Powerhouse Points: An Effective Antitrust Compliance Program: Guidance from a Recent Criminal Prosecution

Written by Partner Jeffery M. Cross for the Winter 2021 Edition of Powerhouse Points, A Quarterly Litigation Update. Read the full issue here.

Powerhouse Points:

• An effective antitrust compliance program should be incorporated in a company’s business practices and internal controls.
• Tone at the top is critical.
• Senior management must be held accountable.
• The importance of the antitrust compliance program should be reflected in the company’s employee evaluation, incentive, and compensation systems.
• Antitrust compliance training should be tailored to the company’s business.

An antitrust violation can be costly for a company. It can subject the company to criminal fines. Executives may even be sentenced to jail. If the company does business with a federal or state agency, it may be subject to debarment, prohibiting the company from being awarded government business. It may have to make restitution to the victims of the violation. And the company may be subject to civil treble damage class actions. Finally, an antitrust violation can do significant damage to a company’s reputation.

An antitrust compliance program can significantly avoid or ameliorate such costs. An effective one may be able to prevent an antitrust violation from occurring in the first place. Even if there has been a violation, an effective program may uncover it promptly, allowing the company to report the violation to the Department of Justice Antitrust Division. If the company is the first to report such a violation, it may qualify for the Antitrust Division’s leniency program and may not be subject to criminal prosecution. Furthermore, under the leniency program, the company may be subject to only single damages and not the treble damages available in a civil class action. Such damages would also be based on the company’s own volume of commerce, rather than joint and several liability for damages caused by the entire industry that would apply absent the leniency program.

What is an effective antitrust compliance program? A deferred prosecution agreement entered into in January 2021 between the Antitrust Division and a Georgia ready-mix concrete company provides some insight into the government’s thinking.

On January 4, 2021, the government filed a complaint charging the ready-mix concrete company with criminal violations of the antitrust laws. The case, United States v. Argos USA LLC, No. 4:21-CR-00002-RSB-CLR (S.D. Ga. Jan. 4, 2021), alleged per se price fixing, bid rigging, and market allocations. The government also filed a deferred prosecution agreement. The agreement contains provisions regarding an antitrust compliance program that provides some insights to what the Antitrust Division believes is an effective program.

First, the agreement notes that the company committed to continuing to maintain or to develop a compliance program that is “reasonably designed to prevent antitrust violations.” [1] The agreement elaborates that the program should be incorporated into the company’s “business practices and reinforced through appropriate internal controls tailored to the company’s business.”[2] What does this mean? An example could entail a company’s involvement in various industry trade associations or standard setting bodies. An appropriate and tailored internal control would require employees seeking to attend meetings of such attendance and to justify the need to attend. In addition, employees attending such meetings could be required to obtain antitrust compliance training focused on such organizations. Another example would be a prohibition on company employees with pricing responsibility having communications with employees of competitors regarding future pricing of competitive goods. Although such communications are not necessarily unlawful or anticompetitive, the practice is sufficiently risky to be prohibited by the company except in limited controlled circumstances.

The deferred prosecution agreement also requires the company through its senior leadership to foster a culture of compliance. Guidance for the meaning of this requirement can be found in the Department of Justice Manual, which contains “Principles of Federal Prosecution of Business Organizations” (DOJ Principles).[3]

The DOJ Principles focus on the so-called “tone at the top” of the company. They call for consideration of management’s positive and negative actions. The positive actions consider how well upper and middle management have conveyed the company’s ethical principles and demonstrated adherence by example. In terms of negative conduct, the issue is whether managers have “tolerated greater compliance risks in pursuit of new business or greater revenues” and “encouraged employees to act unethically to achieve a business objective, or impeded compliance personnel from effectively implementing their duties.”[4]

Two examples of negative “tone at the top” come to mind. The first is the statement by the former president of Archer Daniels Midland Co. quoted by the Seventh Circuit in its review of the sentence of an executive convicted of price fixing: “Our competitors are our friends. Our customers are the enemy.”[5] The second is from the report by outside counsel for the Wells Fargo independent directors. The report indicated that a compliance officer for the community bank unit tried to prevent the CEO and Board of Directors from obtaining data that they requested showing the number of employees terminated for fraud. [6]

The DOJ Principles also ask prosecutors to consider whether the company has surveyed employees to gauge whether they perceive senior and middle management to be invested in compliance.

The deferred prosecution agreement expressly requires that senior management be held accountable for failures in the compliance program.[7] This requirement dovetails with the requirement in the agreement that “[t]he importance of antitrust compliance will be reflected in the Company’s employee evaluation, incentive and compensation structure.”[8]

This requirement is also discussed in guidance regarding compliance programs issued by the Department of Justice Criminal Division[9]. The Criminal Division Compliance Guidance gives as an example of such incentives as “personnel promotions, rewards, and bonuses for improving and developing a compliance program.” [10]

But this provision also requires disciplinary action for misconduct as well as failures in the program. In terms of misconduct, the Criminal Division Compliance Guidance indicates that appropriate disciplinary action should apply not only to the employee involved in the misconduct, but also those with oversight responsibility and those with supervisory authority over the business area where the conduct occurred.[11] Disciplinary action could run the gamut from warning letters to the claw back of previously awarded bonuses.

The deferred prosecution agreement also requires that the company maintain or develop an antitrust training program that reflects the specific risks for the company. For example, construction companies often form joint ventures with other construction companies to bid on large projects that a single company alone could not perform. For such companies, training should be specifically designed under the requirements of the Argos deferred prosecution agreement to train participants in such joint ventures to avoid “spillover.” Such conduct would be communications between employees of competing participants in the joint venture about the business and projects of each company beyond the scope of the joint venture.

The deferred prosecution agreement requires the company to “conduct regular monitoring and auditing of its antitrust compliance program to ensure that the program is fully implemented and followed.”[12] This requirement is a significantly diminished version of the audit and monitoring requirement found in compliance guidance from both the Criminal Division and the Antitrust Division. The Argos deferred prosecution agreement focuses on auditing and monitoring the compliance program. The compliance guidance found in both the Criminal Division and the Antitrust Division suggests that a company should monitor and undertake audits of its business to detect whether antitrust violations have occurred. [13]

Consistent with the idea of monitoring and auditing the company’s compliance program, the Argos deferred prosecution agreement requires procedures to address failures of the compliance program, including to make revisions to the program and to communicate the revisions to the company’s employees.[14]

The deferred prosecution agreement also requires that the company have in place a system for employees to report potential antitrust violations anonymously.[15]This system must also provide employees with guidance as to antitrust issues. [16]

Finally, the deferred prosecution agreement requires the company to engage in a risk-based review of its compliance program and its internal controls to identify the areas in its business with the greatest antitrust risks and design its compliance programs to be responsive to them.

Given the importance of antitrust compliance programs to help companies avoid antitrust violations, the deferred prosecution agreement entered into this past January between the Department of Justice and Argos USA LLC provides important insights into what the Antitrust Division considers to be an effective program.