Overview
Two recent developments by the Department of Justice, Antitrust Division (Division), show more aggressive strategies in criminal antitrust enforcement in the US than in recent years. The Division has invoked its “Penalty Plus” rule against a company that failed to uncover and report a conspiracy a couple of years before a second investigation about an unrelated product. The Division also has developed a new tactic that appears to avoid the usual statute of limitations for investigations involving individuals (perhaps also companies) located outside the US.
The Division has long had a policy to punish companies that cooperate in investigating one criminal conspiracy but fail to uncover and disclose unrelated conspiracies, but this “Penalty Plus” rule has rarely been invoked. However, in a recent case against Hitachi Automotive Systems, Ltd. (HIAMS) for participating in a two-decade long cartel for automobile shock absorbers, the Division requested and the US District Court for the Southern District of Ohio imposed a higher fine and a probationary period to monitor antitrust compliance, even though HIAMS cooperated in the investigation. In its Sentencing Memorandum requesting the court to impose the higher penalties, the Division explained that, in 2013, HIAMS had pled guilty and was fined for unrelated cartel behavior relating to other auto parts. The shock absorber conduct occurred during the same time period as the earlier conspiracy but was not reported during HIAMS’s earlier cooperation. The Division found it “troubling” that HIAMS did not discover and report the misconduct regarding the shock absorbers during the prior investigation. Pursuant to the Division’s corporate leniency policy, HIAMS could have avoided all penalties for shock absorbers (and reduced the fine in the first investigation) if it had reported the shock absorber cartel back then but now would face a higher penalty under the “Penalty Plus” rule for failing to disclose the unrelated conspiracy. HIAMS’s “delayed cooperation” therefore called for a sentence in the middle of the Sentencing Guidelines range (Guidelines), rather than toward the bottom of the range.
Luckily for HIAMS, it wasn’t considered a “recidivist” subject to additional penalty increases under the Guidelines, because the shock absorber conduct ended before the charges brought in the earlier case. However, the Division did request a period of probation in which the court and the Division could monitor HIAMS’s antitrust compliance program. The program had been enhanced after the 2013 guilty plea but the Division doubted that it effectively changed the company’s culture, because it was slow to discipline involved employees and to cooperate in the shock absorbers investigation, beginning only after a co-conspirator had pled guilty. The court imposed all of the Division’s recommended criminal fine ($55.48 million) and an 18-month probation, suggesting that it agreed with the Division’s views. The HIAMS shock absorber plea is a reminder that limiting an internal investigation narrowly to one product while cooperating with the Division runs the risk of not only losing the benefit of DOJ’s “Leniency Plus” policy for uncovering a new violation, but also incurring the cost of DOJ’s “Penalty Plus” policy. It is also a reminder that there are significant consequences associated with a gamesmanship approach toward cooperation. The Government’s sentencing memorandum requesting heightened penalties and probation can be found here and HIAMS response arguing against it can be found here.
The second development is a significant new tactic by the Division to extend the statute of limitations for carve-outs and other potential defendants outside the US. In another recent case1, a senior executive was carved out of a guilty plea by the client’s employer. The conduct in question - allegedly involving the executive - occurred more than five years ago. Normally, the employee could have taken comfort in the fact that the applicable 5-year statute of limitations had run out. However, the Division submitted a request for testimony from others allegedly involved, under the Japan-US Mutual Legal Assistance Treaty (MLAT) prior to the expiration of the limitations period. Under federal law (18 U.S.C. § 3292), these types of requests toll the statute of limitations until the receiving country has taken “final action” on the request. The submission of such a request to Japan is indeed a rare occurrence in antitrust cases. Even more surprising is that the Japanese authorities complied with the request, as it facilitated the taking of witness testimony in Japan.
More critically, this MLAT request was unnecessary, as the witnesses were current employees of the company, which would mean that the company would have been required to produce them at the US government’s request under its cooperation obligations in the plea agreement. Therefore the MLAT request appears to have been used by the Division in order to toll the statute of limitations (which, under most courts’ interpretation of § 3292, is likely permissible under the statute, as long as § 3292 requirements are otherwise met). Unfortunately, the MLAT process is not public, making it hard, if not impossible, for a potential target to learn when “final action” occurs to end the tolling of the statute of limitations. Using an MLAT request in these circumstances creates substantial uncertainty about potential liability for an indefinite period of time. Counsel representing targets of criminal cartel investigations should keep this in mind when advising about the possibility of prosecution in the US for conduct that would otherwise be time-barred. One also cannot discount the possibility that the Japanese authorities’ compliance with the MLAT request in this instance might indicate greater willingness by Japanese authorities to cooperate with the US authorities in gathering evidence – and possibly even regarding extradition – in support of US prosecutions in the future.
These two developments signal that there is a turn in the Division’s strategy for enforcing penalties in criminal antitrust investigations, and companies should be on their toes when an investigation is opened. Steptoe’s antitrust team will continue to monitor these situations closely and will continue to provide updates on future developments.
1Steptoe & Johnson LLP represents this client in the investigation.
