Shenzhen, People's Republic of China
May 27-28,2001

Submission of the United States - Department of Justice
Competition Initiative -- Corporate Leniency Program

In attempting to formulate a topic for this presentation, I tried to think of something that we in the Antitrust Division were doing that was somewhat different or innovative -- what I arrived at was the Division's Corporate Leniency Policy. While this policy is not exactly new -- our current leniency policy was first announced in August 1993, it did take some time to prove its effectiveness, and has also evolved in some ways since its 1993 inception. So, I would like to talk about it with you today.

As you may know, the United States prosecutes hard core cartel behavior -- price-fixing, bid-rigging, customer and territorial allocation agreements and output restriction agreements -- as criminal offenses. These are all multiparty offenses, involving, in most cases, secret agreements and, as such, are very difficult to uncover and prosecute. In an effort to encourage self-reporting of such conduct, the Division, in 1978, instituted an amnesty policy, pursuant to which it would consider not seeking indictment of corporations that confess to violations of the antitrust laws. In order to qualify, however, these corporate applicants had to come forward prior to the Division's initiation of its own investigation of the conduct. Essentially, this meant that the corporation had to confess to conduct as to which the Division had been previously unaware.

Company officers and employees who so confessed received the same consideration for amnesty. The grant of amnesty under this policy, however, was ultimately at the discretion of the Division -- it was not automatic. This was a cautious policy -- it was not well known and was little used.

Beginning in the early 1990s, it was evident that if the amnesty policy was going to result in substantial or significant self reporting, it would have to be revised. Thus, in 1993 the current amnesty policy was introduced. The goal of the new policy was to encourage more self-reporting. The architects of the policy hoped to do this by increasing the benefits to those companies that did self-report, while at the same time increasing the risks to those that did not. At approximately the same time, the Division began to devote increasing effort and resources to the detection and prosecution of international cartels. These cartels are often more sophisticated, hence even more difficult to detect, than domestic ones. The revised amnesty policy was destined to play a significant role in the investigation and prosecution of these international cartels.

In order to encourage companies to use the policy in the first place, an effort was made to make it more transparent, hence more predictable, than the old one. The major change in this regard was to eliminate the discretion that was inherent in the old plan. If a reporting company comes in prior to the Division's initiation of an investigation, and meets the program's criteria, the grant of amnesty is automatic.

Use of the policy by companies and their counsel was somewhat slow to develop. Gradually, its transparency and predictability, however, generated enough confidence among members of the defense bar that it began to be invoked. As its popularity has grown, it has resulted over the last few years in the successful uncovering and prosecution of a number of significant international cartels, such as those in graphite electrodes, vitamins and fine arts auctions. In the last two years alone, cooperation from amnesty applicants has resulted in well over $1 billion in fines. As with many things in life, however, this program does come at a cost. I will discuss that in greater detail later on.

Before I briefly describe the policy, I would like to point out that this is a tool the usefulness of which is not limited to criminal investigations. Economies that impose administrative or civil penalties on cartel behavior face the same difficulties in detecting such behavior in the first place as does the United States. This policy has obvious application in such a context. Since it relies on companies self-reporting their illegal -- or in some other way disfavored -- conduct, it is a policy that is useful in any context in which secret, conspiratorial conduct is at issue.

I will not try to describe the leniency policy in precise detail here. For that I would refer you to the policy itself, a copy of which I have attached to this paper. A copy of this policy is also available on the Division's website. I will just try to provide an outline.

Under the Division's corporate leniency program, the Division will not charge a firm criminally for the activity being reported if such a corporation reports its illegal activity at an early stage vis a vis the Division's investigation. The corporate applicants must, however, meet certain conditions. To corporations that report illegal activity to us before an investigation has begun -- which usually means before we have become aware of the reported conduct -- the Division will grant leniency if:

(1) the corporate applicant is the first entity to bring this conduct to the Division's attention;

(2) the corporation, upon discovery of the illegal activity, promptly and effectively terminates its participation therein;
(3) the corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation to the Division throughout the subsequent investigation;
(4) the confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials;
(5) where possible, the corporation makes restitution to injured parties; and
(6) the corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or the originator of, the activity.

There are, of course, instances in which the Division is actively investigating suspected cartel activity, but is lacking sufficient evidence to prosecute. Under the leniency program, leniency may be granted to a corporate applicant that comes forward after an investigation has begun if the applicant is the first to come forward and qualify for leniency with respect to the illegal activity being reported. It is also necessary that the Division not yet have sufficient evidence to prosecute the applicant at the time the application for leniency is made. The applicant must, of course, also meet the other qualifications I listed earlier -- it must have promptly terminated its participation in the activity, report the wrongdoing with complete candor, provide continuing cooperation, make restitution where possible and the confession of wrongdoing must truly be a corporate act. In addition, the Division must determine that granting leniency in this situation would not be "unfair" to others, considering the nature of the illegal activity, the confessing corporation's role in it, and the timing of the corporation's application. A major focus of the "unfairness" determination would be whether the applicant could be thought to have coerced another party to participate.

Because the United States prosecutes individuals as well as corporations for antitrust offenses, it is important to note here that if a corporation qualifies for leniency, all directors, officers and employees who admit their involvement in the illegal antitrust activity as part of the corporate confession also receive protection from criminal prosecution -- if they are forthright and candid, and continue to assist the Division throughout its investigation of the reported conduct.

Since the program's initial adoption, it has been expanded to include what we refer to as "amnesty plus." As the Division began to investigate and prosecute increased numbers of international cartels, we began to realize that companies involved in price-fixing activity in one product market were frequently engaged in the same conduct in others. The "amnesty plus" program is an effort to provide companies that are already the subjects of an antitrust investigation with an incentive to come forward with information about other product markets in which they were also engaged in illegal conduct.

To be clear about this, these are companies that do not qualify for amnesty in the initial investigation -- often because one of their fellow conspirators beat them to it. If, however, they come in and bring to our attention a new conspiracy, not only will they qualify for amnesty in the new investigation, they will be able to negotiate a significant reduction in the fine they face for participation in the conduct that gave rise to the first investigation. They will, of course, be required to cooperate fully and truthfully with the Division in both investigations.

As I stated at the beginning, a large number of the Division's international criminal investigations and subsequent prosecutions were initiated as a result of information from an amnesty applicant. The Division regards this program as one of its most effective tools in uncovering and prosecuting this kind of conduct -- conduct which causes significant harm to U.S. businesses and consumers.

The Division is acutely aware, however, that, as with many things, the success of this program comes at a cost. Under this program, certain companies that engage in illegal activity -- sometimes over long periods of time -- causing significant harm to U.S. businesses and consumers, totally avoid criminal prosecution, while fellow conspirators, who engaged in the exact same conduct, will end up paying millions or even tens of millions of dollars in criminal fines. This "fairness" element is certainly something the Division thought seriously about before implementing the program. Our ultimate conclusion, however, was that the benefits to U.S. consumers -- and often to consumers worldwide -- from uncovering and stopping illegal cartel behavior, when added to the fact that the amnesty program requires the successful amnesty applicant to make restitution to the victims of its conduct where that is feasible, was worth the cost of foregoing the prosecution of an admittedly guilty party.

I realize that in addition to the fact that many economies do not prosecute cartel behavior criminally, many economies have legal systems that are quite different from that of the United States. This is not a program that is likely to translate seamlessly into another country's legal system. It is a program, however, that we have had great success with -- which is why I thought I would discuss it today. I can also offer that if any economy should be interested in getting more information from us about this program, or discussing it further at a later time, we would be more than happy to accommodate.

Thank you.