The intersection of antitrust and anti-corruption enforcement and the impact on companies in Asia
Written by Jeremy Evans, Kirby Behre, and Andreas Stargard
Today, there is increasingly an intersection of competition and anti-corruption enforcement. This is in part because of the inherently parallel nature of cartel and corruption offenses: a cartel is a conspiracy of competitors; corruption through bribery is a de facto conspiracy between buyer and seller. The US has placed a “high priority” on both antitrust (Sherman Act) and anti-corruption (Foreign Corrupt Practices Act or FCPA) enforcement, recognizing that a free market must not have vertical distortion (bribery) or horizontal (conspiracy). Similarly, at the recent OECD Global Forum on Competition, delegates agreed that competition authorities have a major role to play in combating corruption.
Nowhere is this trend of enhanced enforcement more prevalent than in Asia, which, in the past decade, has seen a dramatic expansion of global enforcement in the areas of competition and anti-corruption. Since 2010, approximately 90 percent of the fines imposed by the US Department of Justice’s (DOJ’s) Antitrust Division have been against Asian-based companies[1]. Individuals, too, have been similarly targeted. A decade ago, Asian-based executives received average US prison sentences of three to four months for cartel conduct. Now, similarly situated executives are routinely serving incarceration terms of between one and two years in US federal prisons. US anti-corruption authorities similarly have made Asia a priority, with an increasing number of investigations and enforcement actions focusing on conduct emanating from that region. And where the Justice Department leads, enforcement agencies in other jurisdictions follow.
In this world of parallel enforcement that sets corporate players on a collision course with a variety of enforcement agencies, it is critical for companies to devise and implement a comprehensive strategy to prevent future, and detect ongoing, competition and anti-corruption risks globally. This is an imperative for General Counsel and Compliance Officers serving companies that are not only based in foreign countries, but also those that do business in critical foreign markets, particularly in Asia, as well as Africa and other regions with high corruption indices. They are faced with the formidable task of designing compliance programs that offer practical guidance to business executives, taking into account the risk profile of the individual company and country, to avoid being ensnared in costly and lengthy competition and anti-corruption investigations that often also result in reputational damage to the corporation.
The US Enforcement Regime: Apparent Differences on Paper…
At first glance, the statutory and enforcement regimes of US antitrust and anti-corruption law appear quite distinct. Cartel prosecution under the 124-year-old Sherman Act resides exclusively with the Department of Justice’s Antitrust Division, which uses a “‘carrot and stick’ enforcement strategy by coupling rewards for voluntary disclosure and timely cooperation… with severe sanctions.”
The relatively young FCPA was enacted in 1977, and is enforced by two agencies. The DOJ and the Securities and Exchange Commission (SEC) share joint responsibility for FCPA enforcement, with the DOJ focusing on criminal conduct, and the SEC focusing on civil enforcement actions against issuers and their officers. Moreover, while the Antitrust Division has a Corporate Leniency Program, under which violators who are the first to self-report their unlawful conduct receive amnesty from prosecution, no such immunity is given to those companies who self-report FCPA-related offenses. On the other hand, those companies that are not first to self-report antitrust violations must plead guilty in order to resolve a DOJ criminal antitrust investigation without going to trial, while companies that face FCPA investigations are often permitted to resolve those investigations without a corporate criminal guilty plea, frequently employing deferred or non-prosecution agreements (DPAs or NPAs) in lieu.
The “globalization” of antitrust enforcement has been a stellar success for the US, as its model of cartel prosecution has been widely adopted worldwide, particularly in the past decade, with close to 100 jurisdictions now implementing cartel leniency programs. The US approach to foreign bribery enforcement has yet to meet with similar success abroad—perhaps barring only the exception of the United Kingdom’s substantively stricter and more far-reaching Bribery Act—thereby causing anti-corruption efforts on a global scale to lag behind antitrust enforcement at present. But this is changing, as several foreign jurisdictions have taken recent measures to combat FCPA-type violations on their own, thereby further multiplying the risk exposure to corporations without effective compliance and detection programs.
…But Parallels in Practice
In spite of the many procedural and substantive differences, there are meaningful parallels that link the anti-corruption and anti-cartel spheres closely together, and that allow in-house counsel to minimize risk while at the same time obtaining implementation synergies. This is perhaps unsurprising given that, at root, the very purpose of the two statutes is directed at conduct that effectively distorts competition.
For example, in the US, the underlying enforcement strategies and investigation tactics often mirror one another; the DOJ has focused on specific industries, regions, and economic sectors in pursuing both cartelists and FCPA violators. In addition, the enforcement of both the Sherman Act and the FCPA has been supported by traditional criminal investigative tools such as confidential informants and undercover investigations (as vividly shown to a larger public in the 2009 movie The Informant, Hollywood’s adaptation of the DOJ’s Lysine Cartel investigation, which netted guilty pleas from Archer Daniels Midland and several of its Asian co-conspirators).
