Yesterday, Assistant Attorney General for Antitrust Division, Makan Delrahim gave a talk at the ABA Antitrust Section Fall Forum.  I encourage you to read Mr. Delrahim’s full remarks (here).  There were a couple of items in particular that I found exciting (in an antitrust sense of “exciting”) that relate to the Antitrust Division’s commitment to: 1) investigating and prosecuting cartels that rig public procurement contracts; and 2) the supporting whistleblower (False Claims Act) cases to recover damages (in addition to a criminal fine) that reward whistleblowers for coming forward.  Below are a few excerpts from Mr. Delrahim’s talk:

• As some of you may have seen, the Division announced just yesterday a set of global settlements with three South Korean companies.  Those unprecedented settlements resolve criminal charges and civil claims arising from a bid-rigging conspiracy that targeted fuel supply contracts to U.S. military bases in South Korea.  They are the result of tremendous hard work in parallel criminal and civil investigations by the Antitrust Division’s Washington Criminal I Section, the Transportation, Energy, and Agriculture Section, and the Fraud Section of the Civil Division.  We were assisted ably by our partners at the FBI and the Defense Criminal Investigative Service.
• The three companies agreed yesterday to plead guilty to criminal charges under Section 1 of the Sherman Act, and they will pay at least $82 million in criminal fines for their involvement in the conspiracy.  Importantly, the three defendants have also agreed to cooperate with the ongoing criminal investigation of the conduct.
• We did not stop there.  We are committed to using all authorities Congress has granted to us to remedy antitrust injuries to the American taxpayer.  Those tools include the authority conferred in Section 4A of the Clayton Act.  Section 4A is an important but underused enforcement tool that allows the government to recover treble damages for antitrust violations when the government itself is the victim.
•  To that end, the Division established a parallel civil enforcement team, led by Kathy O’Neill and a group of capable litigators from the Transportation, Energy, and Agriculture Section to pursue parallel civil actions for damages.  We negotiated separate civil resolutions with each of the three defendants on behalf of American taxpayers.  We also worked alongside our partners in the Civil Division’s Fraud Section, who pursued charges against the defendants under the False Claims Act for making false statements to the government in connection with their conspiracy.
• To resolve both the civil antitrust and the False Claims Act violations, these three defendants have agreed to pay an additional $154 million in total.  They also have agreed to cooperate fully with the Division’s ongoing civil investigation and to implement effective antitrust compliance programs.

This is great stuff.  Government bid rigging cases are extremely important.  The harm from bid rigging is extremely focused and the recovery to the government can be substantial.  Government contract bid rigging conspiracies can often last decades so ending the conduct also means a return to competitive bidding and lower prices for the government.  Government contract cases can be extremely gratifying to work on and a great way for lawyers to get hands on training.  When I was Chief of an office, we took great pride and satisfaction in the returning money to the taxpayers.  Congratulations to the staff (from several different offices and agencies) on these results.

Thanks for reading.  Bob Connolly

[email protected]

More recently, Judge Ginsburg has also given our criminal program at the Antitrust Division something to think about by writing with Josh Wright on the topic of “Antitrust Sanctions.”  Judge Ginsburg and Josh point out the wisdom of considering a company’s compliance programs in designing sanctions that optimally deter price-fixing and other criminal conduct by employees.  They have also questioned whether the Sentencing Guidelines give enough credit to companies with effective compliance programs.  We are taking this suggestion seriously as it applies to our criminal program and are considering how best to recognize corporate compliance efforts.  That includes carefully examining whether and how pre-existing compliance programs might merit our consideration, whether at the charging stage or at sentencing.

It will take some plea agreements and/or charging/declination decisions (or speeches) to see if there has been any new developments in Antitrust Division policy in this regard.  But, if you are interacting with the Division (and not just on a criminal matter) arguments about why a credible compliance program should be recognized and rewarded are receiving at least a serious listen.

Thanks for reading.

Sara Kropf, (Law office of Sara Kropf), publishes a blog that I read regularly:  Grand Jury Target:  Tracking federal prosecutions of corporate executives.  She has a new blog post that I am reposting with permission:  New Sentencing Guidelines Amendments Have Two Good Provisions for White Collar Criminal Defendants (and Lawyers).

The blog post has two main subject headings:

• You Can Get the Acceptance of Responsibility Reduction Even if You Go to Trial; 

and

• Staying Out of Jail Is a Little Bit Easier

The full informative blog post is here.

Thanks for reading.

            The Tenth Circuit faced two issues on appeal in the criminal market allocation indictment in the Heir Locators case.  The first issue was whether the district court properly dismissed the indictment on statute of limitations grounds?  The second questions was, if the case was not properly dismissed, did the district court err in ruling that the government would have to proceed with the prosecution under the Rule of Reason?  The Court found that the prosecution was  not barred by the statute of limitations, but that it did not have jurisdiction to hear the appeal of the rule of reason opinion.  TenthCircuitkempruling

A full exposition of the facts can be found in the indictment, Judge Sam’s Memorandum Decision and Order, the government’s opening brief in the Tenth Circuit, and the defendants’ response.  But in short, the relevant facts are these:

• There was a written allocation agreement between competing heir location service companies to divide certain customers.
• On July 30, 2008, defendant Mannix wrote to Kemp & Associates colleagues in an email: “The ‘formal’ agreement that we have had with [Blake & Blake] for the last decade is over.”
• There were in fact no other heirs allocated after July 30, 2008.
• Payments made by previously allocated customers, however, occurred within the Sherman Act five-year statute of limitations period preceding the indictment.

