Policing the Firm

By Sokol, D. Daniel | Notre Dame Law Review, December 2013 | Go to article overview

Policing the Firm


Sokol, D. Daniel, Notre Dame Law Review


4. Industry-Level Factors

The industry in which a firm operates may affect outcomes. There are factors exogenous to a particular firm that also may affect its predisposition to criminal behavior. Industry structure and poor industry performance may indicate criminality. (165) Similarly, firms in some industries are more prone to criminality than others based on industry culture. (166)

Specific to antitrust compliance, antitrust scholarship provides a sense of the types of industry factors on which cartel stability seems to depend for its operation. (167) For example, industry or product cycle, competition within the sector, and cultural factors as to the nature and stability of the cartel influence the effectiveness of leniency. (168) Industry features such as high concentration, entry barriers, relatively inelastic demand, homogeneous products, and greater demand shocks affect the decisions of firms within an industry to participate in a cartel. These industry factors are important for enforcement because cartel stability mitigates the effectiveness of leniency. (169)

Industry growth impacts internal compliance. Where there is rapid growth in an industry, it may be that internal controls may not yet be strong enough to prevent wrongdoing. (170) Accordingly, such industries may be more prone to cartel behavior because formal and informal monitoring mechanisms are not in place. (171) The monitoring mechanisms within the firm also impact the ability of a firm to create a distinct culture relative to that of other firms in the same industry. (172)

II. CHANGING PENALTY STRUCTURES

A. Compliance Programs and the Creation of Super Leniency

To encourage cartel detection, DOJ Antitrust provides leniency for corporations and individuals. (173) The leniency program allows for firms to self-report their cartel activity in return for zero government penalties. In the United States, leniency creates a prisoner's dilemma to encourage defection--the firm that is the leniency applicant receives amnesty from criminal prosecution and a reduction from treble to single damages if it fully cooperates. Other firms involved in the cartel may receive lower financial penalties if they provide additional information to DOJ Antitrust that results in detection of other cartels, under a program known as Amnesty Plus. The possibility that firms might defect from a cartel and inform on its cartel members destabilizes many existing cartels and deters other cartels from being formed. (174) DOJ Antitrust now detects most cartels as a result of the leniency program. (175)

Yet, the leniency program has certain limits. In particular, the leniency program does not reward the adoption of a rigorous compliance program (other than being the first to self-report). (176) Indeed, the leniency program utilizes a strict liability regime for wrongdoing. This is a departure from other areas of corporate crime where a compliance program allows for a penalty reduction under the Federal Sentencing Guidelines and programs are taken into account in enforcers' decisions on how to proceed against the company. (177) The motivation behind penalty mitigation and taking programs into account is to encourage companies to proactively set up compliance programs to minimize wrongdoing and build an infrastructure of good governance.

Informally and at various practitioner conferences (such as those organized by the American Bar Association Section of Antitrust Law), DOJ Antitrust officials have stated that the proper application of the Guidelines almost always results in no credit being given for a compliance program in the sentencing calculations in an antitrust case because these violations are almost always participated in, condoned by, or occur with the willful ignorance of, high-level or substantial authority personnel. Under the Sentencing Guidelines, the three point credit for compliance programs simply does not apply (or, in the case of substantial authority personnel, there is a rebuttable presumption against credit) in such cases.

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