NACDL

On September 6, 2006, a federal grand jury in Philadelphia returned an indictment against Stolt-Nielsen S.A., two of its subsidiaries, and two executives for participating in a conspiracy to allocate customers, fix prices, and rig bids on contracts in the parcel tanker industry. The indictment was surprising in light of the fact that Stolt-Nielsen had entered into an amnesty agreement with the U.S. Department of Justice’s Antitrust Division. Although Stolt-Nielsen took numerous actions to terminate its anticompetitive conduct and provided information that resulted in its co-conspirators’ convictions, the Antitrust Division revoked Stolt-Nielsen’s amnesty.

In a press release, Thomas O. Barnett, assistant attorney general in charge of DOJ’s Antitrust Division, stated that Stolt-Nielsen was the first company to have its conditional leniency revoked since the current Corporate Leniency Program was announced in 1993. Barnett also stated that “removing a company from the Corporate Leniency Program is not something the Antitrust Division takes lightly but regrettably was necessary in this case to maintain the integrity of the program, which requires that those in the program provide full and truthful cooperation.”¹  

Barnett’s statement, however, fails to answer an important question: Why was Stolt-Nielsen the first corporation to have its amnesty revoked when it made numerous efforts to terminate its anticompetitive conduct and provided the Antitrust Division with incriminating information on its co-conspirators that resulted in over $62 million in fines and jail time for executives? Indeed, the U.S. District Court for the Eastern District of Pennsylvania could not find an answer to this question and ultimately dismissed the indictments against Stolt-Nielsen and its executives. Although the Antitrust Division’s pursuit of Stolt-Nielsen was perplexing and fundamentally unfair, it should not discourage a corporation from availing itself of the Corporate Leniency Program. The benefits of the Program are enormous and cannot be forgotten amidst the Antitrust Division’s strange actions in the Stolt-Nielsen case. Corporations should take comfort in the district court’s clear message to the Antitrust Division: A deal is a deal.

How Does a Corporation Qualify for Corporate Leniency?

In August 1993, the Antitrust Division overhauled its Corporate Leniency Policy. In its current form, amnesty is automatic to the first corporation that self-reports its criminal activity to the Antitrust Division and provides incriminating information about its co-conspirators. The Antitrust Division also created an “alternative amnesty” where corporations are still eligible for amnesty after an investigation has begun. Additionally, if a corporation qualifies for automatic amnesty, then all of its cooperating directors, officers, and employees also receive automatic amnesty.² 

Assuming that an investigation has not begun, a corporation must meet six conditions to qualify for corporate leniency: (1) it must be the first to report the illegal activity; (2) it must terminate its role in the activity after discovering the illegal activity has been reported; (3) it must report the wrongdoing with complete honesty and provide full, complete, and continuing cooperation to the Antitrust Division throughout the investigation; (4) the confession of wrongdoing must be a corporate act and not isolated confessions from individual executives or officials; (5) if possible, it must make restitution to injured parties; and (6) it must neither coerce another party to participate in the activity nor be “the” leader or originator of the activity. If the Antitrust Division has already started an investigation, however, then it will consider whether it has sufficient evidence against the corporation that could result in a sustainable conviction. It will also determine whether granting leniency would be fair to others when considering the nature of the illegal activity, the corporation’s role, and when the corporation comes forward.³ 

In various speeches and seminars, the Antitrust Division has clarified some of the requirements for entry into the Corporate Leniency Program. For example, the Antitrust Division will generally consider a corporation to have “discovered the illegal activity” when the board of directors or legal counsel is informed about the illegal conduct. If all the board members are conspirators, then the corporation can still qualify under the Leniency Policy if the activity is terminated soon after legal counsel is informed.⁴ 

Additionally, for the confession of “wrongdoing” to be a corporate act and for the cooperation to be full, continuing, and complete, the Antitrust Division considers whether the corporation took all reasonable steps to cooperate with its investigation. Even if a corporation cannot secure the cooperation of all its significant employees, the Antitrust Division may still grant amnesty depending on the number and significance of the individuals who did not cooperate and the steps that the corporation has taken to secure their cooperation.⁵ 

The Antitrust Division has also clarified what it means for a corporation “to be the originator or leader in an activity.” The Antitrust Division explained that if corporate conspirators are viewed as co-equals or there are two or more conspirators who are viewed as leaders or originators, then the corporation will not be prevented from participating in the Corporate Leniency Program. If, however, there is one clear leader in the conspiracy, then that one corporation will not qualify for leniency under the Program.⁶ 

How Does a Corporation Perfect Its Amnesty Application?

