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The Marathon Effort to Enact an Antitrust Whistleblower Statute is Still in the Race

Posted  March 21, 2019

Although proposed legislation to protect and to encourage antitrust whistleblowers has struggled for years to cross the finish line the U.S., there are signs this marathon effort may yet prove successful.

While criminal prosecution of antitrust cartels is at the core of U.S. antitrust enforcement policy, there is a missing link in that policy.  If you are a member of an antitrust cartel, the law allows you to apply for leniency to receive a reduced sentence or immunity in exchange for cooperating with the Antitrust Division of the U.S. Department of Justice (“DOJ”).  But there is very little incentive for an informant that was not involved in criminal activity to come forward.

Indeed, antitrust whistleblowers are not even afforded the most basic of protections—safeguards against retaliation.  There have efforts in Congress to remedy this gap in effective antitrust enforcement policy, including attempts by Senators Chuck Grassley (R-IA) and Patrick Leahy (D-VT) in 2013 and 2017 to enact the Criminal Antitrust Anti-Retaliation Act, which would amend the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 and provide for protection against retaliation for employees who disclose criminal violations of the antitrust laws.  Although the Criminal Antitrust Anti-Retaliation Act was passed by the Senate in 2017, it was never passed by the House.

Presently, the main incentive for antitrust co-conspirators to come forward and reveal criminal activity is the Antitrust Division’s leniency program.  However, it appears that the number of corporations and individuals charged by the Antitrust Division has been declining in recent years.  While the leniency program plays a key role in encouraging cartel members to report criminal antitrust violations, U.S. antitrust enforcement policy lacks any effective means to encourage reporting of antitrust criminal activity by nonculpable individuals who have knowledge of such misconduct.  Specifically, the leniency program provides immunity or a reduced sentence for an individual who reports his or her own participation in antitrust criminal conduct.  It does not offer any incentive to report by people who are not participants in such activity.  Each individual’s level of incentive to self-report involves a cost-benefit analysis of the likelihood that the antitrust misconduct will be discovered.  Thus, for every cartel that has been discovered through leniency there are surely many others that go undetected because a participant did not come forward and risk punishment, albeit a reduced punishment.

To address the lack of protection for antitrust whistleblowers, the U.S. Government Accountability Office has recommended that Congress consider enacting a civil remedy for individuals who are retaliated against for reporting criminal antitrust violations.  Such a statute would serve as an additional incentive for antitrust whistleblowers to come forward.

However, in order to truly be a successful antitrust whistleblower statute, such legislation should contain two features: (1) retaliation safeguards and (2) financial bounties.  The False Claims Act (“FCA”) provides an excellent framework.  Under the FCA, Relators are protected against retaliation by an employer, which incentivizes whistleblowers to come forward and report government fraud.  Whistleblowers who report antitrust misconduct should, at a minimum, be afforded the same level of protection as FCA whistleblowers.  Moreover, under the FCA, a Relator can bring a case on the behalf of the government when the government has been defrauded, potentially receiving up to 30% of the recovery.  While having retaliation safeguards for whistleblowers are important, the reality is that individuals are unlikely to jeopardize their careers and risk social stigmatization without a stronger incentive.

There are unquestionably many benefits to having financial bounties for whistleblowers.  History shows that bounties serve as a successful incentive.  After the FCA was strengthened in the mid-1980s to provide enhanced incentives for private individuals bringing qui tam actions for fraud against the government, whistleblowers became critical players in government fraud enforcement.

The prospect of a financial bounty makes it less likely that an employee will collude with a corrupt employer or accept bribes to keep quiet.  A financial bounty in the antitrust sphere would also serve as a complement to the leniency program, as companies will have more incentive to self-report cartel activity rather than risk being discovered through a whistleblower.  Logically, this would also incentivize companies to have more robust internal monitoring programs.

Critics of providing financial incentives for antitrust whistleblowers have cited concerns with the potential that whistleblowers will bypass their company’s internal compliance reporting schemes.  To the contrary, studies show that whistleblowers typically first bring misconduct to the attention of their companies before approaching the government.  In fact, this further underscores the importance of having adequate protection against retaliation for antitrust whistleblowers.

