US Antitrust Investigations: Issues for Asian Companies While the international attraction of listing on the US stock markets has waned significantly since the passage of the Sarbanes- Oxley Act, many Asian companies have continued to increase their presence in the USA. Richard Donovan of Kelley Drye & Warren examines the issues facing Asian companies which are caught up in US government investigations of antitrust crimes. This article was published in the December 2006/January 2007 issue of Asialaw magazine by Asia Law & Practice. To obtain the original version, or copies of any other Asia Law & Practice publications, please email enquiries@alphk.com. Euromoney Institutional Investor (Jersey) Ltd 2007. Ten years ago, the antitrust division of the US Department of Justice (DOJ) opened very few investigations of international cartel activity. By 2000, over 70% of the companies charged with criminal antitrust violations were foreign-based firms. Since the beginning of 1997, the division has been responsible for charging nearly US$3 billion in criminal fines, over 90% of which were obtained in connection with the prosecution of international cartel activity. Over one-quarter of the individual defendants charged in criminal antitrust cases have been foreign nationals. The division has negotiated plea agreements with 27 foreign nationals to serve time in US prisons and has for the first time moved to extradite a criminal antitrust defendant to the US from another country. Scott D Hammond, the deputy assistant attorney-general for criminal enforcement of the DOJ s antitrust division, recently observed that the most significant trend in the evolution of international anti-cartel enforcement since 1999 has been the more vigorous prosecution of foreign nationals who violate US antitrust law. For a US company, an antitrust criminal investigation can be one of the most serious challenges the company can face due to the large potential fines, disruption to business, damage to reputation and potential civil liability. For a foreign company, the stakes are usually no less severe but the issues and decisions to be made are usually more complicated. With an increased volume of commerce coming into the US from countries such as China and India, more Asian companies will become ensnared in US criminal antitrust investigations and US Competition Law the civil litigation that inevitably follows. Asian companies should become aware of the parameters of US antitrust law and develop programmes to ensure compliance to avoid being caught in the DOJ s net. The antitrust division of the DOJ The antitrust laws in the United States have a dual nature. On the one hand, they are criminal laws, in that it is a felony crime, punishable by fines and imprisonment, to violate the antitrust laws. At the same time, the antitrust laws are civil in nature in that private parties may sue for financial damages if they are injured as a result of a violation of those laws by another party. In addition to the federal government, virtually all of the states have their own antitrust laws, which are enforced by the attorneygeneral of each state. Prosecution of anticompetitive activity under the DOJ s criminal jurisdiction is reserved for the most hardcore offences agreements among competitors to fix prices, bids or output, and the allocation of customers or territories. Such cartel behaviour has been called the supreme evil of antitrust by the US Supreme Court. Because there is no plausible business justification for such conduct, it is deemed unreasonable. Criminal antitrust cases are investigated and brought by the DOJ, which acts as the prosecutor. The Federal Trade Commission shares jurisdiction with the DOJ over civil cases but not criminal cases. The head of the criminal enforcement effort for the antitrust division is a very senior official, reporting directly to the assistant attorney-general in charge of all antitrust enforcement at the DOJ. Criminal matters are handled by the national criminal enforcement section in Washington as well as in the eight division field offices. December 2006/January 2007 asialaw - 27
The most significant trend in the evolution of international anti-cartel enforcement since 1999 has been the more vigorous prosecution of foreign nationals who violate US antitrust law. - Scott D Hammond, Antitrust Division Department of Justice foreign governmental departments, including members of Congress and the local US attorney-general of each district; (iv) screening of particular industries known to be conducive to cartel behaviour, or (v) an informant, via the leniency programme (which grants leniency or amnesty to the first company or individual to report a violation) or otherwise. The preliminary inquiry The next step is often for the antitrust division s staff to conduct a preliminary investigation, which In the case of foreign defendants, the Foreign Affairs Office of the division will usually be consulted by the division staff about a pending investigation. It has also become common for the division to arrange for a special agent of the Federal Bureau of Investigation (FBI) to assist the legal team investigating an alleged may last from a few weeks to several months, to see whether the conduct should be treated as a criminal matter and a full grand jury investigation is warranted. Usually, staff will first obtain authorization to conduct the inquiry from the director of criminal