Cartel Capers

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100 Blawg Honoree

Some Background on “Corruption of the Bidding Process” Cases Filed by the Antitrust Division

by

Bob Connolly    [email protected]

The last several Antitrust Division, DOJ press releases for criminal case filings may appear to be out of place if you are not familiar with the history of Division’s occasional foray into bringing non-Sherman Act cases.  None of the last four criminal cases brought by the Division contain a charge of violating the Sherman Act:

“From at least as early as February 2015 until at least June 2018, Jo submitted hundreds of falsified or materially altered laboratory reports, misrepresenting to U.S. military officials that laboratory testing and analysis had been performed on samples taken from U.S. military installations located in South Korea, when, in many cases, no such testing was performed. As part of the scheme, Jo emailed the forged laboratory reports and invoices seeking payment for those reports to the Department of Defense, causing the Defense Financial Accounting Service to wire more than $280,000 in payments.”

“Michael Wibracht of San Antonio, Texas, the former owner of several companies in the construction industry, conspired to defraud the United States in order to obtain valuable government contracts under programs administered by the U.S. Small Business Administration (SBA) for which neither his nor his co-conspirators’ companies were eligible. One co-conspirator, Ruben Villarreal, also of San Antonio, pleaded guilty on Nov. 20, 2020, to participating in the same conspiracy.”

“According to the indictment, Guillory conspired with Cajan Welding & Rentals, Ltd., and other unnamed co-conspirators to defraud the United States by corrupting and impairing the government procurement process, and by obtaining non-public pricing and cost information in order to obtain subcontract awards and payments from the U.S. Department of Energy in connection with its operation of the nation’s Strategic Petroleum Reserve.”

“According to court documents, as part of the conspiracy, Berlitz and CLCI facilitated the submission of false and misleading bid information to the NSA.  As a result, competition was suppressed among legitimately qualified bidders for the contract, obstructing, by dishonest means, the government’s ability to benefit from a competitive bidding process.”

The Antitrust Division and Non-Sherman Act Cases

            Within the Department of Justice, the Antitrust Division is charged with bringing Sherman Act cases.  For criminal cases that is usually 15 U.S.C. § 1.  The United States Attorney’s Office and the Criminal Division of the USDOJ have jurisdiction over all other crimes in Title 18 of the U.S. Code.  The FTC does not have authority to bring criminal cases.  These lines, however, are not inflexible.  The Antitrust Division has typically brought criminal  charges for obstruction/perjury offenses related to one if its investigations.  The Antitrust Division, as far as I recall, also started added mail fraud counts in the early days of the road construction cases in the late 1970’s.  The fraud counts were related to the bid rigging such as the mailing of invoices for payment on a bid fraudulently obtained.  The Division also often adds Conspiracy to Defraud the United States (18 U.S.C. § 371) counts in bid rigging cases where the victim was the United States government.  Since bid rigging is a form of fraud, almost any bid rigging case allows for related Title 18 charges.  When these counts are added it is typically to highlight the fraudulent nature of the scheme to a jury, and to possibly obtain higher jail sentences.  The downside of adding fraud counts is that fraud charges require proof of specific intent, a higher bar than the general intent required under the Sherman Act. There are also occasions when the United States Attorney’s office charges a bid rigging scheme without a Sherman Act count, as a conspiracy to defraud.  This may happen when there is also some public corruption involved in the scheme.

There have also been other occasions where the Antitrust Division may bring a criminal charge unrelated to the Sherman Act.  If the Division conducts an investigation which uncovers a federal crime unrelated to competitor collusion a decision may be  made, with the blessing of the relevant United States Attorney’s office, to bring the case. During my time with the Antitrust Division I was involved in a tax fraud case and a charge of obliterating the foreign markings from goods that were then sold to the US government as made in the USA.  Obviously these charges were far afield from bid rigging but once the conduct was discovered it was more efficient to have the Division lawyers handle the case–and there was hope that the leverage might induce a witness to cooperate. These kinds of cases, however, occur infrequently.

Something else is at work, however, with the recent string of non-Sherman Act cases brought by the Division.  In 2019, the Antitrust Division established the Procurement Collusion Strike Force:  a coordinated national response to combat antitrust crimes and related schemes in government procurement, grant, and program funding at all levels of government—Federal, state, and local.  A feature of the program is outreach to federal agents across the gamut, FBI, Defense Dept investigators, EPA, etc.  Division lawyers talk to agents and procurement officials about criminal antitrust violations, what some of red flags are, and maybe most importantly, that Antitrust Division lawyers are interested in leads and will work with the agents to try to develop cases.  What often happens, however, is that agents have leads on some other form of bidding corruption (i.e. bribes to a procurement official) which are pursued in the hopes that evidence of competitor collusion will also develop.  Sometimes that happens, often it does not.  As mentioned above, sometimes with the blessing of the relevant US Attorney’s office, the Antitrust Division will bring the non-Sherman case with the justification that, like competitor collusion, the conduct at issue involves “corruption of the bidding process.”  And occasionally, as mentioned above, a criminal violation is uncovered that is not even related to bidding, but if indictable evidence was gathered, the case is brought.  I assume the case above where the South Korean was charged with submitting fraudulent test results fits into this category.  Once an agent has devoted her time to developing an indictable case, barring some unusual circumstances, that case will/should be brought or you will not hear from that agent again.

