Internal Corporate Leniency Programs: If Prevention Fails Is Early Detection the Next Best Thing?

1. Internal Corporate Leniency Programs: If Prevention Fails Is Early Detection the Next Best Thing? December 2, 2013

2. Moderator: • Michele C. Lee, Visa Inc., Foster City, CA. Presenters: • Donald C. Klawiter, Sheppard Mullin, Washington, D.C. • Timothy Bridgeford, Tyco, Princeton, NJ • Robert E. Connolly, DLA Piper, Philadelphia, Pa.

3. Antitrust Division--DOJ: Corporate Leniency Program

4. DOJ Leniency Program • Revised in 1993 Three Components • Predictability for leniency applicants. • Strong cartel enforcement to heighten value of leniency. • Significant penalties for cartel members who don’t seek leniency.

5. DOJ Leniency: Basic Principles • First In (either before an investigation has begun, or if one is already open, before indictable evidence is obtained). • Full, complete and ongoing cooperation. • Restitution (usually satisfied by civil settlements). • Not Unfair (company not an organizer or ringleader)(having largest market share is not a disqualifier).

6. Benefits to DOJ • A company will admit conduct before investigation is opened or turn on others after investigation underway • Provide critical cooperation of inside participants • Access to documents regardless of location • Access to witnesses regardless of nationality • May provide opportunity for covert operations

7. The Success of the DOJ Leniency Program • Copied by enforcement agencies throughout the world. • Touted as the “Single greatest tool for uncovering cartels.” • Vast majority of the Division’s cases, especially international cartels, are made through leniency applications.

8. Internal Corporate Leniency Programs • The Proposal: A New Approach to Compliance: True Corporate Leniency for Executives, Donald C. Klawiter and Jennifer M. Driscoll, Antitrust Volume 22, No. 3, Summer 2008. • The Discussion: If you are caught violating the law, you are fired and stripped of benefits. If you disclose conduct, you remain employed.

9. Leniency Conditions • DOJ: The Division has not received information about illegal activity or, if investigation has already begun, the corporation is the first to come forward and qualify. • Company Leniency: A self reporting employee automatically receives amnesty if there is no preexisting government investigation or the first individual to come forward after an investigation has started.

10. Leniency Conditions • DOJ: The Division, at the time the corporation comes in, does not yet have evidence against the company that is likely to result in a sustainable conviction. • Company: The company does not yet have evidence of the illegal conduct from another source.

11. Leniency Conditions • DOJ: The corporation, upon discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity. • Company: The employee takes prompt and effective action to terminate his or her part in the illegal conduct.

12. Leniency Conditions • DOJ: The confession of wrongdoing is truly a corporate act, as opposed to isolated confessions of individual executives or officials. • Company: Not applicable.

13. Leniency Conditions • DOJ: The corporation reports the wrongdoing with candor and completeness and provides full, continuing and complete cooperation that advances the Division in its investigation. • Company: The employee reports the wrongdoing with candor and completeness and provides full, continuing, and complete cooperation that advances the company’s investigation.

14. Leniency Conditions • DOJ: Where possible, the corporation makes restitution to injured parties. • Company: Where possible, the employee makes restitution to the company.

15. Leniency Conditions • DOJ: The Division determines that granting leniency would not be unfair to others, considering the nature of the illegal activity, the confessing corporation’s role in it, and when the corporation comes forward. • Company: The employee did not coerce other employees to participate in the illegal conduct, and granting amnesty would not be unfair to others.

16. Benefits of Internal Company Leniency • Early detection • Speed in Reporting • Uncover and report all wrongdoing at once

17. Possible Concerns Regarding Internal Corporate Leniency • Inconsistent Messages?—zero tolerance, but leniency this time? • Unequal Treatment? a salesman could get fired for padding an $200 expense report, but a VP of sales gets amnesty for an international cartel?

18. Possible Concerns Regarding Internal Corporate Leniency • Company can’t speak for or bind DOJ • Foreign Employees? Labor law variation by country can make a company wide policy difficult.

19. Amnesty on an Ad Hoc Basis? • Crisis Management may require unusual methods. • Amnesty for a set period of time in response to an internal investigation or in response to Government investigation. • The potential problems of granting amnesty may be outweighed by the need to make complete disclosure very quickly.

20. Internal Corporate Leniency: How Might DOJ React?(Caveat: none of us speak for DOJ) • Antitrust Division stays away from corporate governance (with one exception—it has sought independent compliance monitors if company goes to trial and loses). • No credit for having a “strong” compliance program. No penalty for having none. • Review of Division Plea Agreements—silent as to whether culpable employees should be dismissed or otherwise disciplined.

21. Complete Cooperation • The Antitrust Division does care deeply about rewarding those who win the “race to the courthouse” and provide complete and continuing cooperation. • Penalty Plus --If a company qualifies for leniency in product A, but does not disclose other cartels, the Division will prosecute for those other cartels and impose a higher penalty. • Amnesty Plus -- If a company is too late for amnesty on Product A, but disclosure and cartel in Product B, it will get leniency for product B and a reduced penalty for product A.

22. Govt. Investigations Generally • It is equally important to make complete and timely disclosure in government investigations besides criminal antitrust matters. • For example: FCPA • Siemens' Sentencing Memorandum. “In consultation with the Department, Siemens designed and implemented a company-wide amnesty program to facilitate the internal investigation.”

23. Other Examples of Internal Corporate Leniency • SNC-Lavalin • ThyssenKrupp • Azko Nobel

24. Resources • USDOJ Corporate Leniency Policy http://www.justice.gov/atr/public/guidelines/0091.htm • A New Approach to Compliance: True Corporate Leniency for Executives, Donald C. Klawiter and Jennifer M. Driscoll, Antitrust Volume 22, No. 3, Summer 2008 • SNC-Lavalin Offers Amnesty to Current Employees in Exchange for Cooperation http://www.snclavalin.com/news.php?lang=en&id=2104 • Siemens’ Employees Come In from the Cold http://www.fcpablog.com/blog/2008/2/1/siemens-employees-come-in-from-the-cold.html • Sentencing Memorandum of the United States in US v. Siemens, Case 1:08-cr-00367-RJL filed 12/12/2008 p. 19-20 • ThyssenKrupp Amnesty Program http://www.thyssenkrupp.com/financial-reports/12_13_q2/en/report/compliance.html

25. Presenters Donald C. Klawiter Robert E. Connolly Timothy Bridgeford Tim Bridgeford is the Senior Compliance Counsel—FCPA, Antitrust Investigations for Tyco. Prior to joining Tyco, he was a trial attorney with the Antitrust Division, USDOJ where he conducted major cartel investigations. He also served as a Special AUSA in the EDPA where he worked on a major investigation involving fraud against the Department of Defense on contracts during the war in Iraq.  He has also worked as an attorney in the Enforcement and Compliance Division of the Comptroller of the Currency of the United States Treasury Department. Bob Connolly served 32 years with the Antitrust Division, USDOJ and was Chief of the Mid-Atlantic Office from 1994 to 2013. He has investigated many international cartels and has tried numerous criminal antitrust and fraud cases. He is now with DLA’s Antitrust and Trade Regulation practice in Philadelphia where he focuses on internal investigations, cartel defense and compliance issues. Mr. Klawiter’s practice focuses on antitrust investigations and litigation - criminal and civil - with special emphasis on international cartel matters. He has defended corporations and executives from six continents in grand jury investigations and prosecutions. He also has led internal corporate crisis investigation teams in assessing antitrust risk, advising corporate boards and audit committees, and formulating plans to resolve any issues consistent with corporate governance requirements.