Source: http://www.justice.gov/atr/public/speeches/4011.htm
Timestamp: 2013-12-11 14:08:33
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Matched Legal Cases: ['in fine', '§ 3571', '§ 8', '§ 8', '§ 8', '§ 8', 'in fine', '§ 3571', '§ 3571', '§ 3571', '§ 8', '§ 8', '§ 3571']

"The Trend Towards Higher Corporate Fines: It's a Whole New Ball Game"
The Eleventh AnnualNATIONAL INSTITUTE ON WHITE COLLAR CRIMEPresented By The
"THE TREND TOWARDS HIGHER CORPORATE FINES:IT'S A WHOLE NEW BALL GAME"
Gary R. SpratlingDeputy Assistant Attorney GeneralAntitrust DivisionU.S. Department of Justice
Presented atThe Marriott HiltonNew Orleans, Louisiana
THE TREND TOWARDS HIGHER CORPORATE FINES:IT'S A WHOLE NEW BALL GAME
The trend towards increasingly larger fines in criminal antitrust enforcement has
resulted in the realization by the business community and the bar that criminal antitrust
enforcement now involves a whole new order of magnitude in terms of its seriousness. For
example, in an October 1996 Wall Street Journal article titled "ADM's $100 Million Price-Fixing Fine Blows Lid Off Usual Maximum Penalty," the paper reported that: "The ADM
case marks a turning point in the way antitrust officials treat price fixers." In considering
the significance of this trend, I will address: (1) how the landscape for calculating corporate
fines is changing; (2) why it is changing; (3) why a $100 million fine in a criminal antitrust
case is not an aberration but, instead, a sign of things to come; and (4) the increasing
importance, in terms of potential reduction of huge fines, of cooperating with the
government in antitrust investigations.
The historic $100 million fine recently imposed on Archer Daniels Midland
Company ("ADM") for its participation in two international antitrust conspiracies in the
food and feed additives industry is widely viewed as a singular achievement for criminal
antitrust enforcement. To be sure, the record-breaking fine created a new, much higher
summit in the landscape for sentencing corporations in antitrust prosecutions. However, it
would be wrong to assume that this is a single pinnacle or that the trend towards higher
fines is based on only one precedent-setting fine. Rather, ADM's fine is consistent with a
clear pattern of increasingly higher fines for antitrust offenses.
In fact, in the past year, the trend towards higher fines has resulted in the creation
of a popular new fraternity -- the $10,000,000 Club. The initiation fee for joining the Club
is a check for at least $10,000,000 made payable to the United States Treasury. The Club
already has seven charter members and will be opening its doors to new membership in the
coming months, as a number of firms are trying to confirm their reserved places in the
fraternity by submitting checks for even more than the minimum $10,000,000.
As I will demonstrate later, membership in the Club is not exclusive or limited to the
ADM's of the world. Rather, any company that engages in a criminal antitrust conspiracy
involving as little as $25 million in affected commerce is eligible for club membership.
Statistical Trends First, I will present some statistics to demonstrate the trend towards increasingly
higher fines in criminal antitrust enforcement. These numbers are based on the little over
five-year time period from November 1, 1991 to date as our frame of reference. November
1, 1991 is a key date in this analysis, because it is the date on which the United States
Sentencing Guidelines for organizations were amended, a major factor in the rise in
corporate fines. Higher Average Fines. In FY 1991, the average corporate fine for an antitrust
offense was a little less than $320,000. Even without including the more than $170,000,000
in fines agreed to or imposed on defendants in the food and feed additives investigations in
the past six months, the average fine imposed on an organization has more than tripled
when compared to the period FY 1995 to date -- when corporate fines averaged over
$1,000,000. When the food and feed additives fines are included in this equation, the
average fine imposed on corporations since FY 1995 is roughly $3.1 million, a nearly ten-fold increase since FY 1991. Higher Top-End Fines. Five years ago, the largest corporate fine ever imposed for a
single Sherman Act count was $2 million. However, in the past couple years, fines of over
$2 million have become commonplace. (See Attachment 1).
