What is the U.S. government’s policy on compliance programs? As an antitrust attorney or a compliance and ethics practitioner, you are understandably concerned about this. Certainly you want your company or your client to have a strong ethics and compliance program to help keep the company and its people on the right path and doing the right thing. In any company, however, even the most ethical, it is necessary to allocate resources where the return is greatest. So it helps to be able to tell management that a dollar invested in compliance and ethics not only is the right thing to do, but also helps protect the company and will matter to those in government.
Government Recognition of Compliance Programs
That such programs do matter to the government was certainly the message of the 1991 Federal Sentencing Guidelines for Organizations (the Sentencing Guidelines), which offer reduced criminal sentences to companies that have effective ethics and compliance programs. The drafters of the Sentencing Guidelines wisely observed that "(t)he failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing criminal conduct." Violations may occur even with the best efforts to prevent them. And this policy makes great sense. Any rational analysis will reveal that it is simply impossible for a large company to control the conduct of all its people at all times. So the real test of whether a company is a good corporate citizen is not so much that all of its people everywhere on earth obey every law every day of the year. It is that the company made a diligent effort to keep its people on the right side of the law. The Sentencing Guidelines provide a well-founded standard available to companies to use in creating programs and for those in government to use in assessing them. Fortunately, the wisdom of this policy has resonated throughout government. The Criminal Division of the Department of Justice has stated that it will consider companies’ programs in dealing with them. The U.S. Attorneys Manual specifically says programs are a factor to consider in deciding whether to prosecute a company. The Justice Department’s Environmental and Natural Resources Division considers self-policing and self-auditing as mitigating factors in its exercise of criminal enforcement discretion. And the Criminal Division also gives companies another incentive to implement strong programs; those who run afoul of the law will have to institute tough compliance programs designed to prevent recurrence as part of their redemption. Other federal agencies, such as the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission, and Health and Human Services, have also said that compliance programs matter in their enforcement and regulatory decisions. Under the Dodd Frank Act the SEC went to great lengths to protect company compliance programs from negative impact from the whistleblower provisions of the Act. Even Sarbanes-Oxley has compliance program requirements. The U.S. Supreme Court, in harassment and discrimination cases, has held that courts should take certain aspects of compliance programs into account. And government agencies themselves have even adopted compliance programs; both the FBI and the SEC have taken this step.
The Antitrust Division
So may we tell our companies and clients that our government has a uniform policy that promotes compliance and ethics programs? Amazingly, despite this record and the public policy advantages of encouraging companies to self-police, the answer is “no.” There is a sharp division in the government’s approach: the antitrust division. One unit of the Justice Department, the Antitrust Division, has done everything in its power to sabotage this policy. Consider these points: The Antitrust Division:
— The "Heart of the Business" Rationale
Why is there this division in our government’s policy? The Antitrust Division makes essentially two arguments to distinguish itself. First it says that antitrust violations, by definition, go to the heart of the business. This is supposed to distinguish all antitrust crimes from all other crimes; it is a categorical policy, not a case-by-case analysis. There are no exceptions, no matter what the facts of a given case. But even a moment’s reflection makes this concept look ridiculous. An antitrust crime can involve one salesperson in West Cowslip, Texas, dividing a $10,000 bid with another bit-player competitor competing to sell cow chip collectors to a cattle ranch far out in the plains. That is a felony, but hardly goes to the heart of anyone’s business. Yet by the Antitrust Division’s analysis, a massive nationwide Medicare billing fraud by a hospital chain, a headline-grabbing securities fraud case causing a multibillion-dollar drop in a company’s market cap, bribery of an American ally’s defense minister to win a giant military equipment export contract, or poisoning an entire eco-system do not “go to the heart” of anyone’s business. One senses the Antitrust Division is just using words to cover something else. If this is a “distinction,” it is a distinction without a difference.
— The Immunity Game
The second reason is that the Antitrust Division offers an unusual amnesty program. In all other areas of American criminal law, a company that admits a crime is still a criminal. If they confess and cooperate they may receive more favorable treatment, but that will be based on all the facts (including the diligence of their compliance program). Depending on the facts in each case, the offending company could get a complete pass, or it could face civil charges, or perhaps pay a criminal fine and enter into a non-prosecution agreement. But in antitrust, something else happens. Antitrust crimes are always conspiracies. So to enable the Antitrust Division to build up a record of collecting large fines and sending people to jail, it offers the first antitrust criminal to confess complete immunity. The company must help the Division nail other offenders and it must discontinue the violation. How a company gets to be first to confess does not seem to matter. So if one company starts investigating a possible violation and its co-conspirator learns of the investigation and beats the first company to the Division’s door, that is fine with the Division. The first in gets off completely; the second pays a big fine. Complete immunity is quite extraordinary. Unlike those companies who confess crimes to other units of the Justice Department, those winning antitrust immunity do not have to spend one dime on a compliance program; they need do nothing to prevent recurrence, no matter how serious the nature of their crime was. They are rewarded for no other reason than winning the rat race to the Division’s door. So what does the Antitrust Division say about compliance programs in this context? Having a program is good, because it increases a company’s chances of winning the game and being first in the door. But if a company’s program means it is first to learn of a potential violation but it takes time to do a thorough investigation, the program matters not at all if someone else gets to the Division first. So like counting cards in blackjack, having a program may increase your odds of winning the game, but at the end of the day all that really matters is being dealt a winning hand. This game-type approach raises a difficult question: Are antitrust conspiracies truly illegal and immoral? To my mind, price fixing, bid rigging and market allocation are stealing, pure and simple. People who do this are criminals. Confessing on your fellow criminals may make you a more worthy criminal, but you are still a criminal. If your company really was diligent in taking serious steps to prevent violations I can see giving you a break, even a big break. But I would at least expect you to try harder in the future. But does the Antitrust Division really see cartels as criminal and immoral? Or are they just revenue opportunities? I have done antitrust work for over thirty years. I expect government to treat those who steal as thieves, not as valued allies bringing new revenue opportunities.
— Impact on Compliance Programs
Note that by denouncing compliance programs and refusing to consider them for any purpose, the Antitrust Division has forfeited its ability to influence the types of programs industry may choose to implement. Unlike the Criminal Division, the antitrust enforcers offer no models for compliance programs in their case settlements. One cannot look for guidance at programs imposed on immunity applicants, because there are none. By not considering programs and not even offering model programs imposed on offenders, the Antitrust Division has completely forfeited its leverage in getting companies to upgrade their programs. Whether your program is good, great, or grudging simply does not matter in any dealings with this Division. The only thing that matters is being first in the door to confess. So why listen to the Antitrust Division’s opinions on upgrading programs? When the Criminal Division says x, y and z should be in a program, we have reason to listen. When the Antitrust Division says this, why would their statements about something they ignore make any difference?
Healing the antitrust division
So how do we heal the antitrust division and have one government with one policy that encourages and recognizes diligent compliance and ethics programs? The answers are simple:
Citizens in a democracy have certain rights and expectations. They should not have to deal with parts of the same government advocating directly contradictory approaches to important public policy issues. The Department of Justice certainly is free to separate itself into functioning divisions that increase its efficiency and effectiveness. But in the case of promoting effective compliance and ethics programs to protect our citizens from corporate crime, there is simply no justification for the antitrust division.
Joe Murphy, CCEP, is the Director of Public Policy for the Society of Corporate Compliance and Ethics. firstname.lastname@example.org http://www.joemurphyccep.com/
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