Notwithstanding the absence of formal leniency in the DOJ’s FCPA toolbox, there remains a degree of similarity when it comes to the benefits of self-reporting unlawful conduct—a crucial element of any corporation’s compliance effort and risk-mitigation program; while the roles of FCPA whistleblowers and cartel leniency applicants are somewhat distinct, the former do commonly benefit from prosecutorial “declinations” in cases of frank self-reporting with minor impact.
Finally, the average fine levels of both FCPA and cartel offenses have risen sharply over the past decade, with particular emphasis on companies based in, or conduct arising out of, Asia. For example, on the cartel side, the DOJ imposed a comparatively meager $107 million in criminal antitrust fines in fiscal year 2003, a figure that escalated to $1.01 billion in fiscal year 2009, and topped $1.1 billion in fiscal year 2012. Likewise, the enforcers’ FCPA bounties—even in individual cases—have consistently topped hundreds of millions of dollars, including, for example: BAE’s $400 million criminal penalty (2010); Japan’s JGC Corporation’s $218.8 million fine for bribes paid in connection with Nigerian construction contracts (2011); Total S.A.’s $245 million penalty (2013); and, most recently, the $223 million fine levied against Alcoa (2014).
A large part of the increased enforcement activities in cartel investigations in recent years has been a heightened focus on Asian-based companies. This trend has been most pronounced in the past three years; since fiscal year 2011, the Antitrust Division has imposed 54 corporate fines exceeding $1 million for cartel conduct in violation of the Sherman Act. Forty-two of those fines, including four of the top five and eight of the top 10, were imposed on Asian companies, a total of more than $3.08 billion. Indeed, nearly 90 percent of the fines imposed by the Antitrust Division between fiscal years 2011 and 2013 were against Asian-based companies. And that trend shows no signs of abating; through the first half of fiscal year 2014, approximately two-thirds of cartel fines had been against Asian corporations.
Executives of Asian-based companies have likewise been targeted. In the Antitrust Division’s ongoing and expansive auto parts investigation, for example, 68 executives have been carved out of their company’s plea agreement for Sherman Act violations. Of those 68, 60 were employed by Asian companies. Furthermore, of the 60 carve-outs from Asian-based companies, over 25 have been sentenced to date, receiving prison terms ranging from one to two years.
While not quite as pronounced, the trend toward Asia has been similar in FCPA cases. Since 2010 alone, the DOJ’s bribery investigations have netted over $2.3 billion solely from Asian corporations, among whom Marubeni Corporation (a repeat FCPA offender, thereby increasing its penalty level significantly), Bridgestone, and JGC stand out. Likewise, practitioners have observed heightened government scrutiny of corporate conduct in Asia in particular industries, including pharmaceuticals, banking, construction, and other sectors.
Dealing with the Enforcers: Why Compliance Matters
The trend toward greater enforcement in antitrust and anti-corruption matters in the US and globally has led to an increased focus on the importance of compliance, both from enforcement agencies and from companies. Here, too, there is increasing convergence, as the agencies responsible for both areas are emphasizing the need for companies to have strong compliance programs in place.
In the US regime, compliance historically has been a focus of the Fraud Division in FCPA cases. Indeed, it has been a staple of FCPA settlements historically that many companies were forced to accept the appointment of an external compliance monitor who serves a fixed multi-year term with authority to review and evaluate the company’s compliance program with regular reports to the Department of Justice.
The Antitrust Division is seeking to impose monitors in some cases. Last year, the Division obtained a court order requiring the imposition of a compliance monitor on AU Optronics (AUO), a Taiwanese-based company, following the company’s conviction of price fixing in a jury trial. This was the first time that the Antitrust Division had ever sought a monitor in connection with an antitrust prosecution or negotiated resolution. In the Division’s view, AUO’s refusal to accept responsibility of the charged price-fixing conduct, even post-conviction, warranted the imposition of a monitor.
The Antitrust Division leadership also has focused on the topic of compliance recently. In September 2014, Brent Snyder, the Deputy Assistant Attorney General responsible for criminal matters, delivered a speech entitled “Compliance is a Culture, Not Just a Policy.” The speech was noteworthy for its discussion of the benefits of an effective compliance program, and its warning of the dangers of not having one, given the increasing penalties and criminalization of anticompetitive conduct globally.
Snyder was careful to caution with a couple of “hard truths” that a compliance program will “almost never” allow a company to avoid criminal antitrust charges on the grounds that a truly effective program would have prevented the crime in the first place. In addition, he repeated the Justice Department’s rote policy (applicable for FCPA enforcement actions as well) that the Division almost never recommends that a company receive credit under the US Sentencing Guidelines for a preexisting compliance program in connection with a guilty plea.
