05.16.2011

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Updates

In an extremely rare move, the Department of Justice’s Antitrust Division recently announced that it had entered into a non-prosecution agreement (“NPA”) with UBS AG (“UBS”) to resolve criminal antitrust charges.  Under the terms of the NPA, the global financial institution agreed to pay $160 million in restitution and acknowledged responsibility for “illegal, anticompetitive conduct by its former employees . . . [who] entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment contracts.”  UBS also agreed to cooperate fully in both the ongoing investigation and the prosecution of UBS employees who were involved in the illegal conduct.  The agreement with UBS follows Bank of America’s acceptance into the Antitrust Division’s leniency program for being the “first in the door” to report the municipal bond conspiracy and admit its involvement.  In December 2010, Bank of America paid $137.3 million in restitution for its role in the bid rigging.  The investigation has also netted guilty pleas from nine individuals at various companies involved in the conspiracy, including one former UBS executive.  In addition, charges are pending against three former UBS employees.

The agreement with UBS is notable because of the Antitrust Division’s general reluctance to enter NPAs.  A December 2009 Government Accountability Office study showed that the Antitrust Division entered into only three deferred prosecution agreements (“DPAs”) or NPAs between 1993 and September 2009, compared to 49 such agreements that the Criminal Division entered into in the same time period.  DOJ’s use of DPAs or NPAs gained increasing favor in the wake of the implosions of Enron and Arthur Andersen.  Such agreements provide monetary and remedial sanctions to address corporate crime without the devastating collateral consequences that may attend a full-fledged indictment and prosecution of a corporation.

Typically, the government might consider an NPA or DPA for a company with an otherwise unblemished record, though UBS notably does not fit that profile.  Only two years ago, UBS entered into a DPA and paid a $780 million fine for its role in providing a haven for Americans seeking to hide taxable income from the Internal Revenue Service.  Despite UBS’s admitted involvement in that unrelated conduct, the Antitrust Division, departing from its general policy, seems to have been amenable here to a disposition for the bid rigging that entails hefty fines but does not taint the company with a criminal conviction.

NPAs and DPAs are not without controversy.  Many have argued that corporations often have no choice but to enter such agreements, especially since a prosecutor may have near-absolute bargaining power when a company faces the prospect of an expensive and potentially destructive criminal trial.  The Antitrust Division’s reluctance to use the agreements is more likely tied to concerns about their impact on its leniency program.  For years, the Antitrust Division’s leniency program has been the source of many, if not most, of its criminal investigations.  The leniency program offers a strong incentive for companies to be the first to disclose antitrust violations to the government.  In exchange for cooperation with the government and civil litigants, companies accepted in the leniency program are not prosecuted and their employees are not charged.  Further, acceptance into the leniency program offers a strong financial incentive because civil litigation damages are reduced to actual economic losses, as opposed to statutory treble damages.  The Antitrust Division may fear that the allure of the leniency program could be tarnished if corporations were aware that NPAs or DPAs were available, even to wrongdoers that do not voluntarily disclose unlawful behavior.  At a minimum, the availability of NPAs or DPAs for antitrust offenses could slow the pipeline of leniency applicants if potential applicants fail to see the leniency program as preferable to NPAs or DPAs, which are available even to offenders that do not voluntarily disclose their conduct.

It is unclear whether the UBS NPA signals a new trend by the Antitrust Division or is merely one of the few departures from its longstanding policy against entering such agreements.  For corporations faced with the difficult decision of whether voluntarily to disclose price-fixing or other criminal antitrust violations, the leniency program still offers significant benefits generally not available under an NPA or DPA.  The ability to secure immunity from prosecution for culpable corporate officers and employees remains a very powerful non-monetary incentive that may tip the balance in favor of voluntary disclosure.  That immunity from prosecution, coupled with the potentially substantial reduction in civil monetary penalties that the leniency program offers, demonstrates that voluntarily disclosing price-fixing or other criminal conduct as the “first in the door” leniency applicant has very significant and attractive benefits.  Nonetheless, the Antitrust Division’s greater use of NPAs or DPAs for companies that qualify would be a good complement to its leniency program and would provide another tool to obtain cooperation in its investigations.  For companies that are not “first in the door” but are good corporate citizens willing to admit wrongdoing and cooperate with the government, the recent UBS agreement could be a precedent for entering into such an agreement with the Antitrust Division, especially if a criminal conviction would result in severe collateral consequences for them, such as government disbarment or loss of operating licenses.  In any event, robust antitrust compliance programs are critical not only to prevent problems but also to ensure that antitrust violations are identified as early as possible so that the company has the best chance to be “first in the door” under the leniency program and to avoid being in the position of hoping that the Antitrust Division will be willing to negotiate an NPA or DPA.

©2011 Perkins Coie LLP

 


 

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