The High Price Of Leniency For Stolt-Nielsen

"The High Price Of Leniency For Stolt-Nielsen" was

published in Competition Law 360, May 9, 2008

The U.S. Department of Justice Antitrust Division's

Corporate Leniency Program ("Leniency Program") has

long been instrumental in the Antitrust Division's crusade

against antitrust violators, with antitrust violators entering

the Leniency Program at rates as high as two per month and

resulting in the prosecution of some of the Antitrust

Division's biggest cases.1

Many Leniency Program applicants walk away owing no fines,

facing substantially lowered civil liability, and with

agreements protecting their executives from prosecution.

Their former co-conspirators, on the other hand, are left

potentially facing hundreds of millions of dollars in fines and

lengthy prison terms.

This is what Leniency Program participants expect, but the

path to corporate leniency is not always smooth.

Stolt-Nielsen, a Luxembourg shipping company, understands

just how rough the road to leniency can be. Stolt-Nielsen

sought and received leniency, only later to have it revoked by

the Antitrust Division. The company and its officers were

thereafter indicted.

Leniency was replaced with aggressive prosecution for nearly

two years at which point the indictment was dismissed based on

Stolt-Nielsen's participation in the Leniency Program.

Until the indictment was dismissed at the end of 2007, some

questioned the very integrity of the Leniency Program. But even

while courts were grappling with these questions in 2007, the

Leniency Program had one its best years ever from the

perspectives both of cooperators who avoided prosecution and of

the Antitrust Division which drew some of its biggest cases

from the Leniency Program.2

Although the Leniency Program appears alive and well,

potential leniency applicants never forget the lessons to be

learned from Stolt-Nielsen's fight over the Leniency

Program. Potential applicants ignore these lessons at their

peril. The Stolt-Nielsen litigation offers valuable lessons in

evaluating the value and requirements of the Leniency

Program.

Stolt-Nielsen's Long Road To Leniency

Background

Stolt-Nielsen SA, a Luxembourg shipping company,

participated in a customer-allocation, price-fixing and

bid-rigging conspiracy with two other shipping companies,

Odfjell Seachem AS and Jo Tankers3 - a classic

per se antitrust violation with serious exposure for criminal

fines and jail time.

When responsible officials at Stolt-Nielsen discovered the

violation, the company sought and received protection under the

Leniency Program.4

Participation in the Leniency Program depends on the

applicant's ability to satisfy several conditions. Where an

investigation has not yet begun (that is, the applicant's

self-reporting is truly the cause of a subsequent investigation

by the Division), leniency may be granted under the following

conditions:

(1) the Division has not received information about the

illegal activity from any other source;

(2) on discovering the illegal activity, the applicant

"took prompt and effective action to terminate its part in

the activity";

(3) the applicant reports the wrongdoing "with candor

and completeness" and provides full and complete

cooperation throughout the investigation;

(4) the confession of wrongdoing is "truly a corporate

act," (as opposed to isolated confessions of individual

executives or officials);

(5) the applicant makes restitution to injured parties

(where possible); and

(6) the applicant was not the leader or originator and did

not coerce another party to participate in the illegal

activity.5

If the Division has already begun an investigation (or has

received information about the activity at issue), a company

can still obtain leniency if a three-prong test is

satisfied:

(1) the company is "the first one to come forward and

qualify for leniency,"

(2) the Division does not yet have evidence that is

"likely to result in a sustainable conviction" of the

company, and

(3) granting leniency would not be "unfair to

others."6

Stolt-Nielsen came forward after the Antitrust Division had

already begun an investigation,7 but it met all of

the conditions of the three-prong test to the satisfaction of

the Antitrust Division - at least

initially.8

Stolt-Nielsen provided the Division with "volumes of

highly incriminating evidence" concerning its role in the

customer allocation conspiracy.9

This information allowed the Antitrust Division to prosecute

Stolt-Nielsen's co-conspirators: Odfjell was fined $42.5

million and two of its executives served prison terms and were

fined personally; Jo Tankers was fined $19.5 million and one of

its executives served a prison term and was fined

personally.10

Indeed, according to the district court, these convictions

would not have been possible without Stolt-Nielsen's

cooperation.11

Stolt-Nielsen took extensive internal measures to comply

with the obligation to take prompt and effective action to end

the illegal activity, including:

Instituting a new antitrust policy and publishing an

Antitrust Compliance Handbook;

Distributing the Compliance Handbook to all employees and

competitors;

Holding mandatory seminars for all employees on antitrust

compliance;

Requiring all employees to sign certifications that they

would comply strictly with all terms the new Antitrust

Compliance Policy; and, Informing competitors of the new policy

and of Stolt-Nielsen's intent to comply with

it.12

The district court also found that in addition to informing

its competitors of its new compliance policy, Stolt-Nielsen

also began competing with its co-conspirators on at least some

accounts.

Notwithstanding these steps, Stolt-Nielsen's perceived

noncompliance with leniency requirements (that is, not taking

sufficient action to end its antitrust violations) gradually

became a point of contention with the Antitrust

Division.13

Specifically, the Antitrust Division did not believe that

Stolt-Nielsen ended its illegal activities "promptly"

but rather continued its anti-competitive conduct in subsequent

meetings with its co-conspirators. The Antitrust Division's

suspicion arose largely from allegations from one of

Stolt-Nielsen's former co-conspirators who claimed that

Stolt-Nielsen did not end its anti-competitive

activity.14

The Antitrust Division eventually found six other witnesses,

all former conspirators, willing to corroborate that

account.

From Leniency To Litigation

The Antitrust Division asserted that Stolt-Nielsen had

violated its leniency agreement by failing to promptly withdraw

from the antitrust conspiracy.

As a result, on April 8, 2003, the Antitrust Division began

the process of revoking Stolt-Nielsen's

leniency.15 The obligation to cooperate was

suspended, an executive was arrested, and leniency was formally

revoked.16

Stolt-Nielsen filed suit to enjoin the Antitrust Division

from indicting the company and its executives. At first the

Company was successful.

The district court for the Eastern District of Pennsylvania

found that Stolt-Nielsen had not breached the Agreement and

enjoined the Antitrust Division from revoking

leniency,17 but that decision did not stand.

The Antitrust Division appealed, and the Third Circuit

reversed on the grounds that the constitutional principle of

separation of powers prohibited the district court from

enjoining the prosecution.18

The Third Circuit found that the non-prosecution agreement

could not serve as a basis for enjoining an indictment but made

clear that the agreement could be asserted as a defense after

indictment.

Thus, on remand, when the company raised the non-prosecution

agreement as a defense to an indictment, the district court

would then be free to consider the agreement "anew,"

and, among other things, consider whether the defendants

fulfilled their obligations under the

agreement.19

Dismissal Of The Indictment

Following the Third Circuit's decision, Stolt-Nielsen

and two of its executives were indicted. Before trial, the

Defendants moved for dismissal of the indictment upon the basis

of a violation of the non-prosecution agreement.

The motion was heard by a new judge, who found that the

Antitrust Division violated the non-prosecution agreement and

dismissed the indictment.20

The district court in Stolt-Nielsen III used a

defense-friendly principle of interpretation for

non-prosecution agreements. The court held that non-prosecution

agreements are unique contracts that must be construed in light

of the important constitutional rights at

stake.21

A central question in adjudicating the dispute is...