NYSSCPA Board Approves Antitrust Policy

By James A. Woehlke, Society Counsel and Paul L. Sinegal, Insurance Manage

The New York State Society of CPAs Board of Directors has approved a policy on antitrust compliance.

The policy, approved during the board’s Sept. 25 meeting, prohibits Society activities or discussions that might be construed as tending to raise, lower or stabilize prices; regulate production; encourage boycotts; allocate markets; assist in monopolization; or otherwise foster unfair trade practices and antitrust violations. The policy applies to all Society members, leadership and staff, and provides for discipline up to the termination of membership, leadership position or employment.

“Compliance policies such as this antitrust policy help an organization heighten the ethical tone of its day-to-day operations,” NYSSCPA President Jo Ann Golden said. “At a time when ethics are increasingly highlighted by the profession, the government and in the media, this is a very positive step.”

The policy requires all board, executive committee and other membership meetings to be conducted pursuant to advance agendas, and prohibits the conduct of substantive Society business except at official meetings. The new policy requires minutes to be distributed promptly to attendees, and prevents Society leaders and members from making any representations of official Society policy or position without specific authorization.

Why now?

Like other professional associations, the Society provides its members with opportunities to gather together to better themselves and their profession in general. But associations by their very nature bring competitors and potential competitors together, thus making members particularly vulnerable to antitrust violations. Whether professional associations should be viewed as potential “walking conspiracies,” as some antitrust scholars have argued, is debatable. Association activities, however, can and do occasionally provide a venue for antitrust violations.

One example of this occurred at a gathering of Maryland realtors where a prominent member announced that he would raise the commission he charged clients from 6 percent to 7 percent, because the former was too low. Although there was no formal agreement, other local realtors in attendance subsequently raised their commissions as well. In an ensuing antitrust prosecution, the realtors argued that they had not “agreed” to the new price; however, the court rejected this defense and found a felony criminal violation (U.S. v. Foley et. al., 589 F.2d 1323 (4th Cir. 1979)).

This case illustrates the extent to which members of professional associations can be at risk for antitrust violations. Agreements to set price-related items can also create problems, as can agreements not to engage in competitive bidding. Anti-competitive bidding, for example, was the basis of an antitrust prosecution against the Texas State Board of Accountancy which, as a licensure requirement, forbade CPAs from making “a competitive bid for professional services.”

The court held that the agreement was a per se violation of the Sherman Act, which forbids any contract, combination or conspiracy in restraint of trade. The board was permanently enjoined from this practice (U.S. v. Texas St. Bd. of Public Accountancy, 464 F. Supp. 400 (W.D. Texas 1978)).

Although a comprehensive survey of the various areas of antitrust concern to associations is beyond the scope of this article, it should be emphasized that individuals are not the only ones subject to prosecution for antitrust violations; the associations themselves are at risk. Indeed, association or corporate penalties can include substantial fines, and may also include imposed government supervision of business activities, known as mandatory corporate probation, under the Federal Sentencing Guidelines for Organizations. Having an effective compliance policy can mitigate the imposition of harsh penalties, by showing a good faith effort to prevent violations. Federal Sentencing Guidelines for Organizations specifically mandate fine reductions of up to 60 percent if an effective compliance policy was in effect at the time of the violation, but also mandate probation if a policy was not in effect. Thus, a compliance policy is very important.

Yet having a mere policy is not enough. In order to fully partake of the incentives, an “effective program to prevent and detect violations of law” has to be “reasonably designed, implemented and enforced so that it generally will be effective in preventing and detecting criminal conduct,” even if it does not ultimately prevent or detect the conduct. In this respect, having an effective compliance policy serves an important risk management function to the association as a whole.

Questions regarding the new policy should be addressed to the Society’s legal counsel, James A. Woehlke, who is charged with supervising compliance with this policy. He can be reached at jwoehlke@nysscpa.org.