See, Cartel Capers post of February 21, 2018, Was Heir Locator’s Indictment a Hair Too Late?

 From that Blog post:

“In our opinion the [district court] judge was grasping at straws to distinguish (and extinguish) this case from Evans to avoid application of the payments theory.  Payments by allocated heir locator customers seem like payments made on rigged contracts….  [T]here was simply no record for the judge to base a finding that the payments made and accepted by defendants and their co-conspirators within the statute were merely administrative tasks that “bore no relation to customer allocation.”

The Tenth Circuit agreed:

“Despite Defendants’ assertions to the contrary, Evans controls the outcome of this appeal. In holding that the conspiracy there continued so long as the firms received payments on the unlawfully obtained contracts, we adopted the Eighth Circuit’s holding that a “Sherman Act violation [is] ‘accomplished both by the submission of noncompetitive bids, and by the request for and receipt of payments at anti-competitive levels.’” Evans, 839 F.2d at 661 (quoting United States v. N. Improvement Co., 814 F.2d 540, 543 n.2 (8th Cir. 1987)).”

The Tenth Circuit applied blackletter statute of limitation law in finding the case should not have been dismissed on statute of limitations grounds: “When the two firms distributed money amongst each other pursuant to the terms of the alleged agreement after 2011, they committed overt acts in furtherance of the alleged conspiracy within the limitations period.”

District Court’s Appliacation of the Rule Of Reason 

            Since the indictment was not dismissed, the Tenth Circuit turned to the district court’s holding that the case would be tried, if tried at all, under the rule of reason.  The Tenth Circuit punted on this question, finding that it did not have jurisdiction to consider the ruling:

“With an eye toward liberal construction, we have held that some orders having the practical effect of dismissing an indictment, even if they do not formally do so, are appealable pursuant to §3731. See, e.g., United States v. Bergman, 746 F.3d 1128, 1131 (10th Cir. 2014) (“[D]istrict court actions and orders, bearing the practical effect of dismissing an indictment are subject to appeal under §3731 even if they do not formally ‘dismiss’ an indictment or happen to be labeled that way.”). The Government argues this is such a case. We are not so persuaded.”

The Court found that no matter how sincere the Government was in asserting that it would not try the case under the rule of reason as a matter of policy as set forth in the U.S. Dep’t. of Justice, Antitrust Division Manual, at III-12 (5th Ed. 2018), “as the Government itself acknowledges, that is simply a matter of prosecutorial discretion.”

What Now?

            The Antitrust Division may elect to proceed with the indictment and try to change the district court’s mind on the rule of reason.  While the Tenth Circuit did not reach the question of whether the per se rule, not the rule of reason should apply, the Court of Appeals made it pretty clear they thought the district court ruling was wrong: “To be sure, were the merits of the rule of reason order before us we might very well reach a different conclusion than did the district court.”  After citing many cases applying the per se rule to similar facts, the Tenth Circuit concluded: “For these reasons, given the further exposition of these issues that occurred in front of this Court, it is possible the district court may decide to reassess its rule of reason order on remand.”

The Antitrust Division could ask for reconsideration of the rule of reason ruling and then dismiss the case if unsuccessful in persuading the district court in changing his mind.  Another course of action, to borrow a line from Monty Python, would be to “Run Away.”  This is a relatively insignificant case, the district court judge is clearly hostile to the prosecution, and the facts are a bit different (though not in a dispositive way) from a typical per se agreement.  The risk/reward of pursuing this case tilts strongly towards “Run Away!”

PS.      A blog is not a great place to discuss complicated constitutional issues, but a quick thought is that I think a criminal Sherman Act rule of reason prosecution would be unconstitutionally vague:

Compare:        “[T]he terms of a penal statute […] must be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties… and a statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.”  Connally v. General Construction Co., 269 U.S. 385, 391 (1926)

With (the jury charge in a “criminal” rule of reason case):

“Under this rule, the factfinder weighs all of the circumstances of a case [after the fact] in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977).

The per se rule was developed by the Supreme Court to provide the bright line rule of what conduct can result in criminal charges.  The rule of reason gives an ever shifting line based on a wide ranging historical study of an industry.  The Supreme Court has said that “problem presented by the language of [section] 1 of the Sherman Act is that it cannot mean what it says” National Soc’y of Prof. Engineers v. United States, 435 U.S. 679, 687 (1978).  Not a great basis for a criminal statute.  The per se rule helps.

Thanks for reading

Bob Connolly   [email protected]

In an earlier post I discussed the Fiscal Year 2018 Antitrust Division statistics for criminal cases filed and noted that they were down dramatically (here).  This is not a one year drop off, but a trend since the high water mark of 2015 (here).  It is not just case filings that are down, but also corporate criminal fines are on a significant downward trend.

In a subsequent blog post (here) I discussed some possible reasons criminal antitrust cases are down. The ideas presented are not all mine, but a compilation of my own thoughts and what I hear from others in and out of government in the cartel bar.  Several main themes stood out:  Perfecting a leniency marker to conditional leniency letter from the Antitrust Division has become more difficult, expensive and less beneficial, not only for the company but for its current and former executives.  A second theme was that perhaps the United States has been too successful at exporting cartel enforcement around the world—the number of jurisdictions a leniency applicant has to face and the potential follow on civil litigation has greatly increased the collateral damage of seeking leniency.  A final related thought is that even in the United States, a leniency applicant may have a hard time reducing its civil damages because the promise of single damages under the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (“ACPERA”) has been elusive.

So doctor, what is the cure for declining cartel enforcement in the United States? Below are some potential fixes.  Again, not all my own ideas (mangled sentences are my own as I try to finish this in time to watch Monday Night Football (never mind—the Bills are playing).

