FCPA and Antitrust Compliance Training: Perfect Together
Antitrust compliance programs are the granddaddy of the compliance world. They burst on to the scene in the early 1960’s after the Philadelphia Field Office of the Antitrust Division broke the Great Electrical Equipment Conspiracy. The conspiracy and investigation were featured on the front pages of Time and Fortune magazines, among other major media outlets. Guilty pleas were netted against corporate giants such as General Electric and Westinghouse and executives in the c-suite even served jail terms. At the same time, a plaintiffs’ lawyer, Harold E. Kohn, was developing the class action antitrust suit and sought millions of dollars in damages. Before long, antitrust compliance programs were rolled out to every major company in America.
Today, the big business in the compliance world is FCPA. Hundreds of millions of dollars are spent on FCPA compliance training (not that there’s anything wrong with that), but antitrust should not be the forgotten elder. I am writing a more detailed article that will be posted here shortly, but there are a couple of things to keep in mind about the need for antitrust compliance training. Collusion (price fixing and bid rigging) can often be intertwined with FCPA violations. Also, the consequences from criminal antitrust behavior can be significantly more damaging to an organization than even an FCPA violation. Accordingly, antitrust compliance and FCPA compliance training are perfect together.
The essence of an antitrust violation and FCPA violation is the same: corruption of the competitive bidding process. In an FCPA violation, one competitor targets (or is approached by) a foreign official with/for gifts in return for favorable treatment in obtaining business. In bid rigging or price fixing scheme, competitors work together to avoid competition. Instead of competing, an arrangement is worked out to determine who will get the job at an inflated price. The result (harm) in both cases is elimination, or at least a reduction, in competition. But, it is not unusual for a scheme to involve both an FCPA and antitrust violation. To obtain a contract without competition, a company may seek favorable treatment from foreign official as well as work out a deal with competitors to rig a bid to maintain the appearance of competition. This is the “belt and suspenders” approach to contract corruption. In the domestic setting, for example, conspirators may bribe a public official to slant bid specifications to restrict competition and then rig the bid among the favored bidders. The same came happen in the international setting where the bribe to a public official is an FCPA violation. This is what occurred in the marine hose cartel. Because the object of the scheme is the same—avoid or diminish competition—FCPA and antitrust training should also go hand in hand.
It is also worth noting that the negative consequences to a corporation from an antitrust violation, even a stand-alone violation, are every bit as devastating to a company as an FCPA violation—maybe more so. In the FCPA world, the penalties are principally monetary. In 2013, the DOJ and SEC together collected over $635 million in penalties, and disgorgement through negotiated settlements. This sum was nearly two and a half times the total collected in 2012. By contrast, the Antitrust Division filed 50 criminal cases and obtained just over $1 billion in criminal fines in fiscal year 2013. In these cases, the Division charged 21 corporations and 34 individuals.
The Antitrust Division focuses heavily on individual prosecutions and seeks significant jail sentences. In 2103, courts imposed 28 prison terms with an average sentence of just over two years per defendant. And these jail sentences typically involve executives very high up in the organization. One difference between antitrust violation and FCPA violations is that antitrust violations almost always occur at a high level in the company—someone with authority to set pricing for the company. The people serving jail time are not third party vendors.
Also, while the average jail sentences for an individual is about two years, the maximum jail sentence for an antitrust criminal conviction has been increased to 10 years. The Antitrust Division has sought the maximum on several occasions now. They have been unsuccessful, but the trend for jail sentences is marching upward.
Charts are from: http://www.justice.gov/atr/public/division-update/2014/criminal-program.html].
Finally, with an antitrust violation, the troubles with the DOJ are just the beginning. In the auto parts cartel investigation, for example, some companies are being investigated by 11 different jurisdictions, including the EU, China, Japan, Canada, Mexico and Brazil. Class action lawsuits from alleged victims of the cartel will also be filed around the globe.
The disastrous consequences from participation in a price-fixing/bid rigging cartel are unparalleled. There is more to discuss and stay tuned for further posts and a featured article. Also, I will be on a panel discussion Global Antitrust Compliance and Risk—Creating an Effective Program hosted by the Society of Corporate Ethics and Compliance Institute, September 14-17 2014. More information about this marquis compliance event can be found athttp://www.complianceethicsinstitute.org/.