If the corporation is the first in line to report criminal conduct, then the Antitrust Division will place a “marker.” The marker is significant because it ensures that no other corporation can “skip over” the first amnesty applicant. After a “marker” is placed, the corporation is given a certain period of time to complete its investigation and report its findings to the Antitrust Division.⁷ 

Other Related Amnesty Programs

Amnesty Plus and Penalty Plus
If a corporation is negotiating a plea agreement with the Antitrust Division and has knowledge about a second, unrelated conspiracy, the corporation has an incentive not to disclose the second conspiracy because it may fear that disclosing the second conspiracy will adversely affect its original plea agreement. The Amnesty Plus and Penalty Plus Programs not only eradicate this fear, but threaten punishment if the corporation does not disclose the second conspiracy.

Specifically, under the Amnesty Plus Program, if a corporation cooperates in the second conspiracy, it will receive amnesty, pay nothing in fines for its participation in the second offense, and its cooperating officers, directors, and employees will not be prosecuted in relation to the second offense. The corporation will also receive a substantial fine reduction for its participation in the first conspiracy.

If a corporation decides not to take advantage of the Amnesty Plus Program, it faces serious consequences under the Penalty Plus Program. Specifically, the Antitrust Division may recommend to the sentencing court a fine for the corporation and jail sentences for the corporate executives with respect to the second antitrust offense at or above the Sentencing Guidelines. The Antitrust Division has explained the severe consequences for failing to report under the Amnesty Plus Program:

For a company, the failure to self-report under the Amnesty Plus program could mean the difference between a potential fine as high as 80 percent or more of the volume of affected commerce versus no fine at all on the Amnesty Plus Program. For the individual, it could mean the difference between a lengthy jail sentence and avoiding jail altogether.⁸ 

Individual Leniency
In addition to the Amnesty and Penalty Plus Programs, the Antitrust Division created the Individual Leniency Program. The Individual Leniency Program is available to corporate employees who approach the Antitrust Division on their own behalf and report anticompetitive activity. Individuals who cooperate through this program receive amnesty and a promise of non-prosecution for the anticompetitive conduct that they report.⁹  

The Individual Leniency Program provides a high incentive for corporations to immediately report their anticompetitive conduct because if a corporation delays reporting, it puts itself in a race for leniency with its own employees.¹⁰ Additionally, as a result of the Antitrust Division’s “carve out policy,” a corporate executive has even more incentive to quickly report a corporation’s illegal conduct to avoid incarceration. Under the “carve out policy,” if a company comes forward too late in an investigation, there is a risk that its officers, directors, and employees will be “carved out” of the non-prosecution protection in the plea agreement.

Thus, to avoid the harsh effects from the Individual Leniency Program and “carve out policy,” a corporation should immediately apply for the Corporate Leniency Program. If the corporation qualifies for corporate leniency, then it and all of its cooperating employees will be protected. The Individual Leniency and “carve out” policies may protect the employees, but will leave the corporation “out in the cold.”

Success of the Corporate Leniency Policy
Since the Antitrust Division overhauled its Corporate Leniency Program in 1993, cooperation from leniency applicants has resulted in nearly $4 billion in criminal fines and numerous criminal convictions.¹¹ The steady increase in leniency applications is a result of the high financial incentive that corporations have in seeking amnesty. For example, in an antitrust investigation involving the graphic electrode industry, the second company in the door after the amnesty applicant paid a $32.⁵ million fine, the third company paid a $110 million fine, and the fourth company paid $135 million. Additionally, two U.S. executives were sentenced to lengthy prison terms and paid over $2 million in fines while a German executive was fined $10 million.¹² 

The Stolt-Nielsen Saga

In 1998, Stolt-Nielsen entered into a customer allocation conspiracy with Odfjell Seachem and Jo Tankers. As part of the agreement, Stolt-Nielsen and its co-conspirators agreed to refrain from competing for customers on deep-sea trade routes allocated to the other parties.

Before 2001, Andrew Pickering, manager of Stolt-Nielsen’s Tanker Trading Division, implemented the conspiratorial agreement. In February 2001, Richard Wingfield replaced Pickering and assumed responsibility for the conspiracy. In early 2002, Paul O’Brien, then senior vice president and general counsel of Stolt-Nielsen, found a copy of an April 2001 memorandum from Bjorn Jansen, Stolt-Nielsen’s business director, to Wingfield, weighing the advantages and disadvantages of competing with Odfjell. After reading the memorandum, O’Brien reported his concerns about antitrust compliance to Stolt-Nielsen’s chairman and subsequently resigned in March 2002.

Beginning in February 2002, CEO Reginald Lee took numerous actions to terminate Stolt-Nielsen’s anticompetitive conduct. Specifically, Stolt-Nielsen instituted an antitrust compliance policy that prohibited collusive contacts with competitors. The policy was distributed to Stolt-Nielsen employees and competitors. Additionally, several seminars were held around the world that informed and trained employees about the antitrust compliance policy. Stolt-Nielsen also began to compete vigorously with Odfjell and Jo Tankers.