A.      Make Leniency Great Again

             Cartel cases, particularly international cartel cases, are primarily driven by leniency applications.  And leniency applications are down. Why? There is no single cause, and as noted, the collateral damages flowing from seeking leniency in the United States is ever increasing; see my article: Corporate Leniency Should Come With A Warning Label.  There is, however, a widely held view that the Antitrust Division has taken a harder line with leniency applicants, making putting down a “marker” a more risky decision.

1. Antitrust Division Speeches

Speeches by Division officials have changed from the earlier “roll out the red carpet” treatment welcoming amnesty applicants to a much more cautious tone.  Here is a typical remark by the father of leniency, then Deputy Assistant Attorney General for Criminal Enforcement, Gary R. Spratling (here):

“A robust, effective international anti-cartel enforcement program depends on cooperation from at least some of those who have engaged in the cartel activity. Prospective cooperating parties come forward in direct proportion to the predictability and certainty of their treatment following cooperation. (emphasis added).

Scott Hammond, who followed Spratling as the Deputy Assistant Attorney General for Criminal Enforcement, gave a speech titled:  “When Calculating the Costs and Benefits of Applying for Corporate Amnesty How do You Put A Price Tag on An Individual’s Freedom? in which he said:

“We developed a Corporate Leniency Program (“Amnesty Program”) that provides the ultimate prize for companies that choose to self-report — no criminal conviction, no criminal fine, and non-prosecution protection for all officers, directors, and employees — and we made the requirements for entering the program as transparent and attainable as possible.” (emphasis added)

This is just a small sample of the leniency is “Open for Business” attitude of the true believers that leniency for a culpable corporation and its executives was a good bargain–in return for busting up and deterring cartels.

Things took a decidedly tougher tone in the later days of the Obama Administration under Assistant Attorney General for Antitrust Bill Baer. The predictability of “no jail” for corporate individuals became less predictable. Mr. Baer commented in a widely followed speech in 2014 titled Prosecuting Antitrust Crimes:

             When companies apply for leniency, their current employees may earn it, too. [emphasis added]. As with employers, however, leniency for employees is not an entitlement; it requires full and timely cooperation. To cooperate fully, individuals must be prepared to admit to all collusive conduct they participated in or know about. They need to be prepared to be candid and credible witnesses in front of a grand jury and at trial.

“May” is not a great word for a program based on predictability and certainty.  Corporate applicants also seemed to have a less certain path to pushing a “marker” over the goal line and scoring a conditional leniency letter[1]:

We expect leniency applicants to make those investments, including conducting a thorough internal investigation, providing detailed proffers of the reported conduct, producing foreign-located documents, preparing translations, and making witnesses available for interviews. Companies unwilling or unable to make the investments necessary to meet these obligations, or those that think they can do so on a timetable of their own choosing, will lose their opportunity to qualify for leniency.

The Division added another barrier to a corporation seeking leniency when it required the applicant to fire certain “highly culpable” employees. Hmmm, I wonder who it is that would be in on the decision to seek leniency in the first place?  Also, corporations may be handicapped in providing the “full exposition of the facts” under the Leniency Policy if highly culpable executives decide not to cooperate to try to save their jobs. This foray by the Division into corporate governance seems misplaced.  On the surface it seems right that highly culpable individuals should be fired.  But, the rate of recidivism for individual antitrust offenders is close to zero. The Division does not require a corporate amnesty applicant to submit to a corporate monitor because it views the act of seeking leniency to have demonstrated rehabilitation.  Shouldn’t the same consideration be given to a culpable employee?  The corporation may elect to clean house, but requiring firings may (has?) lead to fewer leniency applications.  It adds another layer of uncertainty and lessens the bargain a corporation may receive from a successful leniency application.

2. New Antitrust Division FAQ’s

It is widely believed that the Antitrust Division contributed to uncertainly and diminished transparency when it issued revised “Frequently Asked Questions about the Antitrust Division’s Leniency Program and Model Leniency Letters” on January 17, 2017, just days before President Trump was inaugurated.[2]  If certainty and transparency are the hallmarks of a successful leniency program, the Division surely took its success rate down a notch or two with the treatment of current and former employees in the new FAQ.

When the Division already has an investigation of the alleged illegal conduct, Type B leniency will be available to the first qualifier. The new FAQ added this statement for Type B leniency for current employees: “[T]he Division may exercise its discretion to exclude from the protections that the conditional leniency letter offers those current directors, officers, and employees who are determined to be highly culpable.”  This new FAQ solidifies the uncertainty created in speeches.  It is a huge obstacle for a potential leniency applicant. As mentioned above, who makes, or at least greatly influences, the decision to seek leniency?  Well, usually highly culpable (i.e. senior executives) who may now not be covered.  Also as mentioned, even if the company wants to go forward and risk the senior level managers getting “carved out” of the leniency, these are the guys who may be necessary to provide the “full exposition of the facts” the Division demands.   In any event, corporate counsel’s job is significantly complicated when she can only tell current executives they maybe covered if they cooperate: “Probably you’ll be covered” “pretty good chance, in my experience, but….”

The revised FAQs also solidified the shift in the attitude towards former employees.  The original FAQs stated that the policy “does not refer to former directors, officers or employees, so the Division is under no obligation to grant leniency ….”  The revised FAQs states: “Former directors, officers, and employees are presumptively excluded from any grant of corporate leniency.” Corporations may feel some sense of loyalty or guilt in cutting formers loose from the leniency process, especially if there was little antitrust training or the fired were “just following orders” from superiors who effectively insulated themselves from being charged. Of course, some companies may gladly throw a former employee an anchor.  Depends why he is a former employee, I suppose.

