Thursday, October 31, 2013

Beth Farmer on Criminal Competition Law

My colleague, Beth Farmer has written an excellent analysis of the value of criminal penalties under competition or antitrust laws, "Real Crime: Criminal Competition Law" which she will present at the American Bar Association Criminal Law Section's Sixth Annual Fall Institute to be held in Washington D.C., Oct. 31-Nov. 1, 2013.

Professor Farmer’s research interests include U.S. and foreign antitrust and trade regulation law, issues of federalism, and comparative competition policy. She has served as a non-governmental adviser and rapporteur for the International Competition Network annual conferences in 2013 (Warsaw), 2011 (The Hague), 2010 (Istanbul) and 2009 (Zurich) and is currently working the Curriculum project on preparing on-line training programs for competition agency lawyers that address investigative techniques, substantive analysis as well as agency prioritization and strategic planning, project management techniques and project evaluation. has written an excellent analysis of the current Chinese interim regulations on standards for simple mergers.

I have included portions of Part IV.  The entire essay may be downloaded through the Social Science Research Network website.

IV. Criminal Prosecution

The U.S. Antitrust Division is committed to criminal prosecution for hardcore cartels on the utilitarian deterrence theory, analogizing antitrust conspiracies to such traditional property crimes as burglary or larceny.47 The Division Manual articulates standards for criminal prosecution that are consistent with the goal of actively pursuing criminal sanctions:

In a matter where the suspected conduct appears to meet the Division’s standard for proceeding criminally, the decision whether to open an investigation will depend on two questions. The first is whether the allegations or suspicions of a criminal violation are sufficiently credible or plausible to call for a criminal investigation. This is a matter of prosecutorial discretion and is based on the experience of the approving officials; legal authorities may also provide guidance. The second question is whether the matter is significant. Determining which matters are significant is a flexible, matter-by-matter analysis that involves consideration of a number of factors, including the volume of commerce affected; the nature of the conduct; the breadth of the geographic area impacted (including whether the matter is international); the potential for expansion of the investigation or prosecution from a particular geographic area or industry to an investigation or prosecution in other areas or industries; the deterrent impact and visibility of the investigation or prosecution; the degree of culpability of the conspirators (e.g., the duration of the conspiracy, the amount of overcharge, any acts of coercion or disciplining of cheaters); and whether the suspected conduct directly impacted the Federal Government. Because the Division’s mission requires it to seek redress for any criminal antitrust conspiracy that victimizes the Federal Government and, therefore, injures American taxpayers, this last factor is potentially by itself dispositive. The Division is committed to prosecuting all matters of major significance and will ensure resources are assigned accordingly.”48

Werden et al. argue that the entire range of criminal sanctions must be available for convicted antitrust offenders, from corporate and individual fines to individual imprisonment. Arguing to the contrary, in the context of overall white collar crime cases, Judge Posner asserts that the optimal sanctions in white collar violations should be limited to civil fines, eliminating the criminal stigma and incarceration of prosperous individuals and firms as both unprofitable and unnecessary.49

Judge Posner’s specific objection to white collar crimes, as opposed to white collar civil violations, is that the costs of criminal prosecution outweigh the benefits. For example, assuming that the stigma of conviction has some measurable deterrent effect on individuals and corporations, the stigma should be monetized in the form of a civil fine remitted to the government. Even more seriously, there is a positive expense involved in incarcerating an individual, who will generate little if any revenue in prison but could continue to contribute to social wealth by paying a high fine and continuing to be employed. Incarceration, in other words, constitutes deadweight loss. The simple economics compel the conclusion that, “[f]or every prison sentence there is some fine equivalent; if the fine is so large that it cannot be collected, then the offender should be imprisoned.”50 A fine is less expensive and just as efficacious as a deterrent if the fine is set at the proper level. Indeed, Judge Posner concludes, civil antitrust liability may be more properly limited to corporations rather than individuals because firms are more likely to be able to pay deterrence-level fines and will have private methods to sanction and deter their rogue employees.

Moreover, the criminal process itself imposes costs that do not exist in the world of civil fines, penalties or administrative sanctions.51 Costs associated with criminal punishment include the challenge of proving the antitrust violation beyond a reasonable doubt (BRD) since the ultimate burden of persuasion always remains on the prosecution in criminal and civil actions. Even in per se horizontal cartel cases requiring little or no economic analysis, juries may be reluctant to find a white collar individual or well-known firm guilty, rather than merely liable, without an overwhelming quantum of evidence and proof of the all-important immorality in behavior. Any confusion in definitions of the criminal actus reus and, importantly, the mens rea, will handicap prosecutors held to the BRD standard of proof. Moreover, the law is far from settled and continues to evolve with respect to jurisdictional requirements in cases that involve conduct that is partially or entirely extraterritorial.52 Criminal prosecutions also require strict observance of procedural protections ranging from pre-indictment Constitutional warnings, mandatory disclosures, to the cost and time investment in lengthy grand jury proceedings. Kadish tends to agree that there are “major problems” associated with white collar crimes. However, at least on the first problem, defining the proscribed conduct, he finds that the Antitrust Division’s voluntary limitation of criminal proceedings to per se horizontal cartels mitigates the objection. The other objections, defining corporate criminality and the critical requirement of moral culpability, are less tractable.53