Last year ICI Explosives USA was the first firm to pay the $10,000,000 Sherman Act
statutory maximum for its role in a price-fixing conspiracy involving commercial
explosives. One month later, the second conspirator to cooperate in that case, Dyno Nobel,
raised the bar again by agreeing to plead guilty to a two-count information and pay a fine
of $15,000,000. As we have stated publicly before, the fines for both ICI and Dyno Nobel
would have been higher but for their cooperation in the continuing investigation.
Of course, that record as the largest fine also was short lived. It fell when ADM
established a new standard for corporate fines by agreeing to pay the $100 million fine in
October 1996. Last month Haarmann & Reimer Corporation confirmed that the
landscape for corporate fines is now at higher overall elevations by agreeing to pay a $50
million fine for its participation in the citric acid conspiracy. In the first five months of FY 1997, the Antitrust Division has obtained fines in
excess of $185 million. (See Attachment 2).
Reasons For Increasing Penalties
Factors. A number of factors are responsible for the increasingly heavy sentences
for Sherman Act violations. Some of these factors, as explained below, are recent and,
therefore, their full impact on sentencing is just beginning to materialize. The factors
the increase in the Sherman Act maximum fine from $1 million to $10 million per
count in November 1990;
the application of the new antitrust sentencing guidelines to corporate offenders in
the use of the double the gain/double the loss standard in 18 U.S.C.
§ 3571(d) to fine a defendant in excess of the $10 million Sherman Act cap;
the reallocation of Division resources to focus on national and international cases
involving larger volumes of commerce; and
the change in perception by judges as to the seriousness of antitrust crimes. Perhaps the most instructive way to illustrate these factors is to examine their
application in three sentencing hearings in the last year: the contested sentencing of Mrs.
Baird's Bakeries and the jointly recommended sentences of ADM and Haarmann &
Mrs. Baird's Bakeries was found guilty at trial and in May 1996 was sentenced to
pay a $10 million fine after a contested sentencing hearing. The fine in that case was many
times higher than the previous court imposed record fine (as distinguished from an agreed-upon fine in a plea agreement). The Court rejected defendant's motion to depart below the
$10 million statutory maximum, placed the defendant on probation for five years, required
the corporation to provide 2,500 hours of community service "directed to the type of
offense involved," and instructed the defendant to present to the Court and the government
by a date certain a proposed plan of community service. A Hypothetical Case
Without getting overly bogged down in the mechanics of the Sentencing Guidelines,
the following calculations show how easily a company can find itself paying a fine of $10
million based on, say, only $30 million in affected sales. Base Fine. Section 2R1.1(d)(1) instructs that for an antitrust offense, in lieu of
pecuniary loss, use 20 percent of the volume of commerce affected by the offense in
establishing a base fine. Thus, if the volume of affected commerce attributable to a
hypothetical corporate defendant is $30 million, the company begins with a base fine of $6
million. Culpability Score. Section 8C2.6 provides that the base fine (i.e., 20%) may be
reduced by as much as one-quarter when the minimum antitrust multiplier of .75 is used
(i.e., to 15%) or raised by as much as a factor of 4 (i.e., to 80%) depending on a defendant's
culpability score. For purposes of this exercise, assume our hypothetical company has a
culpability score of 8 based on the following factors: (1) the company receives a 4-point
upward adjustment because it has more than 1,000 employees but less than 5,000, and a
high-level executive participated in the conspiracy (§ 8C2.5(b)(2)), and (2) the company
receives a 1-point reduction because it accepted responsibility and pled guilty but did not
provide timely cooperation (§ 8C2.5(g)(2) and (g)(3)).