Overall, recent speeches, the new FAQs, and anecdotal reports about actual Antitrust Division practice, indicate that the Antitrust Division intends for leniency to become less certain and more difficult to obtain. Apparently, it has worked.  Leniency applications and case filings are on a steady downward trend.

Suggestion: The current administration should discuss whether they agree with the FAQs issued in the final days of the Obama Administration and whether they want to signal a more inviting attitude towards leniency applicants.  A crucial step would be to consult with cartel bar defense attorneys to try to get a fuller picture of the current attractiveness of, or hurdles to, potential leniency whistleblowers. Richard Powers is fairly new in his position as Deputy Assistant Attorney General for Criminal Enforcement. It may be that the internal discussions at the Antitrust Division are ongoing.  But, whether the current administration wants to keep the policy/FAQs/speeches as they stand or chart a revised direction, it would be helpful if more consultation with and guidance to the defense bar was given.

B.       Make ACPERA Great Again

ACPERA was designed to further encourage corporate whistleblowers (i.e. leniency applicants), with the promise of single damages if they also “provided substantial” cooperation to the plaintiffs in follow-on class actions.   ACPERA may be falling short of its intended goal because of frequent disagreements between an ACPERA applicant and the plaintiffs about what constitutes “substantial cooperation” and when a company should be found to have earned the reward of single damages.

Suggestion:    It would take legislation to amend ACPERA, but a case could be make that, like leniency, the ACPERA applicant should get a free pass—no damages, instead of single damages. There may also be ways to determine with more certainly whether the ACPERA applicant has earned the “substantial cooperation” designation.

C.     Cartel Whistleblower Legislation

Perhaps the Antitrust Division does want to take a harder line with leniency applicants and make them work harder for leniency with more proffers, witness interviews, greater document production, and a detailed evidentiary road map to the cartel before issuing a conditional leniency letter. There could be a reason for the Division to have such an attitude.  The leniency applicant has every incentive to admit to cartel conduct and make it as broad as possible when seeking leniency.  Once the conditional leniency letter is issued, however, the incentives change.  The leniency applicant now worries about limiting civil private damage exposure.  Broad conspiracies become more narrow.  Sharp memories fade from a “Yes” to “I think so” and most deadly to the prosecution “I know I said that, but now I can’t be sure.”  Many applicants are as truthful as they can be throughout the process, but it would be naïve to think this scenario doesn’t happen. Maybe the Antitrust Division does want to squeeze every drop of information they can while the incentives are still in their favor, even if it means fewer applicants.  Likewise, discretion to carve out current and former employees from coverage may be warranted if leniency has been too generous in the past, losing the moral high ground for the Division in prosecuting other (perhaps less culpable) actors.  Perhaps the Division has given considered thought to the current policy and is comfortable with it.

Suggestion:  Making leniency more attractive to applicants by lowering the bar to “win” the prize isn’t the only way to boost cartel investigations. It is past time for Congress to pass a criminal antitrust whistleblower statute.  In 2011, the SEC adopted their widely successful whistleblower program. The SEC’s latest  whistleblower award was to an overseas whistleblower for nearly $4 million (wonder if there might be any potential overseas cartel whistleblowers?)[3]  I’ve written extensively on Cartel Capers[4]about why a criminal antitrust whistleblower statute is the logical addition to a criminal antitrust enforcement program, so I won’t belabor the point here except to say that at one point it was thought (wrongly) that a whistleblower statute might undermine the leniency program. I co-authored an article with a former Division colleague, Kimberly Justice, that outlines the pros and knocks down the cons of a cartel whistleblower statute: “It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute.”  With leniency applications down, the whistleblower idea should get a serious, long look as a great supplement to leniency.

D.     Further International Cooperation to Reduce Burden on Leniency Applicants

Thanks in large part to the efforts of the Division, cartel enforcement agencies with leniency policies now exist in over 100 countries.  This success, however, has resulted in an increased burden on leniency applicants to deal with a proliferation of proffers, witness interviews and document requests in many languages.  This is natural and to some extent unavoidable. Each enforcement agency is going to protect its consumers (and budget) from substantial injury by an antitrust cartel.  But facing a growing gauntlet of cooperation obligations can deter an applicant from taking the initial plunge anywhere.

Suggestion: Competition agencies are already aware of the problem and are working towards solutions. Cooperation in an international cartel investigation is a little like voluntarily enlisting in the Hundred Years War.  Requiring witnesses to appear for interviews in multiple international jurisdictions can create inconsistent statements and resentful/tired witnesses.  Competition  agencies should give a heightened focus on reducing this burden. As the international cartel prosecution pie gets smaller, and with more mouths to feed, maybe the most injured jurisdictions can take the lead and other enforcement agencies can pass at taking a bite on the cartel and wait for the next meal to come along. Reducing cooperation burdens and redundancies will be difficult, but hopefully as each enforcement agency sees that progress is needed, it will come sooner rather than later

E.  Reopen Two Regional Field Offices

In late 2013, the Division closed down four regional field offices: Atlanta, Cleveland, Dallas and Philadelphia.  The Division did not just lose regional coverage, but it lost a significant  number of experienced cartel prosecutors.  The regional offices that were closed were all in low(er) costs cities where dedicated cartel attorneys could stay with the DOJ as a career and still raise families.  Continuity and institutional memory suffered a big blow when a sledgehammer was taken to the Division’s structure.

