The Antitrust Division, in conjunction with US Attorneys’ Offices, the FBI, and various government agencies’ Inspector General’s Offices, announces that they have launched a strike force to help uncover bidding collusion on government contracts.
The quote below is from the press release Justice Department Announces Procurement Collusion Strike Force: a Coordinated National Response to Combat Antitrust Crimes and Related Schemes in Government Procurement, Grant and Program Funding:.
Prosecutors from the Antitrust Division and the participating U.S. Attorneys’ Offices, along with agents from the FBI and partner Offices of Inspector General, will work together to conduct outreach and training for procurement officials and government contractors on antitrust risks in the procurement process. In addition, the partnered prosecutors and investigators will jointly investigate and prosecute cases that result from their targeted outreach efforts.
I am therefore pleased to be here today to support the establishment of a Procurement Collusion Strike Force. This Strike Force will target bid-rigging and other antitrust crimes that can cost American taxpayers billions of dollars each year by undermining the federal government’s processes for purchasing goods and services and for money granted to states and municipalities to undertake large, high-dollar-figure public improvement projects.
This initiative is an excellent use of Division resources. Outreach, also called a “Procurement Fraud Initiative” has been a basic investigative tool for the Antitrust Division forever. Some of the Division’s most prominent cases, (road construction; utility construction, graphite electrodes) were the product of outreach efforts. Many Antitrust Division veterans could add to the list of successful outreach efforts. Of course, outreach takes substantial resources which is why it ebbs and flows as an Antitrust Division priority. On November 5, 2019 the Financial Times reported: “US price-fixing prosecutions at historic low for third straight year” so it is a good time to focus efforts on uncovering government procurement fraud.
What exactly is “Outreach?” I can speak to what it was during my years with the Antitrust Division and it is no doubt very similar today. Division lawyers focus on meetings with US Attorneys, FBI and other IG agents, and government procurement officials (buyers). AUSA’s and investigative agents occasionally come across evidence of bidder collusion in the course of investigating other types of procurement fraud (i.e. bribery/kickbacks). Sharing evidence about competitor contacts or other suspicious bidding activity may be enough for the Antitrust Division to recognize that further investigation of the bidders is warranted. Often, there are Title 18 and Title 15 violations wrapped up in the same course of conduct. Having an actual contact at the Antitrust Division makes a free flow of information more likely and insure that the full extent of the fraud, and damages to the government, are prosecuted.
The real gold, in my experience, is contact with procurement officials. They have day to day experience with the bidding process and can see patterns over time and/or products that may merit further inquiry. They may have seen white-outs/withdrawn bids/common pricing or other tell-tale signs of collusion but are hesitant to bring this to anyone’s attention because, after all, it is simply a sign of possible collusion—not proof of collusion. But when educated about how the Antitrust Division works, and seeing that someone cares, procurement officials sometimes produce gems of intelligence. I’ll give just one example, though there are many. Back in the day, my office used to do occasional training with Defense Department buyers in our territory. One buyer had a credible suspicion about a product allocation scheme among several bidders. After one bid submission, she called the vendor, who we suspected was supposed to lose the contract, and told him that his company was the low bidder. This was unexpected and unwelcome news and a series of a calls followed that clearly indicated the bidders were talking to each other and trying to straighten things out. This tip eventually led to a significant case, and like many antitrust investigations, the initial investigation spawned other successful investigations.
Of course, this is how outreach works at its best. On other occasions, I could read minds and tell the audience is thinking: “Really, don’t I have enough to do without getting involved in some investigation?” [Sometimes mind-reading wasn’t necessary]. My last PowerPoint slide was “Frequently Asked Questions” under which I had “Are You Almost Done?” It brought laughter and a definite sigh of relief when I said “Yes.”
As part of outreach we used to distribute this Antitrust Division publication: Price Fixing, Bid Rigging and Market Allocation Schemes. It’s a public document and private corporations may want to distribute to their buyers as well. (Note: On occasion we did outreach to private corporations but resource constraints limited this effort.) Outreach can be frustrating because it mostly leads to dry holes, but the occasional gusher strike makes it worthwhile—when resources permit.
One disappointment I have with the Antitrust Division’s Strike Force announcement is the lack of mention that individuals who blow the whistle on government procurement bid rigging can receive an award as a whistleblower. Government procurement officials cannot be whistleblowers—it is their job and duty to report suspected fraud. But, an estimator, disgruntled former employee, or competitor can file a False Claim Act suit as recently happened with the Korean Fuel Supply bid rigging cases which are still ongoing but have already been quite successful. I hope this potential to be a whistleblower message is being publicized.
In a June 2018 Cartel Cappers post, I wrote something that I’d like to reprint: Criminal Antitrust Whistleblower Statute: The Bid Rigging Whistleblower
Should the Antitrust Division Have a Whistleblower Czar?
Well, no. Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do. But the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers. As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts. The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders. If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.
As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages. The government should make some effort to attract bid rigging whistleblowers. Doing so would benefit the Antitrust Division in obvious and non-obvious ways. Below are a few ideas I think are worth discussing.
- Welcoming Bid Rigging False Claims Act cases
- Special Counsel for False Claims Act Cases
Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division. One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases. This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts. This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.
- Create a False Claims Act web page
The Antitrust Division has a page on its website for the Leniency Program. The Antitrust Division promotes the heck out of leniency. This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs. There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.
- Better Coordination with Civil Division and United States Attorney’s Offices
When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States. From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust). Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts. A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers. The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud. A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.
It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney. What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor. Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program. A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.
- The Benefits to the Antitrust Division of a Higher Profile for False Claims Act Cases
The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.
- The Obvious
Filing a False Claims Act case is a risky proposition for any potential whistleblower. The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain. Modest changes like these suggestions are not going to lead to an avalanche of new cases. (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)). It is certainly worth a try. Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered. Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down. It may be an opportune time to launch a new, if modest, initiative.
- Good Cases
One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on. Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on. They are much lower profile than say a Forex or Libor or other international cartel matters. These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations. While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership. These cases also involve working with agents across the federal spectrum. These relationships can last a career and produce results over a long period of time.
- Deterrent Effect
Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought. In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small. The cumulative harm is great (and should be prosecuted), but it is very diffused. With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties. Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation. Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.