Another criticism of providing financial bounties for antitrust whistleblowers is that it would undercut a whistleblower’s credibility to testify as a witness.  However, this has not been an issue for qui tam whistleblowers.  In fact, if anything, this would be less of a problem for an antitrust whistleblower, as antitrust trials often feature economic analysis, which could support a whistleblower’s testimony.  Providing immunity for an insider via the leniency program, which has proven to be quite successful, is arguably just as much of an incentive as a financial bounty.

Moreover, an informant can significantly contribute to a prosecution even if he or she does not testify at trial.  Employees who have knowledge of cartel activity, but are not participants, are in an ideal position to provide evidence of the anticompetitive conduct to enforcement agencies, including through the provision of incriminating documents.  When there is little documentary evidence—due to a cartel’s care in leaving no paper trail—informants can provide essential leads for an enforcement agency to follow.  Informants can assist with identifying the participants of an antitrust conspiracy and suggest the type of evidence an enforcement agency should seek through discovery.  There have even been cases where some informants have recorded meetings demonstrating cartel activity in an effort to cooperate with enforcers.  Therefore, with an informant’s help, sometimes the enforcers are provided with such strong evidence that the case does not even result in a trial.

Internationally, there have been efforts to provide comprehensive antitrust whistleblower statutes in other jurisdictions, as leniency programs have seen a decrease in applications due to the increase of private damages actions.  Notably, the United Kingdom, Hungary, and South Korea have enacted whistleblower reward programs.  While these programs are relatively new and their long-term benefits on cartel reporting remain to be seen, they are promising indicators of this approach.

The European Union has also made strides to strengthen reporting on breaches of competition law, introducing an anonymous whistleblower tool in March 2017.  Just last week, the EU announced that the European Parliament and member states have reached a provisional agreement on new rules that will guarantee a high level of protection for whistleblowers who report breaches of EU law.  Up to now, member states have been fragmented in the level of legal protection they provided.  While competition law was not explicitly referenced, it was discussed extensively in the April 2018 draft Directive and is presumably covered by this provisional agreement.  The new rules provide protection for whistleblowers through both internal and external reporting channels.  Depending on the circumstances of the case, whistleblowers will be able to choose whether to first report violations internally or go directly to the enforcement agencies.  These rules even take it one step further, allowing a whistleblower to directly approach the public if there no action is taken in response to the whistleblower’s complaint or if he or she believes there is an imminent danger to the public interest or a risk of retaliation.

The new EU rules explicitly prohibit retaliation and provide remedies if a whistleblower experiences reprisals.  The EU rules are a major step in the right direction and set the stage for the U.S. to enact legislation that, at the very least, prohibits retaliation for reporting anticompetitive conduct.

The increasing globalization of markets and ever complicating business models make whistleblowers crucial to successfully obtaining insider knowledge of anticompetitive conduct.  Recent cases highlight the significance of developing an antitrust whistleblower statute, especially when conspiracies transcend U.S. borders.

This past November, the DOJ secured $236 million from three South Korean companies involved in a conspiracy to rig bids and fix prices by overcharging the U.S. government on contracts to supply fuel to U.S. military bases in South Korea.  The case was filed under the qui tam provisions of the FCA.  Notably, the whistleblower “was integral to exposing what is now the largest-ever False Claims Act antitrust recovery.”  However, if this case did not have an FCA hook, the whistleblower may have not had the incentive to spur the investigation—and these antitrust violations may have gone undetected.

With the expansion of multijurisdictional antitrust enforcement, and the U.S. treatment of horizontal price-fixing cartels as per se illegal, cartel members have increasingly strong incentives to avoid detection.  This makes encouragement of antitrust whistleblowers essential to effective antitrust enforcement in the present day.  Legislation in the U.S. that motivates whistleblowers to police antitrust misconduct is critical to closing the enforcement gap.  The ball is now in Congress’ court.

Edited by Gary J. Malone