Suggestion:  From an earlier Cartel Capers post urging the reopening if at least the Atlanta and Dallas field offices:

International cartels are a worthy focus of Antitrust Division resources but it’s worth remembering that the field offices played a huge role in the development of the Division’s international cartel program. The modern era of international cartel enforcement was the Archer Daniels Midland case brought by the Chicago Field Office. The record $500 million fine and other convictions in the vitamins investigation led by the Dallas Field Office followed that.  The Philadelphia Field Office had some “firsts” with the graphite electrode investigation and the extradition, trial and conviction of British executive Ian Norris. San Francisco has had accomplishments too numerous to mention as have the criminal sections headquartered in DC with blockbusters like air cargo and auto parts. The point is that international cartels can be investigated and prosecuted wherever there are talented and dedicated antitrust enforcers. But as for regional conspiracies, I don’t believe the opposite is true. The strength of the field offices had always been their ability to network with investigative agencies from the FBI, the gamut of federal IG’s offices, state and local prosecutors and public procurement officials. These local contacts were crucial to educating agents and purchasers about antitrust violations, and giving them the information (and motivation) needed to spot and report possible collusion.

Regional conspiracies do not produce the extraordinary fines that international cartels can. But, there is merit to investigating and prosecuting regional cartels. First, the harm from bid rigging on public procurement is very focused. It isn’t a case of millions of consumers losing pennies on a purchase, but a federal, state or local entity losing a big chunk of its scarce tax dollars. Bid rigging schemes are often more effective at raising prices. They can also be very long-lasting as the structure of public procurement can make these awards both more susceptible to bid rigging and more difficult for market forces to disrupt in the short-term. For these reasons, the Sentencing Guidelines give a modest one-point bump for bid rigging, recognizing it generally has a more serious impact on the victim.

Finally, successful prosecution of a bid-rigging scheme can bring meaningful restitution to the public victim in the form of treble damages. It restores public confidence that tax dollars are being spent wisely. And the cost of publicly procured goods often sees a dramatic drop, sometimes even simply by the start of an investigation. I also think the prosecution and imprisonment of domestic price fixers and bid-riggers can generate publicity and pack more of a “deterrent punch” than prosecution of foreign executives, many whom remain fugitives. Additionally, if the Antitrust Division isn’t developing and prosecuting cases involving regional cartels, who is?

Conclusion

This is a good time for the Division to take stock of the cartel enforcement program and see if improvement can be made.  The leadership has had time to evaluate the program they inherited and see what they think works and what may be improved.  Or, maybe even launch new initiatives.  Richard Powers was fairly recently named as the Deputy Attorney General for Criminal Enforcement, so the team is together.  In all likelihood the evaluation is underway already.  But, it would be helpful to solicit ideas from the cartel defense bar, the private class action bar, economists, and academics to re-lock and reload the cartel enforcement program.

This was a long post.  Thanks for reading.  I welcome any feedback.

Bob Connolly  [email protected]

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[1]   Leniency Applicants were also cautioned that leniency only covered “the Antitrust Division’s exercise of its prosecutorial discretion in connection with self-reported criminal violations and does not prevent other components from prosecuting offenses other than Sherman Act violations.”  See, Bill Baer, Assistant Attorney General Antitrust Division, Prosecuting Antitrust Crimes, September 10, 2014, Georgetown University.

[2]   The updated FAQs were issued on January 17, 2017 and were reissued on January 26, 2017, adding to suspicion that the new FAQ’s was issued in haste without appropriate deliberation or deference to a new administration. The Division reissued the FAQs on January 26, 2017, because a footnote “was inadvertently omitted from the January 17 version.”

[3]  The SEC has now awarded over $326 million to 59 individuals since issuing its first award in 2012.  In that time, more than $1.7 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received by whistleblowers.

[4] The Bid Rigging Whistleblower, https://cartelcapers.com/blog/bid-rigging-whistleblower-part-1/; Its Time For An Antitrust Criminal Whistleblower Statute, https://cartelcapers.com/blog/time-antitrust-whistleblower-statute-part/; A Whistleblower Story (Hypothetical), https://cartelcapers.com/blog/a-whistleblower-story-hypothetical/.

Below is a post from the ABA announcing a free ABA program in Hong Kong that precedes a Hong Kong Competition Commission’s program.  Double value for solid information and networking.

[Read more…]

In the last Cartel Capers post, I tallied up the criminal cases filed by the Antitrust Division in FY 2018.  Measured by that standard, it was a pretty slow year for criminal antitrust enforcement. But, I also noted a couple of pretty important points to keep in mind: 1) criminal enforcement has always been somewhat cyclical.  As blockbuster matters such as the auto parts cases wound down, the statistics were bound to slide; and 2) any new administration is initially largely dependent for criminal case filings on matters left in the pipeline by the previous administration.  And I should humbly add that for all I know, the next big investigation may be in the works, or just an amnesty application away.

With that being said, below I discuss a few possible reasons why criminal case filings are down.  On the TV show Ancient Aliens, the narrator always prefaces his remarks with “Is it possible…..?” or “Some people say…..”  That is a good device to use here because I am merely throwing out ideas for consideration–“Is it possible…?” And I while I work with many people in the cartel bar, I never quote conversations unless asked.  “Some people say…” is enough said here.