Scenario I. A culpability score of 8 results in a multiplier range of 1.6 to 3.2. Assuming no other mitigating or aggravating factors exist, our company (with a base fine
of $6 million) has a sentencing range of $9.6 million to $19.2 million. (See Attachment 3).
Scenario II. If the facts are changed slightly and our hypothetical company does not
deserve credit for affirmative acceptance of responsibility, the loss of the 1-point downward
adjustment nets a culpability score of 9, a multiplier range of 1.8 to 3.6, and a resulting fine
range of $10.8 million to $21.6 million. (See Attachment 3). Scenario III. Consider one final variance on the case of the hypothetical company
by assuming (1) that the same organization had designed, implemented, and enforced an
"effective" compliance program, as defined in the Sentencing Guidelines, and was entitled
to a 3-point reduction pursuant to § 8C2.5(f), and (2) that the organization provided full
and timely cooperation in the investigation and was entitled to another 2-point reduction
under § 8C2.5(g)(2). These reductions would result in a culpability score of 4, a multiplier
range of 0.8 to 1.6, and an ensuing fine range of $4.8 million to $9.6 million for the
organization. In which case, the company's minimum fine would be reduced by $6 million
and its maximum fine would be reduced by $12 million as compared to the prior scenario. (See Attachment 3). Corporate Amnesty. Although I will not take the time here to fully discuss the value
of corporate compliance programs and the benefits of the Division's Corporate Leniency
Policy, I would be remiss if I didn't take this opportunity to make a single point -- which is
made painfully clear from the three sentencing scenarios I have described for the
hypothetical company or, if you will, from the fate of ADM. The Division's amnesty
program was designed to reward companies that report violations where they are detected,
whether through a compliance program or otherwise, and then cooperate in the ensuing
investigation. Companies that qualify for amnesty pay zero dollars in fines. However,
companies that do not report misconduct and are then caught will face severe fines under
the Sentencing Guidelines -- even, as the above hypothetical demonstrates, companies that
do not have large sales.
The Statutory Maximum Fine Under 18 U.S.C. § 3571(dFor A Criminal Antitrust Violation Is Twice The GainTo, Or Loss Caused By, The Cartel, Not The Defendant In order to get above the $10 million Sherman Act statutory cap in the sentencing of
ADM and Haarmann & Reimer, the Division relied on the alternative fine calculation
found in 18 U.S.C. § 3571(d) which provides: "If any person derives pecuniary gain from
the offense, or if the offense results in pecuniary loss to a person other than the defendant,
the defendant may be fined not more than the greater of twice the gross gain or twice the
gross loss, unless imposition of a fine under this subsection would unduly complicate or
prolong the sentencing process." Thus, the alternative maximum fine for an antitrust
violation is twice the gross gain derived from the crime or twice the gross loss suffered by
victims of the crime -- which means twice the gain derived by, or twice the loss caused by,
the cartel, not the defendant. The plain meaning of § 3571(d), which must be applied to
antitrust crimes in the same manner as to all federal crimes, is that "gross gain" equals the
total gain derived by all persons from the offense and "gross loss" equals the total loss
suffered by all persons other than the defendant as a result of the offense. This calculation
ensures that the court will always be able to impose a fine sufficient to disgorge any ill-gotten gains from a violation plus an additional sum for punishment or, alternatively, a fine
proportionate to the harm caused by the offense.
ADM's Sentencing Calculations
Turning next to the calculation of ADM's sentence, ADM's $100 million fine was
based upon a fine of $70 million for its participation in an international lysine conspiracy,
and another $30 million for conspiring with Haarmann & Reimer and others in an
international citric acid conspiracy. The Division did not present the court at ADM's
sentencing with a precise calculation of the amount of gain derived by the conspirators or
the amount of loss suffered by the victims of the crime in the lysine and citric acid
conspiracies. Rather, the amount of the fines imposed on ADM for its participation in
these conspiracies were arrived at based on a combination of four factors:
the fine range calculated under the Sentencing Guidelines for each offense;
for the lysine fine only, an estimate of the loss suffered by the victims of that
crime using the prior civil settlement of the lysine class action case as the
equivalent of single damages;
the dispositions of related matters in the investigations; and
the value of ADM's cooperation to the Division's ongoing investigations.