Snyder did, however, offer a hint for the future that the existence of a compliance program may assist companies, stating that the Division is “actively considering ways” to credit companies that proactively adopt or strengthen compliance programs after coming under investigation. But, to obtain such a credit, a company would need to demonstrate that its program is “more than just a façade.” The trend seems clear in that a compliance policy is likely to assist companies both in detecting and remedying improper anti-corruption or antitrust conduct before the commencement of a government investigation or in obtaining benefits should the company be caught up in an investigation.
It is thus imperative for companies to be proactive in the area of compliance and ensure that they have robust policies in place. This is particularly the case for companies based in, or operating out of, Asia given the enforcement focus on anti-corruption and antitrust investigations emanating from that geography, as detailed above.
The Goals of Compliance Programs: Prevention, Detection, Reaction
What, then, are the key components of an effective compliance program? US authorities have provided guidance on the key themes that any effective compliance program must embrace. The first key point is that compliance “starts at the top.” This is stated in the FCPA Resource Guide and was an emphasis of Brent Snyder’s recent speech on antitrust compliance. Management, from the CEO and General Counsel down, must be committed to compliance and emphasize that it is one of the key pillars of the company.
It is also clear that the commitment to compliance must be rooted and extend across the organization. As the FCPA Resource Guide states, “[a]n effective compliance program promotes ‘an organizational culture that encourages ethical conduct and a commitment to compliance with the law.’” Similarly, as noted earlier, Snyder said the policy must be “more than just a façade.”
On a practical level, compliance programs for anti-corruption and antitrust should be designed around three basic goals: (1) prevention, (2) detection, and (3) reaction. The prevention element encompasses several of the points mentioned above. There needs to be a demonstrated and visible commitment from management to compliance clearly evident across the organization. The company’s compliance policy should be in written format and include clearly articulated standards that guide employees on appropriate conduct, particularly in the areas of anti-corruption and antitrust. The policy also should provide practical guidance to employees and offer everyday situations that can lead to potential violations of anti-corruption or antitrust laws.
For example, on the anti-corruption side, the policy might discuss the reach of the government official. And, on the antitrust side, it might identify everyday situations that can lead to potential antitrust violations, such as casually speaking with a competitor about pricing in the market shortly before the company announces a price increase.
The compliance program must also include training for employees. While the policy ought to have uniform standards that all employees should be instructed on, the training should be tailored to ensure that those facing the greatest risk with regard to antitrust and anti-corruption issues (for example, salespeople) and those in geographies with greater risks (for example, Asia) are educated on the specific hazards they face. This can include incorporating recent examples from actual cartel and anti-corruption investigations so that employees can understand real-life situations that ran afoul of the laws.
Companies must also ensure that a compliance program has procedures in place to detect improper conduct. This requires a vigilant legal and/or compliance department monitoring and enforcing compliance. Developing systems to detect antitrust or anti-corruption activity can take many forms. For example, many companies use hotlines that allow employees to report improper activity anonymously. Obviously, a company must then have procedures in place to follow up on any such reports.
Companies should also have policies in place whereby employees provide written or electronic confirmation of their commitment to abiding by the company’s compliance policy. It is also important that they react once improper cartel or anti-corruption conduct is identified. This includes addressing and investigating instances of improper conduct as well as having an appropriate disciplinary procedure in place for employees engaged in improper conduct. Both the DOJ Fraud and Antitrust sections have made clear that disciplining such employees is essential to demonstrating the company’s good faith commitment to compliance.
The recent example of Bridgestone serves as a cautionary tale for companies that fail to adequately investigate improper conduct. Bridgestone was the subject of a joint investigation by the DOJ Fraud and Antitrust Divisions into the marine hose industry, investigations that became public in 2007 and resulted in the company pleading guilty to violations of both the antitrust and FCPA, a rare example in which a company has been disciplined by both divisions. But, Bridgestone apparently failed to detect additional and related improper cartel conduct in connection with the sale of anti-vibration rubber parts, conduct detected as part of the broad, global auto parts cartel investigation. Earlier this year, Bridgestone reached a plea deal with the Antitrust Division that included a $425 million fine, the second largest in the auto parts investigation to date. The Antitrust Division specifically cited the company’s failure to uncover this cartel activity despite the related plea in the marine hose case as grounds for the imposition of such a harsh fine.
Conclusion
One lesson seems clear from the past decade: The aggressive pursuit of antitrust and anti-corruption conduct will continue by enforcement authorities in the US and worldwide. Companies must take heed and ensure that they have policies and procedures in place to prevent the cost, reputational harm, and other collateral consequences these investigations engender.
[1] A recent report issued by the Korean Chamber of Commerce observes that “Asian companies from Japan, Korea, and Taiwan are the key targets” of US enforcement and are subject to severe “compliance risks.” Companies from those countries paid 76.9 percent of total DOJ-imposed antitrust fines between 2005 and 2014 (versus 18 percent for the period 1995-2004). “Countermeasures and tasks of Korean companies in response to foreign compliance risks,” available online at http://english.korcham.net/sub02/report_view.asp?nKey=1908.
