DETROIT (Feb. 10, 10:45 a.m. ET) -- With the automotive supply base in the cross hairs of federal antitrust investigators, smaller suppliers are dealing with added -- and unexpected -- expenses, experts say.

While some major suppliers are facing fines and reviewing code-of-conduct policies, lawyers and investigators say lower-tier suppliers should audit their procedures as the U.S. Department of Justice continues its crackdown.

For smaller suppliers, the investigations into bid-rigging, price-fixing and other forms of collusion likely raise issues within their organizations they have never considered, said James Gillette, director of automotive analysis for IHS Automotive Inc.

“Many suppliers, especially smaller and mid-sized ones, have probably never thought of this as an issue in the past,” he said. “Even the chance of dealing with an investigation where the supplier is completely innocent will be costly.”

$748 million in fines

It has been costly for some big companies already. Yazaki Corp., Denso Corp. and Furukawa Electric Co. have agreed to pay $748 million in fines for their roles in price fixing and bid rigging. When the dust settles, total fines for collusion could exceed $5 billion if all of the companies that have been tied to the investigation so far are found guilty, attorneys estimate.

TRW Automotive Inc. has been drawn into a price-fixing investigation among makers of safety systems. Although it is unclear whether the company is being investigated as a participant in the schemes, TRW spent $13 million in legal fees on the matter in its third quarter last year.

TRW declined to comment for this story. But companies that are innocent can still be investigated, say, to provide information that will establish another company’s guilt.

Morgan Stanley Research speculated that at least 80 suppliers are involved in the investigations.

‘Very expensive’

Bill Kowalski, director of investigations for a suburban Detroit office of Rehmann, which is made up of former FBI agents specializing in white-collar crime, said lower-tier suppliers already have been dragged into an expensive distraction because of doing business with the larger suppliers under investigation.

“The legal cost of compliance with the DOJ is the document retention,” he said. “There are lower-level suppliers that have to save every communication -- memo, e-mail, text, etc. -- which is a very expensive duty.”

Gillette of IHS said suppliers should take a number of steps if they haven’t already. They should meet with their lawyers to determine rules; develop a training program for employees with potential contact with customers or competitors, including engineering, purchasing and executive staff; and conduct role-playing exercises and testing to ensure employees understand the do’s and don’ts of communicating with customers and competitors.

‘Absolutely necessary’

“When employees are training, they aren’t generating revenue, but this is absolutely necessary,” he said.

Mel Stephens, a spokesman for supplier Lear Corp., said communications over the issue have picked up, but no new compliance training has been conducted at the company’s suburban Detroit headquarters. The supplier has not revealed additional legal costs to the U.S. Securities and Exchange Commission.

Documents have been taken from Lear offices in Europe as part of an antitrust investigation by the European Commission. Stephens says that Lear has not participated in any illegal activity.

Sheldon Stone, partner at Amherst Partners, a suburban Detroit advisory firm, said last October that the downturn caused a sharp increase in fraud and most times it involved privately held suppliers without proper compliance programs in place.

Eligible for leniency

Under the Justice Department’s corporate sentencing guidelines established in the 1990s, a company adhering to an “effective corporate compliance program” is eligible to receive leniency in cases such as this, said a southeast Michigan lawyer close to the case, who spoke on the condition of anonymity.

An effective compliance program “doesn’t necessarily mean it will prevent or even detect every violation, but the fact that you’re talking to employees and have an effective program will reduce your sentence,” he said. “For suppliers not doing this already, this should serve as a huge wake-up call.”

Adding complexity to the issue is overseas expansion led by automakers’ new expectation of global suppliers, Kowalski said.

He said the antitrust rules are different in every country, and companies focused on expansion need to recognize international legal issues.

A bribe or not?

“You can’t get a meeting with an individual in certain countries in Europe without paying,” he said. “But you’ve got to make sure what you’re doing doesn’t constitute a bribe or break national or international law.”

Foley & Lardner in Detroit has seen a sharp increase in suppliers seeking code-of-conduct and business ethics policies to provide to their employees, said Mark Aiello, co-chairman of the law firm’s auto practice.

“This is certainly a topic that needs a lot of attention in the supply base,” he said. “As these cases are becoming more publicized, we’re seeing a lot of outreach down the supply chain and we’re communicating with a lot of suppliers’ marketing and sales departments.”

The misconception of small suppliers saying “it can’t happen to me” is over, said a source who is close to the current investigations and asked to remain unnamed.

“Certain suppliers are probably reading this right now, saying, ‘I’m little, they won’t come after me,’ or ‘We don’t have direct contact with competitors,’” he said. “This is a big industry in a small town, and if you don’t think your people are running into each and talking business, you’re completely fooling yourself.”