Calculation Of The Lysine Fine
U.S.S.G. Calculation. Applying these factors to the calculation of the $70 million
fine for ADM's participation in the lysine conspiracy worked as follows. First, the Division
calculated the volume of affected commerce (U.S. sales) to be $150 million -- 20 percent of
which results in a base fine of $30 million. Next, the Division recommended that ADM
receive a culpability score of nine. This tally took into account a 5-point upward
adjustment under § 8C2.5(b)(1)(B) based on the involvement of high-level executives at
ADM in the offense and a 1-point reduction under § 8C2.5(g)(3) based on the fourth factor
described above, ADM's acceptance of responsibility in the lysine investigation. ADM's
culpability score of 9 resulted in a multiplier range of 1.8 to 3.6 and, based on the $30
million base fine, a fine range of $54 million to $108 million. (See Attachment 4). Estimate Of Loss Suffered By Victims. Next, the Division looked to the $45 million
civil settlement by the purchasers of lysine in the class action as an approximation of single
damages caused by ADM and its co-conspirators (not twice ADM's civil settlement of $25
million). Twice the total civil settlement amount provides a maximum fine under the
alternative fine statute of $90 million. $70,000,000 Fine. Thus, based on the minimum fine calculated from the U.S.S.G.
guideline range and the maximum fine allowable under our estimate of loss to the victims,
the Division represented to the Court that the fine range was $54 million to $90 million. And, of course, the $70 million fine imposed on ADM for the lysine conspiracy falls
squarely in the middle of that range. Furthermore, ADM's fine is, appropriately,
significantly higher than the fines paid by ADM's co-conspirators who provided more
timely cooperation to our investigation. Calculation Of The Citric Acid Fine
U.S.S.G. Calculation. Turning next to the calculation of the $30 million fine
imposed on ADM for its participation in the citric acid conspiracy, the rationale was as
follows. First, the Division calculated that the volume of affected commerce was $350
million -- 20 percent of which results in a base fine of $70 million. This time, because of
ADM's early cooperation, it received a 2-point reduction (and a lot more; see below), and
received a culpability score of 8 for purposes of calculation of the guidelines range. As a
result, the multiplier range was 1.6 to 3.2 and, based on the $70 million base fine, the
U.S.S.G. fine range was $112 million to $224 million. (See Attachment 4). Estimate Of Gain Or Loss. The Division did not provide the sentencing court with
an estimate of gain derived by ADM and its co-conspirators or the loss suffered by the
victims. This would have been difficult because ADM's cooperation was early and,
therefore, the government had not concluded its investigation; and, furthermore, it was
unnecessary because ADM was entitled to a departure from the U.S.S.G. range based on its
substantial assistance in the citric acid investigation. ADM's $30 million fine on the citric
acid count, although stiff, would have been many multiples greater if ADM had not been
the first citric acid conspirator to agree to plead guilty and cooperate in our investigation. Haarmann & Reimer's Sentencing Calculations
U.S.S.G. Calculation. Haarmann & Reimer's estimated volume of affected
commerce from its participation in the citric acid conspiracy was $400 million -- 20 percent
of which results in a base fine of $80 million. In calculating Haarmann & Reimer's
culpability score, it received a 5-point upward adjustment from the base fine of 5 because
of the involvement of high-level executives in the offense and earned a 2-point reduction for
its timely cooperation resulting in a culpability score of eight. As a result, the multiplier
range was 1.6 to 3.2 and, based on the $80 million base fine, the U.S.S.G. fine range was
$128 million to $256 million. (See Attachment 5). Estimate Of Gain Or Loss. As with the calculation of the fines imposed on ADM,
the Division was not far enough along in its investigation to present the court with an exact
calculation of the gross gain or gross loss caused by the citric acid conspiracy. Moreover, a
precise calculation was unnecessary because Haarmann & Reimer received a departure
from the guidelines range based on its substantial assistance and, as described below, for its
role in securing the cooperation of others in the citric acid investigation. Instead, the
Division provided the sentencing court with Haarman & Reimer's sentencing guideline
range for the offense, and both parties jointly recommended that the $50 million was an
appropriate fine under 18 U.S.C. § 3571(d). Haarmann & Reimer's U.S.S.G. calculation
demonstrates how easily the $100 million mark could be broken in future antitrust
prosecutions, and likely would have been broken here if Haarmann & Reimer had not
decided to plead guilty and cooperate.