enforcement. antitrust violation, especially one involving foreign parties. The FBI has investigatory skills and tools that have been quite valuable in cartel investigations. If there is enough evidence on which to proceed, the staff attorneys next request authority to convene a grand jury, in a memorandum to the assistant attorney-general in charge of the antitrust division. There are multiple stages to a US criminal antitrust investigation, which may last between one and two years (see chart: Stages of a US Criminal Antitrust Investigation). An investigation by the In some cases, such as when a company is cooperating under the leniency programme, a preliminary inquiry is not necessary and the staff lawyer will proceed directly to requesting a grand jury. division typically starts with: (i) a complaint from an individual or business, such as a disgruntled employee; Collecting evidence for the grand jury The grand jury is vested under US law with the power to compel (ii) monitoring of press reports of various practices; witnesses to produce documents and other evidence, and to (iii) complaints and information received from other US and appear and give testimony in person. In practice, the government Stages of a U.S. Criminal Antitrust Investigation 28 - asialaw December 2006/January 2007
attorney determines which witnesses will receive a subpoena, as well as which documents to ask for. A party which receives a subpoena to produce documentary evidence or objects may motion the court to quash or modify the subpoena if compliance would be unreasonable or oppressive. request instead through its counterpart in the host country. The DOJ has formal mutual legal assistance treaties with numerous countries for this purpose. In recent years, coordination of simultaneous legal searches for documents by the authorities of several countries has become more common. The subpoena is usually served upon a witness in person by a US marshal or sometimes by an agent of the FBI. Service of a subpoena outside of the US is only permitted on US nationals or residents who are in a foreign country. There is no direct authority for the service of a grand jury subpoena on foreign citizens located outside of the US. The Hague Convention on Private International Law applies only in civil and commercial matters and is of no use in a criminal grand jury investigation. Will a US subpoena reach companies in Asia? A person or entity must have some degree of presence in the US before it can properly be served with a US grand jury subpoena. The most common example is a parent, subsidiary, or affiliate company which is physically located in the US. It may also be possible to find an adequate presence in the US based on minimum contacts, such as the presence of an office or sales agent, regular sales calls by company employees, and other activities or combinations of activities. A person or entity cannot be compelled to obey a grand jury subpoena if the court which issues the subpoena does not have jurisdiction over it. Even when a company has a presence in the US, it may not be required to produce documents from its affiliates overseas. US courts have held that it is proper to serve a subpoena on a subsidiary or affiliate in the US, directed to the US entity, requesting it to produce documents over which it has control which are located abroad. In this context, control means the legal right to obtain documents requested upon demand, or the access to or mere ability to obtain such documents. So, where an Asian parent corporation has a US subsidiary, the court will look to see whether the subsidiary has actual managerial control over, or shares control over, its parent company, regardless of the formalities of corporate organization. The courts will look at factors such as the percentage of ownership of the subsidiary company and whether in the past the subsidiary has been able to obtain documents for its business or litigation needs from abroad. Even though it might be able to require production of documents from abroad, however, it has been the policy of the antitrust division, as a matter of comity among nations, only to ask for such production by subpoena on a voluntary basis. When it needs to obtain evidence located abroad, the division will usually make the The grand jury witness The antitrust division will also normally serve subpoenas to compel individual witnesses to testify before the grand jury. Such subpoenas may be issued together with a subpoena for documents or after the documents have been received and reviewed by the antitrust division. Subpoenas to testify can raise numerous issues. One issue, which may arise even before a subpoena to testify is received, is whether the legal counsel to the company can also represent and advise any of the individual officers or employees, as this may cause conflicts of interest. Another important issue which arises with subpoenas to testify before a grand jury is the exercise of the privilege against selfincrimination under the US Constitution. The Fifth Amendment to the Constitution states that a natural person does not have to give evidence against himself or herself. (A corporation, however, does not have a Fifth Amendment privilege.) The government may seek to compel a witness to testify by granting him immunity from prosecution, typically by a court order, even when the witness prefers not to testify. The antitrust division, like other