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Slide 1

Cracking Cartels With Leniency Programs

Scott D. Hammond
Deputy Assistant Attorney General for Criminal Enforcement
Antitrust Division, U.S. Department of Justice
OECD Competition Committee
Working Party No. 3 Prosecutors Program
Paris, France
October 18, 2005

Slide 2

The Single Greatest Investigative Tool

  • Since its revision in 1993, the Antitrust Division's Corporate Leniency Program has been the Division's most effective investigative tool

  • Cooperation from leniency applicants has cracked more cartels than all other tools at our disposal combined -- searches, FBI "drop-in" interviews, informants, Interpol red notice watches, etc.

Slide 3

Benefits of a Leniency Program

  • 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

Slide 4

The Success of the Leniency Program

  • Led to detection and dismantling of the largest global cartels ever prosecuted and resulted in record-breaking fines in the U.S., EU, Canada, Australia, and elsewhere
    • In US, resulted in over $2 billion in criminal fines; EU figure even higher

  • Many of these cartels would not have been cracked and may have remained undetected to this day without the lure of leniency
    • E.g., the "Vitamins, Inc." cartel

Slide 5

Sample Investigations Advanced By Leniency
(U.S. fine figures only)

  • Vitamins
    • F. Hoffmann-La Roche  $500 Million
    • BASF  $225 Million

  • DRAM
    • Samsung  $300 Million
    • Hynix  $185 Million
    • Infineon  $160 Million

  • Graphite Electrodes
    • SGL  $135 Million
    • Mitsubishi  $134 Million
    • UCAR  $110 Million

  • Fine Arts Auctions
    • Sotheby's  $ 45 Million

Slide 6

The Carrot

  • Huge incentives to be the first to self report and implicate the other conspirators

  • No charges filed against the company

  • No charges filed against cooperating employees

  • No criminal or administrative fine

  • Promise of confidentiality

Slide 7

The Stick

  • Full immunity is only available to the first company to self report and meet the conditions of the program

  • The second company - even if second by only a matter of minutes or hours as has been the case - and those that follow (as well as their executives) face severe sanctions

Slide 8

The Race

  • The winner-take-all approach creates distrust and panic within the cartel and destabilizes it

  • There is no honor among thieves

  • With the stakes so high, the cartel members can no longer afford to trust one another and go back to being cutthroat competitors

  • The "empty seat at the table" scenario

  • Individual exposure creates a race between the company and its own employees

Slide 9

Leniency Programs Are Uniquely Designed for Fighting Cartels

  • Leniency programs would make no sense for most other offenses

  • Cartels are inherently difficult to prove - you need an insider willing to cooperate

  • Cartels are conspiracies – so always other remaining companies/individuals left to prosecute after the first one reports the conduct

Slide 10

Cornerstones of an Effective Leniency Program

  • Threat of Severe Sanctions

  • Heightened Fear of Detection

  • Transparent Application of Program

Slide 11

The Threat of Severe Sanctions

  • Avoiding the risk of prison is the greatest inducement to self reporting

  • The EU's success relying on heavy fines

  • BUT the threat of criminal sanctions will act as a DISINCENTIVE to reporting unless policy is clear in advance that public prosecutor will not prosecute leniency recipients

Slide 12

Cultivating a Fear of Detection

  • Cultivating a fear of detection requires a demonstrated track record of cracking cartels

  • Over 50% of our international investigations initiated as result of a lead generated in completely separate market (see cartel profiling, amnesty plus, and penalty plus policies)

Slide 13

Transparency is Essential

  • If company cannot predict how it will be treated, it is far less likely to report

  • Experience of US and others with failed programs

  • 20-fold increase in U.S. applications after we revised our program to make it more transparent and predictable

Slide 14

Resources

  • U.S. Corporate Leniency Documents and Speeches available at
    http://www.usdoj.gov/atr/public/criminal.htm

  • ICN Cartel Working Group Website
    http://www.internationalcompetitionnetwork.org/cartels.html

  • Request a Free Copy of DVD from 2004 ICN Leniency Workshop:

    Freedom of Information Act Unit
    Antitrust Division, Department of Justice
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