As described above, the Division recommended that the court depart from the
guidelines in sentencing Haarmann & Reimer based on its cooperation and substantial
assistance in the citric acid investigation. However, in determining the amount of the
departure, the Division gave Haarmann & Reimer additional credit based on the
company's significant role in securing the cooperation of other co-conspirators; that is,
Haarmann & Reimer encouraged other companies involved in the conspiracy to come
forward and cooperate. This case represents the first time that the Division has recognized
this type of cooperation. A firm that is cooperating and providing substantial assistance,
and therefore is deserving of a reduction in the fine imposed, will receive a separate,
cumulative reduction for securing the cooperation of others if: (1) that firm was the first to
take steps to encourage its co-conspirators to cooperate with the government; and (2) that
firm's encouragement was both significant and effective in causing one or more conspiring
firms to report their involvement in the conspiracy, cooperate in the investigation, and
accept responsibility. The Division anticipates that the new policy will have a positive impact on the detection, investigation, and prosecution of criminal antitrust violations. Moreover, companies who chose to take advantage of this policy also stand to profit from it
greatly. As demonstrated by Haarmann & Reimer's plea agreement, the reward for such
cooperation may be worth tens of millions of dollars.
The Change In Perception By Judges As ToThe Seriousness Of Antitrust Crimes
Finally, the Division has observed a far greater appreciation by judges as to the
seriousness of antitrust crimes. For example, when the court imposed sentence on ADM it
said: It's not a good day for corporate America when a plea like this takes place. I'm hopeful that this black day will be overcome by the new behavior of
Archer Daniels Midland Company; that is, the behavior of cooperating with
the government in its investigation. . . . I believe that the fine certainly serves as a deterrent to any company that
might still be out there thinking that this type of behavior is acceptable.
It simply is not acceptable. For any company to engage in price fixing is a
sad day for corporate America because ultimately the consuming public are
the victims of these type of conspiracies. I'm hopeful that the fine, and I
know in my heart that the fine will deter other companies. . . . I do believe if no [sic] message went out today than the simple message of
today's proceeding is that no American company is above the law, and if a
hundred million dollars doesn't send that message, then I don't think there's
a number on God's earth that I can set that would send that message, and so
that will be the sentence of the Court.
Expect the Trend to Continue: The Food AndFeed Additives Fines Are Not An Aberration
New Ball Game. As discussed above, a $100 million fine in a criminal antitrust case
is not an aberration but, rather, a sign of things to come for companies who are not
deterred by the antitrust laws and decide to engage in price fixing or bid rigging. The food
and feed additives investigation is not unique in terms of its enormity. To the contrary, we
are currently investigating a number of matters that potentially affected larger volumes of
commerce than the lysine or citric acid conspiracies. Moreover, the full impact of several
key factors which are responsible for the increasingly heavy sentences for Sherman Act
violations is just beginning to materialize. It is a whole new ball game. An experienced
antitrust attorney, who is here today, told me a few days ago: "You guys are knocking the
cover off the ball." Well, we are going to do our best to keep our hitting streak alive.