1. It Is Possible Cartel Case Filings Are Down Because Deterrence Works?

             Is it possible (or naïve) to think that increased jail sentences, extradition, Red Notices, proliferation of active competition agencies and private damage litigation has led to a decline in the formation/existence of price-fixing/bid rigging cartels?   After all, as discussed in the next section, there is a growing belief in the antitrust bar that seeking amnesty has become cost prohibitive.  Perhaps executives are taking notice that cartels themselves are becoming cost prohibitive.  This is clearly not the only explanation—and there is a debate about whether current penalties are sufficient to deter cartels. But, I do recall that in the ADM lysine international cartel prosecution, only two US executives went to jail.  All foreign conspirators were immunized.  And the corporate defendants paid relatively small fines in relatively few jurisdictions. The only major private class action damage suits were brought in the United States.  I don’t have hard figures, but I imagine if you fixed prices all over the world, but paid penalties in few jurisdictions, it may have been a very profitable cartel.

The same cartel today would find many foreign executives indicted, enforcement actions by many more global competition agencies and a growing class action damage bar in many jurisdictions.  In very recent testimony to Congress, Makan Delrahim explained that a higher percentage of indicted defendants are actually being sentenced to prison and for a greater period of time.  There’s a debate about whether cartels are still profitable, but there can be no debate that the cost of getting caught in a cartel has gone up dramatically for both companies and individuals.  While not measurable (at least not by me), logic dictates that increased penalties must have some deterrent effect.

2. Is It Possible That It Has Become Too Costly to Obtain Amnesty?

            Some people say (and here, some people means many) that leniency is no longer always the best path to take if a cartel problem is uncovered.  The corporate decision-making has gone from a “no-brainer we should seek amnesty” to a more cautious “Is amnesty the best option here?” More and more, and this is just anecdotal, companies are sitting on the information they have and taking their chances that they can just stop the problematic conduct and lay low.  Seeking amnesty is still often the best course of action if a company discovers cartel activity, but it is not the easy choice it once was–or so some people say.

• Is It Possible That International Cooperation Creates Too Many Mouths for the Amnesty/Leniency Applicant to Feed?                                     

All the difficulties of seeking amnesty in the United States are multiplied by the fact that enforcement agencies all over the world have become more active in cartel enforcement.  A company (and individual) seeking amnesty/leniency, faces a decision of whether to report simultaneously in other jurisdictions. This is not always an easy call. If you report elsewhere (and elsewhere could be the EU, Japan, India, China, UK, Canada, Brazil—to name just a few jurisdictions) the costs in money and executives’ time for interviews jumps dramatically.  But, if the company does not report elsewhere, it could get beat to the punch by another company seeking leniency in other jurisdictions.

• Is it Possible that the Global Spread of Private Damage Litigation Has Slowed Down the Leniency Rush to the Courthouse?

Private damage litigation is increasing across the globe.  At one time, a company may reasonably hope that its private damages would be limited to the United States.  That is not so anymore. The United States has done a tremendous job of encouraging competition agencies around the world to take aggressive steps to combat cartels.  And private class actions, another form of deterrence and compensation to the victims, have also increased globally.  It’s been a bit of a double-edged sword—surely (hopefully) the increased parade of horribles that awaits a cartel that is exposed must deter some cartel formation—or end a cartel in existence.  It is likewise logical that the increased cost of seeking leniency has deterred some potential applicants from coming forward.

I discussed some of these issues in more detail in a May 2013 Law 360 article titled Corporate Leniency Should Come With a Warning Label:

             When a doctor discovers a patient has a life-threatening condition there is often a good news/bad news discussion. The good news is that there is a treatment; the bad news is that the side effects may be fatal. When a client comes to the antitrust doctor with a case of “cartelitis” the discussion of treatment options can run much along the same lines.

The side effects of seeking the leniency “cure” have only increased in the last five years.

3. Is It Possible the Last Administration Scared Away Amnesty Applicants With Certain Public Statements? 

Some people say that during the last administration the Antitrust Division took a much less welcoming tone with potential leniency applicants. Where the Division speeches previously emphasized the benefits of leniency and the Division’s willingness to work with leniency applicants to perfect the leniency application, certain speeches in the last administration focused on some of the burdens of being a leniency applicant.  In one speech, former Assistant Attorney General Bill Baer stated:

            We expect leniency applicants to make those investments, including conducting a thorough internal investigation, providing detailed proffers of the reported conduct, producing foreign-located documents, preparing translations, and making witnesses available for interviews. Companies unwilling or unable to make the investments necessary to meet these obligations, or those that think they can do so on a timetable of their own choosing, will lose their opportunity to qualify for leniency.

            When companies apply for leniency, their current employees may earn it too. (emphasis added). As with employers, however, leniency for employees is not an entitlement; it requires full and timely cooperation. To cooperate fully, individuals must be prepared to admit to all collusive conduct they participated in or know about. They need to be prepared to be candid and credible witnesses in front of a grand jury and at trial.”

Mr. Baer added:

            In recent years we have on occasion investigated jointly with other DOJ components conduct reported by a leniency applicant that involves both antitrust violations and other crimes, such as fraud, tax evasion, or corruption. Our leniency policy is quite clear that it governs only the Antitrust Division’s exercise of its prosecutorial discretion in connection with self-reported criminal violations and does not prevent other components from prosecuting offenses other than Sherman Act violations. See, Bill Baer, Assistant Attorney General Antitrust Division, USDOJ Prosecuting Antitrust Crimes, September 10, 2014, Georgetown University, available at, https://www.justice.gov/atr/file/517741/download

These statements are true, but quite a different tone than the more inviting “We are going to work with you to help you perfect your marker” tone that was central to many previous Division speeches.