On January 8, 2003, John Nannes, an attorney for Stolt-Nielsen, made a proffer to the Antitrust Division in which he described the customer allocation conspiracy and provided copies of the customer allocation lists. Soon thereafter, the Antitrust Division entered into a leniency agreement with Stolt-Nielsen. The agreement stated that in exchange for Stolt-Nielsen’s cooperation, the Antitrust Division would not bring any criminal prosecution against Stolt-Nielsen for any act that it may have committed before January 15, 2003, the date of the amnesty letter. After receiving the promise of leniency, Stolt-Nielsen provided the Antitrust Division with voluminous amounts of incriminating information about the conspiracy. Based upon this information, the Antitrust Division successfully prosecuted Odfjell and Jo Tankers. Odfjell was fined $42.5 million; its executives both served prison terms and were personally fined. Jo Tankers was fined $19.5 million; its co-managing director served a prison term and was personally fined.

On April 8, 2003, the Antitrust Division notified Stolt-Nielsen that it had obtained information that Stolt-Nielsen had continued its illegal activity as late as the second half of 2002. Believing that Stolt-Nielsen violated the amnesty agreement, the Antitrust Division arrested Wingfield and formally revoked Stolt-Nielsen’s amnesty. In February 2004, Stolt-Nielsen and Wingfield brought a civil action seeking to bar the Antitrust Division from prosecuting the company and its executives.

On January 14, 2005, a district court in the Eastern District of Pennsylvania issued an order that enjoined the Antitrust Division from revoking Stolt-Nielsen’s amnesty.¹³ The Third Circuit, however, reversed on the ground that separation of powers prevented the district court from enjoining the Antitrust Division from indicting Stolt-Nielsen. If, however, Stolt-Nielsen asserted the leniency agreement as a defense after indictment, the Third Circuit stated that the reviewing court must then: (1) consider the agreement anew, (2) determine the date on which Stolt-Nielsen discovered the anti-competitive activity, if reported, (3) consider Stolt-Nielsen’s subsequent actions, and (4) determine whether Stolt-Nielsen fulfilled its obligation to take prompt and effective action to terminate its part in the anticompetitive activity.¹⁴ 

Pursuant to the Third Circuit’s holding, after Stolt-Nielsen and its executives were indicted, the district court held an evidentiary hearing to determine whether Stolt-Nielsen met the four-part test.¹⁵ The court held that Stolt-Nielsen took prompt and effective action to terminate its part in the conspiracy after discovering its anti-competitive conduct. Specifically, after O’Brien reported his concerns to Stolt-Nielsen’s chairman in early 2002, Stolt-Nielsen instituted a comprehensive antitrust policy. Expert testimony confirmed that the antitrust compliance policy effectively severed the internal company communication pathways that made it possible for Stolt-Nielsen to implement the conspiracy. Additionally, Stolt-Nielsen engaged in genuine competition with Odfjell and Jo Tankers, despite Odfjell’s complaints and demands that Stolt-Nielsen withdraw its bids.

The court further held that the Antitrust Division failed to produce any credible evidence that Stolt-Nielsen’s participation in the customer allocation conspiracy continued past March 2002. The court found that the Antitrust Division’s case rested on very questionable sources – employees of Jo Tankers and Odfjell whose testimonies were contradictory and uncorroborated by documentary evidence. Furthermore, each Odfjell and Jo Tankers witness that testified against Stolt-Nielsen received individual or corporate cooperation agreements that promised immunity or reduced sentences. Accordingly, the Antitrust Division’s witnesses had a strong motive to seek leniency and to retaliate against Stolt-Nielson for implicating them in the conspiracy. Thus, after considering the leniency agreement anew, the court concluded that the Antitrust Division had no reasonable basis to revoke the agreement and, therefore, ordered the dismissal of the indictments.

The Stolt-Nielsen case demonstrates that courts will not allow the Antitrust Division to renege on a leniency agreement unless it has extraordinary reasons for doing so. The Antitrust Division’s actions in this case are perplexing and fundamentally unfair. As the district court noted, the Antitrust Division clearly received the benefit of its bargain because it accepted volumes of incriminating information from Stolt-Nielsen that resulted in prison terms and over $62 million in fines. The Antitrust Division, however, then revoked Stolt-Nielsen’s immunity by soliciting cooperation from the very same co-conspirators whom Stolt-Nielsen had implicated in exchange for amnesty. By dismissing the indictments against Stolt-Nielsen and its executives, the district court ensured that Stolt-Nielsen received the benefit of its bargain. The decision also reassures corporations that the Antitrust Division will not be allowed to “milk” a corporation for incriminating information, use that information to prosecute a corporation’s co-conspirators, and then later use that same information against the cooperating corporation on a flimsy assertion of an amnesty agreement breach.