There are pros and cons to an aggressive government procurement effort. The current Procurement Fraud Strike Force is essentially a rebranding of previous such efforts.  A similar effort was made in the Obama Administration after the financial crisis of 2018, called the Recovery Act Initiative, aimed at training government officials to prevent, detect, and report efforts by individuals to unlawfully profit from the stimulus awards.  The Division has also participated in broader DOJ procurement fraud task forces such as the Hurricane Katrina Task Force.  In October 2006, the DOJ formed, and the Division participated significantly in a similar National Procurement Fraud Task Force, which successfully targeted U.S. military procurement fraud related to conflicts in Iraq and Afghanistan. In less than three years, the efforts of the National Procurement Fraud Task Force led to more than 35 criminal convictions. Moreover, before the number of field offices was drastically cut during the Obama administration, field offices and the DC based criminal section, as a matter of course, aggressively worked with agents to try to develop procurement fraud cases.  This effort is described in a document the Antitrust Division submitted to the OECD: OECD Roundtable on Public Procurement Outreach and Training.  While the emphasis has varied in intensity over time, government procurement cases have always been a significant focus of the Antitrust Division.

The Pros and Cons of Bringing Non-Sherman Act Cases

            The benefits of bringing the Antitrust Division bringing non-Sherman Act cases are many.  Briefly, an obvious reason for bringing such cases is that there is more than one way to defraud the government–and if indictable evidence is developed, a case should be brought as a matter of public policy. Bringing non-Sherman act cases, especially those that can rightly be characterized as “corruption of the bidding process” are a near necessity in a functioning relationship with investigative agencies since investigating collusion will often lead to evidence of other crimes.  Agents rightly want all indictable cases brought and will not look to the Division as partner if only Sherman Act cases are brought.  Sometimes it is appropriate to transfer and non-antitrust case to the US Attorney’s Office but it is often more efficient to leave the matter with the staff that helped develops the case.  These types of cases are also excellent training for Division attorneys.  They tend to be smaller cases with less meddling, (I mean oversight) from the front office.  The staff appreciates the sense of ownership  that comes from developing a case and seeing it to the end.  Also, speaking for myself, as a taxpayer I was particularly interested in prosecuting cases where tax money was pilfered by fraud.

The arguments against bringing non-Sherman Act cases, and one that has carried the day at times, is that it is not an efficient use of Antitrust Division resources.  Even small cases can consume large resources.  The rationale for a separate Antitrust Division is to develop expertise in that area and when the Division strays from its fundamental purpose it can undercut the reason for the Division’s separate existence.  It can also make requests for funding more difficult if it appears there is excess capacity in the Division such that non-Sherman Act cases can be pursued.

Balance is the Best Policy

            During my tenure in the Antitrust Division there were various policies with respect to bringing non-Title 18 cases.  The norm was that you could not open a grand jury investigation without a legitimate lead involving competitor collusion.  If, however, during the investigation another violation became readily indictable, that case would be pursued–after consulting with the relevant US Attorney’s office.  At other times, such as with the establishment of a procurement task force, the door for opening a grand jury became a little wider: not necessarily collusion between competitors but “corruption of the bidding process.”

Unfortunately (from my perspective) on at least two occasions while I was Chief of the Philadelphia Office, the front office did a complete turn around and ordered all non-antitrust investigations closed.  The rationale was that if we had available resources they should be deployed to larger cartel cases, and if we didn’t have larger cartel cases, the resources should be deployed looking for them. The main problem with this change of course was that after spending time and resources developing relationships with agents, and developing cases, everything was dropped.  This was not good for morale, either with Division attorneys who felt blindsided or with investigative agents who felt, justifiably, that their efforts were for naught.

I’m interested to see how the new administration views the current Procurement Fraud Strike Force.  I hope the emphasis on collusion in government contracting will remain.  Depending on the workload of the Division, it may be that marginal non-Sherman Act cases will be dropped, or significant ones handled by the US Attorney’s office.  Tweaks in resources allocation, however, can be made without abandoning the entire focus on government procurement. With trillions of dollars being pumped into the economy, the potential for government procurement fraud remains high.

The best way to insure the continuation of the government procurement effort is to maintain a vigorous enforcement against cartels that target the consumer in general.  Sandwiched between the press releases announcing non-Sherman Act criminal case filings was this press release:

First Corporation Pleads Guilty in Ongoing Criminal Antitrust Investigation into the Broiler Chicken Industry

DOJ Press Release:      February 23, 2021

“Pilgrim’s Pride Corporation (Pilgrim’s), a major broiler chicken producer based in Greeley, Colorado, has pleaded guilty and has been sentenced to pay approximately $107 million in criminal fines for its participation in a conspiracy to fix prices and rig bids for broiler chicken products, the Department of Justice announced today.”

As long as the Antitrust Division is actively bring the intentional/national cartel cases, there should be room for the government procurement cases to continue as well.