Antitrust Compliance Programs Under the Guidelines:

Initial Observations From the Government's Viewpoint

By Neil E. Roberts

(reprinted from Corporate Conduct Quarterly, Vol. 2 No. 1)

Compliance programs now play formal, indeed formulaic, roles in sentencing organizations under the United States Sentencing Guidelines. Under Section 8C2.5 of the Guidelines, effective November 1, 1991, the existence of an "effective program to prevent and detect violations of the law" is a significant factor in calculating a convicted corporation's "culpability score," which under the Guidelines' calculus for sentencing organizations directly affects both maximum and minimum fines.

The effect is substantial; depending on other factors, credit for an effective program could reduce a corporation's maximum antitrust fine by more than 50 percent. Antitrust compliance programs - long recommended by inside and outside counsel - have truly come into their own.

The Guidelines (see Sec. 8Al.2 Commentary) provide considerable detail, not to be repeated here, as to what the Sentencing Commission means by an "effective" compliance program. They set out seven fairly specific steps that "due diligence" in seeking to prevent and detect criminal conduct by employees requires "at a minimum," and further describe other relevant factors bearing on the precise actions that corporations should take to claim credit for a compliance program - albeit one that failed to detect and prevent the instant offense - at the time of sentencing.

Notwithstanding the Guidelines' considerable guidance in this area, it is likely that even more specific Antitrust Division policies and positions on credit for compliance programs will evolve over time with exposure and experience rather than be hatched full-fledged at the first affected sentencing. Nonetheless, and without intending to set out any list of minimum compliance program requirements, I would offer a few general predictions.

First, the Division is likely to take quite seriously the Guidelines' disqualification from compliance program credit of any organization whose high level personnel (including individuals responsible for the administration of the compliance program) participated in, condoned, or were willfully ignorant of the offense. Who should be considered "high level" personnel and what constitutes "willful ignorance" will likely be debatable in many circumstances. Particularly because compliance programs are to be designed to give an organization's managers significant, affirmative responsibilities in compliance oversight, the Division is likely to pursue potential disqualifications on this ground vigorously.

Second, the Division will closely hold any organization whose "substantial authority personnel" participated in an offense to the burden the Guidelines place upon it of overcoming a presumption that its compliance program simply was not effective. The Guidelines' definition of "substantial authority personnel" appears to clearly encompass typical antitrust perpetrators - individuals with authority to negotiate or set price levels or negotiate or approve significant contracts. Thus, this presumption of ineffectiveness will likely become the rule in antitrust cases, giving the Division as well as the court "show me" status.

Third, the Division is unlikely to credit largely "paper" compliance programs. one of the Division's principal concerns during the development of the Guidelines chapter on organizational sentencing was that substantial credit not be given for programs that rely primarily on memos enjoining personnel not to commit antitrust violations. Price fixing and bid rigging are crimes committed in bad faith, and compliance programs that rely on the good faith of those who may see personal profit in secretive violations regardless of corporate policy will miss the mark. Communicating corporate policy, standards and procedures regarding antitrust compliance is, of course, an essential part of an effective program, but the Guidelines require far more of an effort to qualify for fine reduction. Thus, the Division will not favor programs that try to cover shortcomings in their other necessary elements with a plethora of memoranda and meetings.

Fourth, affirmative steps to detect price fixing or bid rigging, premised on the possibility or even the assumption that education and admonition will not deter personnel who will act in bad faith, will be credited highly by the Division. Active monitoring of employee conduct - of particular pricing and bidding decisions and practices, for example will improve the chance of detecting and deterring questionable conduct. The Division frequently monitors such practices in the course of its investigations, and an organization's own ability to detect antitrust violations in this manner is probably better than ours, as long as the organization's own detectives are competent and reliable. Both regular and unannounced audits of price changes, discount practices and bid sheets, conducted by those familiar with the firm’s past and present business practices and trained in recognizing questionable divergence, would be examples of creditable affirmative action. "Why was an item on a bid sheet so high," and "why was a potential customer not bid at all” are the types of questions that salespersons and managers should expect to have to answer at any time. And success measured by acceptable market share or increased profitability should not insulate a person or corporate unit from such scrutiny - such results are fully consistent with the typical goals of individual antitrust violators.

Fifth, both regular and unannounced audits of the level of understanding of the antitrust law on the part of front-line pricing and bidding personnel and their degree of compliance with a program's requirements relating to prevention and detection, backed up by potential penalties, should be considered invaluable adjuncts to initial employee antitrust sensitization. Important both initially and during such audits is employee appreciation, not only of the relatively straightforward matter of what constitutes price fixing and bid rigging, but also what sorts of conversations, communications, or practices constitute suspect behavior. Disabusing sales personnel of the notion that "business ethics" require deference to existing customer-supplier relationships is one example of what such audits might emphasize.

Sixth, the elements of a compliance program, including particularly audits of the program itself and audits of pricing and bidding practices, may be more highly valued if they are customized - designed and targeted to the firm's specific organization and business practices. The Guidelines note that an organization's failure to follow "industry practice" weighs against a finding of an effective program to prevent and detect violations of law. At least in the antitrust area, however, following by rote a generic industry-adopted compliance program may be less effective than unique audits and other steps carefully tailored to the antitrust pitfalls in an organization's own daily contexts.

Finally, the Division is likely to examine closely the incentive structure of any compliance program that is proffered for credit under the Guidelines. Strong negative incentives directed toward persons in positions potentially to commit willful antitrust violations - perhaps loss of position, forfeiture of benefits come immediately to mind, but less traditional negative and positive incentives aimed at those charged with responsibility to detect and/or report violations should also be considered. The Guidelines cite as a reasonable step to achieving compliance putting in place and publicizing a reporting system whereby employees and other agents can report criminal conduct by others without fear of retribution. An organization seriously committed to deterring price fixing and bid rigging might emphasize the harm that violations threaten to itself and thus to each and every employee, through carefully designed penalties and rewards.

The Antitrust Division's views and recommendations regarding compliance programs will surely become clearer and more specific as such programs are integrated into antitrust sentencing. Its traditional resistance to excusing antitrust violations entirely on the basis of proffered corporate good faith and compliance programs, while likely to continue, will not lead the Division to downplay well thought out and carried out programs; the Division will recommend giving credit where credit is due. But if a compliance program boils down essentially to "we told them not to," the Division is likely to be less than impressed.