DOJ's Antitrust Division Reverses Policy on Individual Carve-Outs in Company Plea Agreements

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On Friday, April 12, 2013, the Antitrust Division of the United States Department of Justice announced a reversal in policy relating to its negotiations with companies that plead guilty of criminal antitrust violations.1 The new policy significantly affects how the Antitrust Division will approach the plea negotiation process and enforce the criminal antitrust laws.

First, the Antitrust Division announced that it would no longer publicly disclose the names of individuals excluded (or "carved out") from the non-prosecution provision of company plea agreements. This provision protects the company and its employees from further prosecution under the antitrust laws for the conduct at issue (a core benefit for companies entering into the plea), but some employees typically are carved out from this protection. Prior to the announcement last week, the Antitrust Division had a long-standing practice of disclosing the names of these carve-out employees in the plea agreement, a practice that some have called a "perp walk."2 The division now has put an end to this practice, recognizing that "[a]bsent some significant justification, it is ordinarily not appropriate to publicly identify uncharged third-party wrongdoers."3

Second, the Antitrust Division announced that it no longer would carve out individuals from pleas merely for not cooperating in its investigation. Instead, the division will carve out only those individuals who are "potential targets" of the investigation (i.e., only those whom the division has reason to believe were engaged in the criminal conduct at issue and targets for potential prosecution). Prior to the announcement, the Antitrust Division had a long-standing practice of carving out from the non-prosecution protection of a plea agreement two categories of individuals: (1) those the division has reason to believe were involved in criminal wrongdoing (i.e., potential targets) and (2) those who are uncooperative in its investigation or are difficult to find or contact.4 Under the new policy, the division will limit the carve-outs to the first category of individuals. The Assistant Attorney General of the Antitrust Division, Bill Baer, elaborated publicly, stating: "I reached the conclusion that . . . focusing on the group of people who are potentially targets of the investigation, potentially liable, [and] can be charged [] was a better way of defining our carve-out groups."

Both of these policy changes are certainly positive steps in criminal antitrust enforcement. The decision not to identify carve-outs publicly will protect individuals from the tarnish that comes with being excluded from a plea. The decision to carve out only one category of individuals from a plea adds clarity to the process for the individuals and their employers in negotiating the plea. But what may not be entirely certain is how the changes may affect the plea negotiation process. This negotiation process can be a delicate dance with the Antitrust Division, and these policy changes can lead to some missteps by companies (and their counsel) if they are not aware of how the changes affect the incentives and strategies of the division in negotiating a plea.

Potential Effects on Plea Agreements Moving Forward

There are several ways the policy reversal could affect how the Antitrust Division approaches plea negotiations and enforce the antitrust laws, but the following are just a few potential effects that should be considered.

First, despite what some may hope, "limiting" who may be carved out to the potential targets is not likely to limit the number of carve-outs. It is likely to change only the reasoning behind who is carved out. The division typically only seeks cooperation from individuals who have some involvement in the conduct at issue; these individuals (almost by definition) are "potential targets" of the investigation. If an individual refuses to cooperate, the division is still likely to keep the individual on the carve-out list, citing the individual's involvement in the culpable conduct as the reason (instead of non-cooperation as the reason). Indeed, in announcing the recent policy change, the Antitrust Division stated that it "will continue to demand the full cooperation of anyone who seeks to benefit from the non-prosecution protection of a corporate plea agreement, and will revoke that protection for anyone who does not fully and truthfully cooperate with division investigations."

Second, the policy change has the potential to delay, but also the potential to expedite, the plea negotiation process. The "typical" plea negotiation process (if there is one) involves a significant period of time after a company agrees to plead guilty while the Antitrust Division interviews employees who may have had some involvement in the conduct (or receives attorney proffers from employees' counsel). This is to determine the level of assistance that the company can provide and, more important to this discussion, to identify the potential carve-outs. If individuals being interviewed were uncooperative in this process, the division would place them on the carve-out list under the prior policy. Under the new policy, this apparently is not an option, which means that the division may take additional time to "turn the employees around" and ensure cooperation before finalizing the plea. On the other hand, as suggested above, the division simply may identify all employees with involvement as potential targets (and thus carve-outs) whether cooperative or not, which would eliminate the need for an extensive interviewing process and greatly expedite the process.

Third, the lack of transparency in carve-outs allows the Antitrust Division to keep its cards closer to its vest, which can disadvantage other companies and individuals. In the past, when the division filed a plea agreement with a company, other companies and individuals under investigation often looked at the carve-outs to get a better sense of who was cooperating with the division and whom the division may be targeting. This may suggest what facts are available to the division, what facts are not, and the potential timing of the division's access to those facts. This was yet another data point that companies and individuals used in assessing their defenses and strategies in an investigation, but it is now no longer available.

Finally, the Antitrust Division is giving up an effective tool for pressuring individuals to cooperate with investigations: threat of public disclosure. The division rigorously defended its practice of identifying carve-outs in the past in order to keep this enforcement tool.5 So, the new concession is real, significant, and largely at the behest of the defense bar. This inevitably will shift the dynamics in negotiations, as the division staff will enter negotiations believing that they already have given up something significant. The division therefore may be less sympathetic to defense counsel seeking fewer carve-outs.


1 Department of Justice, Office of Public Affairs, "Statement of Assistant Attorney General Bill Baer on Changes to Antitrust Division's Carve-Out Practice Regarding Corporate Plea Agreements," April 12, 2013, available at http://www.justice.gov/opa/pr/2013/April/13-at-422.html; see also Leah Nylen, "In Changes to Carve-Out Policy, DOJ to Focus Only on Alleged Wrongdoers," MLEX, April 12, 2012, available at http://www.mlex.com/US/Content.aspx?ID=365329 (subscription required).

2 Transcript of Proceedings in Doe v. Hammond, 502 F.Supp.2d 94 (No. 07-1496) (D.D.C. 2007) (quoting Judge Huvelle). Indeed, Judge Huvelle observed, "Frankly I think [the Division's practice] is rather offensive personally."

3 This observation is consistent with what the U.S. Attorneys Manual advises, which all other divisions of the U.S. Department of Justice follow when it comes to disclosing carve-outs. U.S. Attorneys Manual, Title IX, available at http://www.justice.gov/usao/eousa/foia_reading_room/usam/. Under the new policy, the Antitrust Division will identify the carve-outs in an appendix to the plea agreement and will seek leave to file the appendix under seal.

4 The Deputy Assistant Attorney General for Criminal Enforcement, Scott D. Hammond, explained the Antitrust Division's policy in a speech to the American Bar Association: "Most corporate plea agreements provide a non-prosecution agreement for company employees who cooperate fully in the investigation. Yet certain culpable employees, employees who refuse to cooperate, and employees against whom the Division is still developing evidence may not receive any protection under the company plea agreement." Scott D. Hammond, "Measuring the Value of Second-In Cooperation in Corporate Plea Agreements", the 54th Annual American Bar Association Section of Antitrust Law Spring Meeting, March 29, 2006, available at http://www.justice.gov/atr/public/speeches/215514.pdf.

5 The Antitrust Division reasoned that identifying a carve-out is not the same as prosecuting the individual or even alleging wrongdoing; it merely preserves the option of pursuing prosecution. The division further argued that the public has a right to know who is being targeted, citing two authorities in support: the First Amendment and the Crime Victims' Rights Act of 2004. As noted, courts have yet to find a legal basis to prohibit the practice.