On a similar note, in the very last days of the Obama Administration, the Antitrust Division issued a new and revised Frequently Asked Questions.  Some people say the changes in the document reflected a less certain path for individuals to amnesty—particularly former employees. The revisions also highlight that the amnesty protection does not extend to non-antitrust offenses. There has been no revision or explanation by the new administration of the changes in the FAQ.   FREQUENTLY ASKED QUESTIONS ABOUT THE ANTITRUST DIVISION’S LENIENCY PROGRAM AND MODEL LENIENCY LETTERS, Originally Published November 19, 2008, Update Published January 26, 2017

The real question is whether the practice of the Antitrust Division reflects a more demanding route to obtaining amnesty.  Some people say it has with an ever-increasing demand from the Antitrust Division to produce witnesses and documents, and a more uncertain fate for cooperating employees, in a very lengthy and exhaustive investigation before receiving a conditional leniency letter.

4. Is It Possible that ACPERA Has Been a Failure at Encouraging Leniency Applicants?

            When the  Antitrust Criminal Penalty Enhancement and Reform Act (“ACPERA”) was passed in 2004, an important provision designed to help promote whistleblowers (i.e. amnesty applicants) was that amnesty recipients who also provided “substantial cooperation” to the private damage plaintiffs would have their civil exposure limited to single, instead of treble damages.  Some people say that the single damage “carrot” has been ineffective for reasons similar to those mentioned above.  The cost of cooperating with the private bar has become too high in terms of the extent and cost of cooperation demanded.  And, the process of knowing whether you have satisfied “substantial cooperation” and qualify for the single damages is too lengthy and uncertain.

5. Is It Possible Closing Four Field Offices in 2013 Hurt Cartel Enforcement?

             Some people, including me, say YES.  In 2013, the Antitrust Division closed four field offices (Atlanta, Cleveland, Dallas and Philadelphia).  Each of these offices had brought international price-fixing cases. Notably, the Dallas Office brought the Vitamins cases and the Philadelphia Office brought the Graphite Electrode cases.  Each closed field office (and the ones still open) brought international cartel cases—too many to mention. But Vitamins and Graphite Electrodes are worth a mention because these two matters were some of the early successes of the international cartel program bringing in hundreds of millions of dollars of fines.

The field offices were in large measure responsible for developing their own cases through various outreach efforts.  This was a huge incentive to get out and talk to investigative agents, run down every lead and conduct thorough investigations.  This not only led to certain large international price-fixing cases, but gave the Antitrust Division a regional presence that was key to developing bid rigging cases on government contracts based on leads brought by agents in our respective territories.

6. Is It Possible The Antitrust Division Has a Shortage of Experienced Investigators?

            The Antitrust Division has always attracted top talent; people who believe in the antitrust laws, and cartel enforcement specifically.  That is still the case as the Antitrust Division is stocked with talent.  But some people say that current staff may collectively have less than optimal experience in investigating cartel cases.  Two decades or more of amnesty applicants bringing cases to the Division with amnesty applications can deaden the hunter’s skill in chasing down the prey. And closing the field offices scattered many experienced hunters into retirement, private practice and even blogging! People may forget, but before there was leniency there was still robust cartel enforcement.  The grand jury is still an effective tool to take a lead and see if it can uncover a cartel. But, since leniency has predominated there has been less of a need to make cases “the old fashion way.”  To cite a lack of investigative experience, of course, is a generalization but I can say that early in my career I was in the grand jury several times a month questioning lower level executives (and sometimes very senior executives), working our way up to try to build a case.  The Philadelphia Office usually had three standing active grand juries—in Philadelphia, Pittsburgh and New Jersey.  By the time I left in 2013 we did not have any exclusive antitrust grand juries.  Cooperating witness interviews had taken the place of grand jury interrogation.  Our use of grand jury time was limited.   When needed, we would use time in a US Attorney’s grand jury—usually simply to put on the evidence we needed to return an indictment.  But since most cases were voluntary pleas–Informations– even the indicting grand jury was not used very often.

There will likely always be periods when the amnesty pipeline is a little dry. It’s good to have a few people around who remember how to dig from the ground up.

Conclusion

            Some things that may decrease amnesty applications such as increased international enforcement and greater ability globally for customers to seek damage remedies are good things, even if they are expensive toll booths on the road to amnesty.  But, some people also think there are ideas consistent with robust cartel enforcement that may help return a sheen of attractiveness to seeking amnesty.  It’s possible I’ll discuss those in an upcoming blog.

Thanks for reading.

On October 3, 2018 Antitrust Division Assistant Attorney General Makan Delrahim testified before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.  A copy of Mr. Delrahim’s prepared remarks can be found here.

            The first team I can remember rooting for was the 1962 Mets. They went 40–120 (.250) and finished last in the National League, ​60 1⁄2 games behind the NL Champion San Francisco Giants.  The statistics for criminal cases filed by the Antitrust Division for the 2018 Fiscal Year that closed on September 30, 2018 were pretty close to being that bad.  There were 14 case filings naming 18 defendants; 8 of the cases were real estate foreclosure auctions.  By contrast, a high water mark was FY 2011 when 90 cases were filed against 109 Defendants.

Before anyone thinks, “Well it’s the Republicans” or somehow Makan Delrahim isn’t doing a good job, recall that the 1962 Mets were skippered by Casey Stengel—a Hall of Fame manager.  Stengel’s Yankees won the World Series five consecutive times (1949–1953).  Stengel remarked about the 1962 Mets “Can’t anyone here play this game?”  Delrahim may have quipped: “Didn’t they (the prior administration) leave me any cases in the pipeline?”  The investigation period for a criminal antitrust case is lengthy.  To a large extent, a new administration is bringing charges stemming from investigations that began under the previous administration.  So, don’t shoot the current Sheriff.

