Last week the Antitrust Division announced that three South Korean companies had agreed to plead guilty and to enter into civil settlements for rigging bids on United States Department of Defense Fuel Supply Contracts (here).  The case was covered in a recent speech by Makan Delrahim (here).  The investigation was started by a whistleblower False Claims Act case and the whistleblower is in line to collect a significant award.

Two things at least two things to note about this outstanding result: 1) Yes, the federal governed can bring charges for violations overseas when US tax dollars are involved; and 2) the case was brought as a result of a whistleblower filing a false claims action on behalf of the United States.  The Civil Division picked up (intervened) in the False Claims case and the Antitrust Division brought criminal and civil antitrust charges.   Final score: Criminal convictions on bid rigging charges for the three corporate defendants; False Claims Acts and civil antitrust settlements with the three defendants; and a Relator (whistleblower award) for the person(s) who brought the matter forward.  The amount of the whistleblower award is not known but it will be substantial—between 15 and 25% of the government’s False Claims Act recovery. The total recovery (to date) appears to be about $154 million.

The Details

Three South Korea-based oil refiners and logistics companies pled guilty on November 16, 2018 to rigging bids on Department of Defense fuel supply contracts.  SK Energy Co. Ltd., GS Caltex Corp. and Hanjin Transportation Co. Ltd. agreed to plead guilty to criminal charges for their involvement in a decades long bid-rigging conspiracy that targeted contracts to supply fuel to the U.S. Army, Navy, Marine Corps and Air Force bases in South Korea, the Justice Department said.

The criminal complaint charged that from 2005 to 2016, the three companies secretly communicated with other South Korean oil refiners and logistics companies and predetermined which conspirator would win each fuel contract. The three companies and their conspirators would then fraudulently submit their bids to the U.S. military.

Bid rigging is a criminal violation of the Sherman Act. The companies cumulatively agree to pay $82 million in criminal fines.  Submitting a rigged bid to the United States also violates the False Claims Act because the companies are certifying the bids were independently arrived at, when in fact they were the product of collusion.   To resolve both the civil antitrust and the False Claims Act violations, these three defendants have agreed to pay an additional $154 million. The total global settlement with these three corporate defendants is in the neighborhood of $236 million.

And That’s Not All!—Look What’s Behind Door Number 3

The companies that pled guilty have agreed to cooperate and the investigation is continuing.  It is almost certain that individuals will be charged (or perhaps have already been charged in indictments under seal).  The Antitrust Division always tries to hold culpable individuals accountable as the strongest means of deterrence.  But, as also noted in the DOJ press release and Makan Delrahim recent remarks at the ABA Antitrust Sections Fall Forum (here), the investigation is continuing as to other companies.  It may well be that the government will obtain further pleas and criminal and civil penalties.  This cartel prosecution may just be the first chapter in this investigation.  One characteristic of most (but not all) price fixing/bid rigging schemes, is that once one cartel is discovered, the investigation often moves to additional companies and related/adjacent industries.  There are many examples of this:  the road construction cases of the 1980’s; auction collusion of all types; air cargo; vitamins; and most famously (and recently) auto parts. One whistleblower can keep a large staff(s) busy for a decade.

Exemplary Teamwork

According to the DOJ press release announcing the cases:

• The criminal case is being prosecuted by the Antitrust Division’s Washington Criminal I Section and the U.S. Attorney’s Office of the Southern District of Ohio in conjunction with the DCIS, the FBI, the Army Criminal Investigation Command, the Defense Logistics Agency Office of the Inspector General and the Air Force Office of Special Investigations.

• The civil settlements were handled by the Antitrust Division’s Transportation, Energy, and Agriculture Section, by the Civil Division’s Fraud Section and by the U.S. Attorney’s Office in the Southern District of Ohio.”

Takeaways

These pleas and settlements drive home two important points—there are whistleblowers, who when incentivized, can blow open major bid rigging cartels that defraud the government of serious money; and 2)  the False Claims Act provides a vehicle for a whistleblower to come forward and take the risk and expense of being an informant; but there is no equivalent for whistleblowers who know of collusion and overcharging  in the private sector.  [I have written on the subjects in previous posts: The Bid Rigging Whistleblower]

• Potential Whistleblowers Are Out There

 It’s awesome that the Antitrust Division has brought a case like this and is looking for more.  Usually, bid rigging crimes involve a number of people in an organization from an estimator all the way up to the senior managers making the decision to collude and deciding how high the rigged bid can be.  There are many potential whistleblowers (some of minimal or no culpability) and as the Antitrust Division makes government procurement cases more of a priority, and publicizes the results of being a whistleblower, there may be many more such cases.

• Whistleblower Rewards Should Not Be Limited to Government Funded Contracts

When cartels target private business or ordinary consumers, sadly there is no way for a whistleblower to be compensated for the risk and expense of coming forward.  False Claim Act cases are only available when the government has been defrauded—not you, me or private businesses.  Whistleblower legislation is needed to provide a vehicle for whistleblowers in private sector price fixing and bid rigging cases.  The SEC has model whistleblower legislation and recently announced another extremely successful year. It paid awards totaling $168 million to 13 individuals in FY 2018. (here).

It is daunting to be a whistleblower (and her family)—both financially, emotionally and even physically over time.  Without an incentive, and an ability to hire an attorney on a contingency fee basis, it may not be feasible for a potential whistleblower to come forward.  As an example, please read a Cartel Capers post: A Hypothetical Whistleblower Story.

It is common sense and good public policy that a potential whistleblower should not end up financially devastated by reporting a crime to the Antitrust Division. It’s time for a criminal antitrust statute.  If you haven’t already, please read (and pass on if so inclined) an article I co-authored: It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute.

Thanks for reading.  Bob Connolly    [email protected]