Finally, there are costs associated with prosecuting cartels in an environment dominated by civil and administrative proceedings, especially when a key counterparty is the European Commission. There is consensus that amnesty or leniency policies vastly facilitate antitrust actions, whether they are civil or criminal in nature. The 2011 International Competition Network Good Practices include the following recommendations:

“It is good practice to make leniency available both where the agency is unaware of the cartel and where the agency is aware of the cartel but the agency does not have sufficient evidence to proceed to adjudicate or prosecute.”

Moreover, “Where applicable, it is good practice for agencies to encourage leniency applicants to apply for leniency in other jurisdictions where cartel conduct also occurred”

“It is good practice for competition enforcement authorities to ask leniency applicants if they have applied for leniency in other jurisdictions, and if so, what conditions, if any, have been imposed. This may assist coordination between agencies.”54

The difficulties are obvious, and recognized by the ICN Good Practices, which provide that, in parallel civil and criminal systems, “it is important that the application of the leniency policy to civil and criminal cartel conduct is clearly articulated to provide maximum certainty to potential applicants.” The United States55 and European Commission,56 as well as numerous other competition agencies, have robust leniency programs. They are parallel systems, never meeting when the Antitrust Division opts for criminal remedies barred to the Commission. Indeed, the due process and confidentiality issues discussed above are especially acute in the amnesty/leniency context. Leniency is a recognized benefit to antitrust violators and government enforcers and American officials agree that “a major development in cartel enforcement over the past quarter century was the advent of leniency programs...”57 Some cases may be impossible in the absence of cooperating witnesses who insist on leniency. But amnesty seekers likely will insist on global amnesty or absolute confidentiality, especially if the leniency was procured from the Commission, where the only possible sanctions are civil, but the conduct crosses borders or affects U.S. commerce, where prosecution is a real threat. As the number of States with criminal competition laws increases, the challenge of interagency cooperation and evidence disclosure will only increase.

At the end of the day, however, the U.S. Justice Department has concluded that the commitment to criminal prosecution has paid off. The total number of criminal cases filed has increased from 41 in 2003 to 67 in 2012, with a high of 90 in 2011. Total fines and jail sentences have increased notably.58 A comparison of the Antitrust Division, reproduced below, and European Commission statistics, reproduced in Appendices A and B, allow for side-by-side comparison of results over time and evaluation of the relative costs and benefits of an all-civil compared to criminal prosecution regime of antitrust enforcement.59 
 47 Gregory J. Werden, Scott D. Hammond and Belinda Barnett, Deterrence and Detection of Cartels: Using All the Tools and Sanctions at 2, 26th Annual Nat’l Inst. On White Collar Crime (Miami, FL, March 1, 2012).
48 DOJ Antitrust Division Manual at III-7 and 8 (emphasis added).
49 Richard A. Posner, Optimal Sentences for White Collar Criminals, 17 Am. Crim. L. Rev. 409 (1980). 
 50 Posner at 412.
51 See generally Edmund W. Witch, Economic Crime Theory, 2 Encyclopedia of Crime and Justice 670 (1983).
52 Mark S. Popofsky, Anthony Biagioli, The Sherman Act’s Criminal Extraterritorial Reach: Unresolved Questions Raised by United States v. AU Optronics Corp., Aug. 2011(2) CPI Antitrust Chronicle.
53 Stanford H. Kadish, Some Observations on the Use of Criminal Sanctions in Enforcing Economic Regulations, 30 U. Chi. L. Rev. 423 (1963) (suggesting that the community may not view economic behavior as morally blameworthy. “Moreover, in some areas, notably the antitrust laws, it is far from clear that there is consensus even by the authors and enforcers of the regulation ... on precisely what should be prohibited and what permitted, and the reasons therefor.”) .
54 ICN, Compilation of Good Practices from the Anti-Cartel Enforcement Manual at 5-6, 10th Annual Conference (The Hague, Netherlands, May 18-20, 2011), available at .
55 Leniency Policy for Individuals (Aug. 10, 1994), available at , Corporate Leniency Policy (Aug. 10, 1993), available at
56 Commission Notice on Immunity from Fines and Reduction of Fines in Cartel Cases, Official Journal C 298, 8.12.2006, p. 17, available at
57 Gregory J. Werden, Sanctioning Cartel Activity: Let the Punishment Fit the Crime, European Comp. J. (March 2009), available at

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