The next Cartel Capers post will explore some of the reasons the Antitrust Division’s case have tailed off so dramatically.  Also, I’d like to talk about some ways to get the pipeline full again (perhaps it is but its not yet apparent).  I welcome any reader comments about why case filings–particularly international cartel cases– may be down (other than it’s a cyclical business and auto parts and financial crime cases ran their course).  Are there ideas out there about what the Antitrust Division could be doing to generate a more robust criminal enforcement program?

Below are my very unofficial statistics for Antitrust Division criminal case filings for Fiscal 2018.  I have not compiled fines, but I believe the only “substantial fine” is the $90 million imposed on BP Paribas in a currency manipulation case.

PS.  I was a Casey Stengel fan even later in life. When I was Chief of the Antitrust Division’s Philadelphia Field Office I always followed Casey’s advice on being a successful manager: “The secret of successful managing is to keep the five guys who hate you away from the four guys who haven’t made up their minds.”  And, like Casey, I was eventually canned; when my office got whacked in 2013.

Antitrust Division Fiscal 2018 Cases  (unofficial)

Criminal Cases Filed:   14

Indictments:   6

Informations:  8

Total Defendants:       18

Corporate Defendants:  3

Individuals:     15

Cases by Subject Matter

Foreclosure auction -8

Seafood -1

Financial services – 2

Construction -2

Capacitors -1

1)         August 20, 2018         U.S. v. Detloff Marketing and Asset Management, Inc. et al.                                                               District of Minnesota

https://www.justice.gov/atr/case/us-v-detloff-marketing-and-asset-management-inc-et-al; press release at:

https://www.justice.gov/opa/pr/minnesota-real-estate-company-realtor-and-accountant-indicted-mail-and-wire-fraud-scheme

2)         June 8, 2018               U.S. v. Ivan Spinner            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-ivan-spinner  (real estate foreclosure auctions)(SD Miss.)(no press release)

3)         May 16, 2018             U.S. v. Christopher Lischewski       California, Northern District

https://www.justice.gov/atr/case/us-v-christopher-lischewski; (ND. Cal.)press release: https://www.justice.gov/opa/pr/bumble-bee-ceo-indicted-price-fixing

4)         May 10, 2018             U.S. v. Akshay Aiyer            New York, Southern District

https://www.justice.gov/atr/case/us-v-akshay-aiyer(currency exchange, S.D. NY);press release:

https://www.justice.gov/opa/pr/former-currency-trader-indicted-participating-antitrust-conspiracy

5)         April 10, 2018            U.S. v. Chad Nichols            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-chad-nichols  (real estate foreclosure auction bid rigging)(SD Mississippi)(no press release)

6)         April 3, 2018              U.S. v. Kevin Moore            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-kevin-moore  (real estate foreclosure auction bid rigging)(no press release)

7)         April 3, 2018              U.S. v. Terry Tolar               Mississippi, Southern District

https://www.justice.gov/atr/case/us-terry-tolar  (real estate foreclosure auctions bid rigging) (no press release)

8)         February 1, 2018       U.S. v. Jason Boykin            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-jason-boykin  (real estate foreclosure bid rigging) (no press release)

9)         Feb 1, 2018     U.S. v. Shannon Boykin                   Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-shannon-boykin (real estate foreclosure bid rigging) (no press release)

10)       January 25, 2018       U.S. v. BNP Paribas USA, INC.      New York, Southern                                                             District  ($90 million fine)

https://www.justice.gov/atr/case/us-v-bnp-paribas-usa-inc  (price fixing currencies)(no press release)

11)       November 2, 2017     U.S. v Avi Stern, Stuart Hankin, Christopher Graeve                                                                      Florida, Southern District

https://www.justice.gov/opa/press-release/file/1008621/download(copy of Indictment); press release:

https://www.justice.gov/opa/pr/three-real-estate-investors-indicted-bid-rigging-florida-online-foreclosure-auctions

12)       October 19, 2017                   U.S. v. Kenneth Keyes and Leroy Weber

                                                                    California, Eastern District

https://www.justice.gov/atr/case/us-v-kenneth-keyes-and-leroy-weber   (Conspiracy to Defraud United States—commercial construction); press release;  https://www.justice.gov/opa/pr/roofing-company-owner-and-former-facilities-manager-sierra-army-depot-indicted-conspiracy

13)       October 18, 2017                   U.S. v. Nippon Chemi-Con Corporation

                                                                   California, Northern District

https://www.justice.gov/atr/case/us-v-nippon-chemi-con-corporation  (capacitor price fixing), press release https://www.justice.gov/opa/pr/leading-electrolytic-capacitor-manufacturer-indicted-price-fixing

There is a sentencing hearing for Nippon Chemi-Con on October 3, 2018.  The plea agreement calls for a fine of between $40 and $60 million.  NCC may withdraw its plea if the Judge imposes a fine greater than that called for by the plea agreement.  See Cartel Capers: https://cartelcapers.com/blog/will-antitrust-division-need-compliance-monitor/

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14*      October 19, 2017                   U.S. v. Yama Marifat [2018]            E.D. Cal        

                                                                  Case No. 2:17-cr-00189 

[This is an unusual case.  The original Information was filed in 2011.  The defendant pled guilty but later successfully withdrew his guilty plea. The Antitrust Division subsequently indicted him in 2017. I counted this Indictment in the statistics, though it was already counted in 2011.]

https://www.justice.gov/atr/case-document/file/502276/download  (1/28/2011); press release

https://www.justice.gov/opa/pr/real-estate-investor-indicted-bid-rigging-eastern-district-california