Corporate Lesson From Stolt-Nielsen

To prevent a Stolt-Nielsen dilemma, a corporation should ensure that the amnesty agreement states the date of discovery – the date that triggers its duty to take prompt and effective action to terminate all anticompetitive activity. In the Stolt-Nielsen case, the Antitrust Division identified March 2002 as the date of discovery, but never mentioned this date in the amnesty agreement. Because the Antitrust Division believed that Stolt-Nielsen continued to conspire until November 2002, it voided the leniency agreement. If a corporation inserts a specific date of discovery into the amnesty agreement, then it minimizes the risk that the Division will revoke amnesty where anticompetitive conduct occurs before the date of discovery. A specific date of discovery also places the corporation on notice that if it continues its anticompetitive conduct past the date of discovery, then it will face a possible amnesty revocation.

Of course, it is not always possible for a corporation to provide an exact date of discovery. If this is the case, then the corporation should set forth a date range or a provision in the agreement stating that it does not know for certain whether anticompetitive conduct has ceased, but that it has made good faith efforts to do so. That way, the corporation protects itself should the Antitrust Division claim an amnesty agreement breach.

Conclusion

If a corporation discovers that it is engaging in anticompetitive activity, it should consider an immediate application under the Corporate Leniency Program. Its failure to do so could result in higher fines and likely jail time for its executives. The Stolt-Nielsen saga should not, however, discourage a corporation from using the Corporate Leniency Program. The district court’s decision reassures a corporation that it will receive the benefit of its bargain and is a strong reminder to the Antitrust Division that “a deal is a deal.”

Notes

1. Press Release, U.S. Dep’t of Justice Antitrust Div., Stolt-Nielsen Indicted on Customer Allocation, Price Fixing, and Bid Rigging Charges for Its Role in an International Parcel Tanker Shipping Cartel (Sept. 6, 2006) available at http://www.usdoj.gov/atr/public/press_releases/2006/ 218199.htm.
2. Gary R. Spratling, Antitrust Div., U.S. Dep’t of Justice, The Corporate Leniency Policy: Answers to Recurring Questions, Remarks at the ABA Antitrust Section 1998 Spring Meeting (Apr. 1, 1998), available at http://www.usdoj.gov/atr/public/speeches/1626.htm.
3. See Antitrust Div., U.S. Dep’t of Justice Corporate Leniency Policy, available at http://www.usdoj.gov/atr/public/guidelines/0091.htm.
4. See supra note 2.
5. See supra note 2.
6. See supra note 2.
7. Scott D. Hammond, Antitrust Div., U.S. Dep’t of Justice, When Calculating the Costs and Benefits of Applying for Corporate Amnesty, How Do You Put a Price Tag on Freedom?, Remarks at ABA National Institute on White Collar Crime (Mar. 8, 2001), available at http://www.usdoj.gov/atr/public/speeches/7647.htm.
8. Scott D. Hammond, Antitrust Div., U.S. Dep’t of Justice, A Summary Overview of the Antitrust Division’s Criminal Enforcement Program, Remarks at New York State Bar Association Annual Meeting (Jan. 23, 2003), available at http://www.usdoj.gov/atr/public/speeches/200686.htm.
9. Scott D. Hammond, Antitrust Div., U.S. Dep’t of Justice, Cornerstones of an Effective Leniency Program, Remarks at ICN Workshop on Leniency Programs, Sydney, Australia, (Nov. 22, 2004) available at http://www.usdoj.gov/atr/public/speeches/206611.htm.
10. The Individual Leniency Program does not apply to former employees. The Antitrust Division is under no obligation to grant leniency to cooperating former employees, but does have the power to agree not to prosecute former employees. See supra note 2.
11. Scott D. Hammond, Antitrust Div., U.S. Dep’t of Justice, Recent Developments, Trends, and Milestones in the Antitrust Division’s Criminal Enforcement Program, Remarks at ABA Cartel Enforcement Roundtable Fall Forum (Nov. 16, 2007), available at http://www.usdoj.gov/atr/public/speeches/227740.htm.
12. See supra note 11.
13. Stolt-Nielsen v. United States, 352 F. Supp. 2d 553 (E.D. Pa. 2005).
14. Stolt-Nielsen v. United States, 442 F.3d 177 (3d Cir. 2006).
15. United States v. Stolt-Nielsen, 524 F. Supp. 2d 609 (E.D. Pa. 2007).