Morgan Lewis Report: Aggressive Global Cartel Enforcement to Continue in 2017

February 01, 2017

From new investigations, to dawn raids and guilty pleas, to hefty fines, 2016 was a year of aggressive cartel enforcement, suggesting that 2017 will likely see a similar trend.

“Given the stiff penalties and consequences resulting from recent cartel enforcement actions, compliance programs are essential to prevent, detect, and mitigate potential cartel violations,” said Morgan Lewis partner J. Clayton Everett, one of the authors of the firm’s recently released 2016 Global Cartel Enforcement Report.

Clay and the other authors stressed that compliance is a key takeaway from the report, which analyzes significant developments in enforcement last year.

“Based on the aggressive enforcement and substantial penalties, companies are encouraged to revisit the effectiveness of their compliance programs,” said Morgan Lewis partner Mark L. Krotoski, another co-author of the report. “Compliance programs can help prevent and detect cartel conduct and mitigate the consequences if an enforcement action has begun. The enforcers want to see effective programs in place and will not credit nominal compliance programs.”

Morgan Lewis partner Omar Shah, the report’s third co-author, said the 2016 report shows that cartel enforcement regimes continue to proliferate and develop internationally, with increasingly broad and deep coordination among enforcement agencies in pursuing international cartels.

“Companies with international operations need to ensure that their compliance best practices are adopted throughout their organizations and that, in the event of an investigation, their strategic and tactical response is coordinated internationally,” Omar said. “Experience has shown that companies who are prepared to respond in this way can significantly reduce their exposure to penalties and damages relative to their competitors.”

We spoke with Clay, Mark, and Omar about trends in cartel enforcement, the increased importance enforcers are placing on compliance, and how Morgan Lewis can help companies in crafting their compliance programs.

What are the most notable developments and trends you found in cartel enforcement in 2016?

Last year was an active year for cartel enforcement. There are a number of highlights from our report:

  • Substantial fines continued to be imposed by enforcers. For 2016, cartel enforcement fines around the world totaled more than $7.7 billion. Case fines in the European Union and India exceeded $1 billion. Fines of more than $100 million were imposed in the European Union, Germany, Italy, South Africa, Spain, Ukraine, and the United States. Brazil also entered into a record settlement of $89 million in a cartel investigation involving orange juice producers.
  • Noteworthy was the drop in fines imposed in the United States. The total amount of criminal fines and penalties dropped below $1 billion for the fiscal year for the first time since 2011. For calendar year 2016, US fines totaled $337 million. Some large investigations have wound down but new ones are being launched. For example, the United States has announced new criminal convictions in the generic pharmaceuticals and seafood packaging investigations, and more are anticipated.
  • For the first time, the Antitrust Division of the US Department of Justice (DOJ) announced that it will open criminal investigations and prosecute employers, including individual employees, who enter into certain “naked” wage-fixing and no-poaching agreements.
  • The list of countries with criminal cartel laws continued to expand as Chile and South Africa enacted legislation with criminal penalties for cartel violations. Presently, 33 countries have criminalized cartel conduct.
  • The United Kingdom’s Competition and Markets Authority secured the first disqualification of an individual director from acting as a director of any UK company for five years as part of the remedies in its investigation into cartel conduct by suppliers of posters and frames on Amazon’s UK website.
  • In a new feature of our report, we highlighted “dawn raids,” or the legal authority to search and seize evidence in a cartel investigation. Our review identified many new investigations by enforcers.

This “snapshot” review of cartel enforcement highlights the international cooperation among enforcers and the active enforcement of cartel laws around the world. Our report also includes two appendices on the recently concluded automotive parts investigation, the largest DOJ cartel investigation today, in which 65 individuals and 47 companies have been charged and have agreed to pay more than $2.9 billion in criminal fines.

Where is cartel enforcement likely heading in 2017?

There are a number of investigations and developments that we will be following closely in 2017. As noted, the generic pharmaceuticals and seafood packaging investigations have only recently produced their first convictions. While the automotive parts investigation is concluding in the United States, separate investigations by other enforcers are advancing around the world. Over the last few years, enforcers have focused on electronic components including capacitors. Active investigations for electrolytic capacitors are underway in the United States, China, the European Union, Japan, South Korea, Brazil, and Taiwan. So far, the DOJ has charged nine executives and five companies for participating in a price-fixing conspiracy.

Financial benchmarks cases (including LIBOR and various foreign exchange markets) have progressed in Europe, Brazil, and the United States. The DOJ just obtained its first two individual criminal convictions in the FX market in the past few weeks. In December 2016, the Swiss Competition Commission fined several large banks $96.3 million for conspiring to rig multiple interest rate benchmarks and related derivatives. We will track these advancing investigations. Of course, the new year will likely result in new investigations being announced, which we will cover in our next midyear report to be issued this summer.

The report features a summary on recent extraditions by the DOJ. What trends are you seeing in this area?

This is an important area to watch because the DOJ is being proactive on extradition efforts. Last October, the Antitrust Division announced its fifth successful extradition of a foreign executive since 2010. Three foreign executives have been extradited by the Antitrust Division in the last two and a half years. Our report discusses this development and includes a summary table of the extraditions. (Page 38 of the report.)

What are some of the steps companies and their executives should take in the face of these developments? How can Morgan Lewis help clients in this respect?

First, experience in addressing cartel enforcement issues matters. Morgan Lewis has acted as US, European, and global coordinating counsel for multinational corporations in virtually every major international cartel investigation of the last 20 years, guiding clients through every stage of the process. We bring substantial experience to each case. More than 20 Morgan Lewis lawyers have previously served as prosecutors with the DOJ, including partners that have direct experience prosecuting cartel matters.

In addition to helping companies review their compliance programs, we have been asked to help them prepare for a dawn raid should one occur by structuring and putting in place dawn-raid guidelines and training. This preparation has also been tried and tested in practice in the course of defending companies when they are raided, often in multiple jurisdictions around the world. Companies seek to avoid enforcement action, but when one begins, the response to a dawn raid and an enforcer’s inquiries is essential to identify strategies to avoid or mitigate the consequences, charges, and penalties. This is particularly true when multiple enforcers may have opened separate investigations. Our report highlights our recommended dos and don’ts during a dawn raid that draws on our firm’s practical experience around the world.

A key part of our role is to assist companies and their boards in making strategic and tactical decisions on how best to protect their interests during an investigation. These decisions are often of fundamental importance to the future of the company given the size of the potential exposure in terms of jail sentences, administrative fines, and civil damages. We then assist in implementing those decisions as efficiently and effectively as possible by, for example, applying for leniency in the United States, the European Union, and around the world where cartel conduct is identified. The timing and presentation of evidence are essential in obtaining and qualifying for leniency. Morgan Lewis has considerable experience in coordinating multiple applications for leniency in different jurisdictions under considerable time pressure. We have also advised several companies that, having considered the key variables with the benefit of our advice, have decided not to seek leniency and to defend their position instead.

Finally, once a cartel investigation is underway, the tactical and strategic decisions in conducting the internal investigation, normally under the attorney-client privilege, and the presentation of evidence, as well as the ability to anticipate key issues, are important. We have a strong track record in assisting companies to confront the myriad issues arising from cartel investigations in order to achieve a successful outcome.