FTC Bureau of Competition Announces New Criminal Liaison Unit
On March 24, 2023, Holly Vedova, Director of the Federal Trade Commission (FTC) Bureau of Competition, announced that the Bureau had created a new Criminal Liaison Unit (CLU). The CLU arose out of a 2021 FTC initiative to expand its existing criminal referral program, as previously discussed in this blog. Led by two former prosecutors from the Department of Justice (DOJ) Antitrust Division, the CLU trains and coordinates with FTC staff to identify potential criminal conduct uncovered in the course of FTC investigations and litigations. Potentially offending conduct will be referred to federal, state, or local prosecutors. Notably, the unit has already referred over a dozen such cases, highlighting the risk of criminal enforcement arising out of civil FTC matters.
While the CLU is new, cooperation between the FTC Bureau of Competition and DOJ is not. For example, FTC recently referred a matter regarding a physical therapist staffing company to the DOJ, which ultimately prosecuted the case alleging both criminal wage fixing and obstruction of the FTC’s investigation. First Superseding Indictment, United States v. Jindal, No. 4:20-cr-00358-ALM-KPJ (E.D. Tex. April 15, 2021). As discussed previously in this blog, DOJ failed to secure a conviction on the wage fixing charge but obtained a conviction on obstruction.
FTC merger reviews have also led to criminal referrals. In the 1990s, an FTC merger investigation in the commercial explosives industry resulted in a referral to DOJ. The resulting DOJ criminal investigation and prosecution of companies in the commercial explosives industry resulted in 17 guilty pleas and approximately $40 million in fines. FTC specifically noted this case in its announcement of the criminal referral initiative that led to the creation of the CLU. The risk of criminal referrals in the course of merger review is discussed in more detail in this Advisory.
While FTC referrals can and have identified alleged anticompetitive conduct distinct from the subject of the original merger review, conduct investigation, or litigation, Vedova’s announcement noted that the CLU is “particularly focused on deterring companies and their executives from obstructing FTC investigations and enforcement actions and referring those companies for criminal enforcement.” The cases already referred for prosecution reinforce this focus: They include possible violations of criminal statutes on obstruction, efforts to influence witness testimony, and spoliation of evidence.
- Documents and testimony provided in FTC matters are subject to criminal referral, and that risk has increased with the creation of the CLU. Proactive identification and explanation of materials that could suggest criminal violations can mitigate the consequences of a criminal referral or avert it entirely. A leniency application to DOJ may be appropriate, depending on the particular circumstances of a given matter.
- Document retention policies and practices will be closely scrutinized. FTC specifically cited the use of ephemeral messaging applications in its CLU announcement, suggesting that the use of such applications may be an area of focus. Signal and Telegram are often cited as ephemeral messaging applications, but more common chat platforms like Zoom, Microsoft Teams, and Slack also can pose risks if auto-delete functions are used.
- Companies must be careful about outreach to potential witnesses in FTC merger reviews and investigations. According to Vedova, FTC has already referred inappropriate efforts to influence witness testimony to prosecutors. While customer and market participant outreach touting the benefits of a transaction is valid and legitimate, companies should take care not to cross the line into attempts to inappropriately influence market participants’ interactions with FTC.
- Referrals can concern matters unrelated to the initial FTC investigation, litigation, or merger review. Those reviewing materials for production to FTC need to think beyond relevance to the existing investigation and keep a careful eye out for materials that FTC could view as probative of criminal violations.
- These principles also apply to civil investigations and merger reviews conducted by the DOJ Antitrust Division’s civil units. For example, as discussed in this Advisory, DOJ prosecuted multiple companies and individuals in the packaged seafood industry after discovering evidence of collusion in the course of a merger review.
For additional questions about mitigating the risk of criminal referrals arising out of civil FTC and DOJ matters, reach out to the authors or any of their colleagues in Arnold & Porter’s Antitrust/Competition practice group.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.