criminal enforcement agencies, will often seek to obtain testimony against the more serious violators by granting immunity to those who are less culpable. Obtaining immunity is usually accomplished through a somewhat elaborate process known as a proffer, through which the attorney for the witness conveys to the government the nature of the information the witness would be willing to provide. If the information is useful to their investigation, the staff attorneys will next seek an interview with the witness himself. Typically, the antitrust division will agree that information obtained during the interview cannot be directly used against the witness. However, the division will reserve the right to use any leads provided by the witness. If, after the interview, the division attorneys find the witness to be honest, cooperative and helpful to the investigation, they will offer immunity if the witness will testify before the grand jury. New investigatory techniques In recent years, the DOJ s antitrust division has become more December 2006/January 2007 asialaw - 29
A person or entity must have some degree of presence in the US before it can properly be served with a US grand jury subpoena. The most common example is a parent, subsidiary, or affiliate company which is physically located in the US. It may also be possible to find an adequate presence in the US based on minimum contacts, such as the presence of an office or sales agent, regular sales calls by company employees, and other activities or combinations of activities. Border watch The Immigration & Naturalization Service (INS) maintains a database of individuals that US law enforcement agencies wish to track or arrest upon entry to the US. The DOJ s antitrust division regularly submits to the INS the names of individuals it seeks in order to obtain evidence or to serve legal process on a foreign company. Cooperating co-conspirators A huge part of the antitrust division s success in investigating cartels is due to its success in obtaining the cooperation of cartel insiders through its corporate leniency programme and negotiated plea agreements. The programme offers full immunity to the aggressive in gathering evidence and relying on other investigatory first company that reports a criminal antitrust violation. Even if techniques such as search warrants, unannounced interviews, a defendant is too late to qualify for the leniency programme, it electronic surveillance, and cooperating witnesses in its leniency may reap substantial benefits if it enters into a negotiated plea programmes. agreement early in the process. In either situation, the defendant must admit guilt and agree to cooperate with the ongoing criminal Search warrants The use of search warrants at the start of an investigation, which can generate substantial evidence against the investigation has now become almost standard practice. A search remaining participants. warrant can only be issued by a federal judge and must be based on a finding that there is probable cause to believe that a crime Roughly half of the antitrust division s current international cartel has been committed and that evidence will be found at a particular investigations were initiated by evidence obtained as a result of location, or that evidence is in danger of imminent destruction. an investigation into a completely separate market. The leniency Companies with US offices should have policies and procedures programme also encourages companies to report activities in in place to deal with such government tactics. markets other than that of its initial investigation. Electronic surveillance Under a new law, the antitrust division now has authority to use wiretaps in criminal antitrust investigations. This means that communications can be legally intercepted by the government pursuant to a court order. Communications can also be intercepted with the consent of one of the participants. In recent investigations such as those involving Archer Daniels Midland, FBI agents even videotaped conspiratorial meetings with the informant s consent. Surprise interviews The antitrust division may also use the dropin interview tactic, in which agents arrive unannounced at the home or workplace of targets or witnesses of an investigation. While witnesses are not obligated to submit to such interviews, most people do not know this and answer the agent s questions because of the surprise factor and intimidation caused by the mere presence of government agents. Often the division will plan a series of interviews to occur simultaneously as the first overt step in an investigation, so that witnesses do not have time to confer with or warn their co-conspirators. Other competition authorities One other key to the recent success of US international cartel cases has been increased support and assistance from countries around the world, which gives US investigators easier access to evidence and witnesses. The US has negotiated at least eight cooperation agreements that authorize countries to exchange information in pursuit of suspected antitrust violations. About the author Richard Donovan is a partner at Kelley Drye & Warren in New York, and co-chair of its antitrust practice group. He has represented clients in criminal antitrust investigations for over 25 years. The assistance of Deborah Twardowski, an associate at Kelley Drye & Warren, is gratefully acknowledged. 30 - asialaw December 2006/January 2007