Stolt Nielsen v. United States

:The Justice Department’s Unconstitutional Pardons

OLUNTARY

RADE

EPORTS

. 5N

OVEMBER

2005Introduction

On November 22, 2002, the

Wall Street Journal

published an article describing a lawsuitfiled by Paul O’Brien against his former company, Stolt-Nielsen Transportation Group.O’Brien had resigned as Stolt’s general counsel eight months earlier, and he was now allegingwrongful termination. O’Brien said he was forced to resign after he told Stolt’s chiefexecutive, Samuel Cooperman, about possible antitrust violations at the company’s parceltanker business. O’Brien believed that Richard Wingfield, a senior Stolt executive, hadillegally shared customer information with two of Stolt’s competitors. Cooperman toldO’Brien that he would deal with the situation by strengthening Stolt’s internal antitrustcompliance program. But less than a month after he brought his concerns to Cooperman,O’Brien was out as general counsel, and by November 2002, O’Brien believed thatCooperman was an active participant in ongoing antitrust violations.Within hours of the Journal article’s publication, the Department of Justice’s AntitrustDivision opened a criminal investigation of the parcel tanker industry. At that same time,Cooperman and other Stolt executives met with John Nannes, a former senior official (andacting chief) at the Antitrust Division, to solicit his advice on how to deal with O’Brien’scharges and the DOJ investigation. After this initial meeting, Nannes did not know whetherStolt had committed any criminal antitrust violations, but he believed that the company couldseek amnesty from prosecution under the Antitrust Division’s “Corporate Leniency Policy,”which allows the first member of an alleged cartel (that approaches the government) toreceive immunity in exchange for incriminating the other members.Attorneys like John Nannes are particularly valuable today, because criminal antitrustinvestigations are more frequent and result in more severe sanctions. Since the DOJ revisedits initial Corporate Leniency Policy in the early 1990s, companies like Stolt increasingly find

Voluntary Trade Reports (

ISSN applied for), number 5, is published biweekly by Citizens for Voluntary Traded/b/a The Voluntary Trade Council, Post Office Box 100073, Arlington, VA 22210. S.M. Oliva, editor.

©2005 by The Voluntary Trade Council. All rights reserved. This publication may be freely copied anddistributed, with attribution to the Voluntary Trade Council as author, for non-commercial purposes. Forcommercial reprint permission, contact the Voluntary Trade Council, (703) 740-8309 orinfo@voluntarytrade.org. Visit the Voluntary Trade Council’s website at www.voluntarytrade.org.

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themselves in what DOJ officials approvingly call “the race to the prosecutor.” TheAntitrust Division places a premium on maximizing guilty pleas and minimizing trials.This approach, of course, has become common throughout criminal prosecutors’offices, but the Antitrust Division’s particular method—the Corporate Leniency Policy(hereinafter ‘CLP’)—has operated without much in the way of legislative, judicial, orpublic scrutiny. The CLP, however, raises serious constitutional, ethical, and economicquestions that need to be addressed. This report will discuss these issues, using Stolt-Nielsen’s case as an example of the CLP and its many troublesome aspects.

The Stolt-Nielsen Investigation

Two days after his first meeting with Stolt executives, John Nannes contacted JamesGriffin, the head of criminal enforcement at the Antitrust Division. Griffin told Nannesthat an investigation of Stolt and its competitors had commenced. The two men,onetime colleagues, then “exchanged a series of exploratory telephone calls duringwhich they shared vague pieces of information about possible collusive activity in the[parcel tanker] industry,” according to court documents. Nannes apparently did notdisclose the identity of his client to the DOJ, only that he was representing a potentialtarget of the investigation. Based on these conversations, Nannes believed that theAntitrust Division had not yet awarded amnesty to any of the other companies thenunder investigation. Nannes also believed that Paul O’Brien’s termination andsubsequent lawsuit might impede Stolt’s ability to seek and receive amnesty, becausethe CLP requires an eligible company’s management to cease any illegal antitrustactivity immediately upon discovery and promptly contact the DOJ.On December 4, 2002, 12 days after the Antitrust Division opened its investigation,Nannes held a formal meeting with Griffin and other DOJ attorneys. By this time theDOJ knew that Nannes represented Stolt. Nannes was told, in no uncertain terms, that ifO’Brien had been fired for exposing Stolt’s antitrust violations, the company would beineligible for amnesty under the CLP. Nannes restated Cooperman’s earlier claim toO’Brien that Stolt had already reformed its internal compliance policy in response toO’Brien’s concerns. Nannes did not, however, represent that Stolt had ceasedparticipation in illegal antitrust activity in March 2002 or any other specific date.Indeed, Nannes himself had not yet conducted an internal investigation to determinewhether Stolt had ever violated the antitrust laws. Instead, his primary objective onDecember 4 was to reserve Stolt’s place at the head of the amnesty line, not ascertain thefacts or his client’s actual culpability.- 2 -

Voluntary Trade Reports No. 5

Thirteen days after the first meeting with Nannes, December 17, the AntitrustDivision gave Stolt a “marker,” which established that they were “first in line” toreceive amnesty under the CLP. Only after this marker was received did Nannes initiatean internal investigation, which was kept secret at the DOJ’s request to prevent leaks tothe media.Nannes’ investigation revealed that Stolt executive Richard Wingfield had, in fact,exchanged customer lists with two Stolt competitors—Odfjell Seachem AS and JoTankers B.V.—on at least four occasions between August 1998 and April 2001. Nannesbelieved these actions violated the antitrust laws.The line between legal and illegal conduct here is determined by the degree ofknowledge communicated between competitors. Stolt competes in the parcel tankermarket—it transports industrial liquids in deep-sea vessels. Stolt loses money if itsvessels are idle or empty. The same is true for Stolt’s competitors. This creates anincentive for all parcel tanker companies to be aware of their competitor’s regularshipping routes, and in some cases to discourage bidding for the same routes. If Stoltsuccessfully bids for one of Odfjell’s routes, then Odfjell will have empty space on itsvessels, which may cause Odfjell to bid on one of Stolt’s routes. The question, from anantitrust perspective, is how the two companies determine what actions are in theirrespective economic interests. If Stolt merely anticipated Odfjell’s likely reaction anddecided not to bid on one of its routes, regulators will often excuse this as “consciousparallelism.” But if Stolt and Odfjell expressly told one another what routes that eachintended to bid on, that is condemned by the government as an illegal “restraint oftrade.”On January 8, 1993, approximately three weeks after Stolt received its marker fromthe Antitrust Division, Nannes made a formal proffer of information in exchange foramnesty. Nannes told the Antitrust Division about Wingfield’s exchange of customerlists. The Antitrust Division’s lawyers never asked Nannes about the specific date thecollusion between Stolt and its competitors ceased, and Nannes never offered thatinformation, assuming he himself knew.One week after the proffer was made, Stolt and the Justice Department signed aformal agreement whereby the government would not prosecute Stolt for any antitrustviolation it may have committed prior to that date, January 15, 1993. Stolt agreed toprovide “full, continuing and complete cooperation” with the Antitrust Division’songoing investigation of Odfjell and Jo Tankers. The DOJ said the amnesty wouldextend to any Stolt director, officer, or employee who cooperated with the investigation.- 3 -