted by the Justice Department affects mergers, cartels and financial crimes, and it all comes down to the lack of predictability. As legal counsel, “You want to give companies real, tangible, predictable risks that they will face if they don’t come forward, and it is hard to do that right now,” Nyong’o said.

Read more: DOJ’s Antitrust Chief Warns of Tougher Enforcement on ‘Antitrust Day’