A guest post from Ai Deng of Bates White Economic Consulting:

If AI (artificial intelligence, but not yours truly) is the technology word of 2017 in the antitrust community,  then blockchain may very well be the technology word of 2018. In fact, leading the way once again, OECD is hosting a conference on blockchain and competition policy on June 8. See http://www.oecd.org/daf/competition/blockchain-and-competition-policy.htm.

Many of us probably heard about Bitcoin before the word blockchain, which is the name of the technology that underlies Bitcoin and many other cryptocurrencies in the market right now. But the blockchain technology go well beyond digital currencies. Some have argued that it has the potential to revolutionize many industries. Numerous start-ups have popped up in the last couple of years, all trying to take advantage of the blockchain technology.

As new technologies change how we live our lives, new legal questions arise at the same time. So far, the legal community has identified several potential issues with cryptocurrencies and the broader application of the blockchain. In my latest article, I discuss the particular issue of collusion. Does the so-called the smart contracts that are often built upon a blockchain facilitate collusion? If so, in what ways?

As the readers of my articles on antitrust implications of AI and machine learning are probably aware, I am always of the opinion that to better understand the legal and in particular antitrust implications of a new technology, it is crucial that we develop a sound understanding of it. In this article, I provide an intuitive introduction to the technologies, with the legal/antitrust audience in mind. You can download this paper at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3187010

As always, I appreciate your thoughts and comments. You can reach me at [email protected] or connect with me on LinkedIn [here]

Ai Deng, PhD

Principal at Bates White Economic Consulting

Lecturer at Advanced Academic Program, Johns Hopkins University

direct: 2022161802 | fax: 2024087838

2001 K Street NW, North Building, Suite 500, Washington, DC 20006

Thanks for reading.

Bob Connolly

The headline sounds funny, but the story is no laughing matter.  A plea agreement in the electrolytic capacitor investigation between the United States and Nippon Chemi-Con (“NCC”) is in jeopardy because of an unfortunate conflict of interest lapse by an attorney at the Department of Justice.  There was a hearing before Judge Donato yesterday on NCC’s change of plea.  Judge Donato, who has been critical of previous plea agreements in the electrolytic capacitor investigation, accepted the guilty plea but reserved judgment on the sentence to be imposed.  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.  A sentencing hearing is scheduled for October 3, 2018.

Background

On October 18, 2017 a federal grand jury returned an indictment against NCC for participating in a conspiracy to fix prices for electrolytic capacitors. The indictment, filed in the U.S. District Court for the Northern District of California, charges that NCC, based in Japan, conspired to fix prices for electrolytic capacitors from as early as September 1997 until January 2014.  Three current NCC executives, and one former NCC executive, were previously indicted for their participation in the conspiracy: Takuro Isawa, Takeshi Matsuzaka, Yasutoshi Ohno, and Kaname Takahashi.  The DOJ’s press release can be found here.

The indictment alleges NCC carried out the conspiracy by agreeing with co-conspirators to fix prices of electrolytic capacitors during meetings and other communications.  According to the indictment, NCC and its co-conspirators took steps to conceal the conspiracy, including the use of code names and providing misleading justifications for prices and bids submitted to customers in order to cover up their collusive conduct.  The indictment can be found here.

To date, eight companies and ten individuals have been charged with participating in the conspiracy to fix prices of electrolytic capacitors.

The Problem (if you’re the Government) or Opportunity (if you’re the defense)

The issue that was debated at the change of plea hearing before Judge Donato was first identified in a Joint Status Report filed on May 11, 2018.  The parties reported that an attorney who formerly had represented NCC left his law firm, joined the Department of Justice and later did some work on an MLAT request the Department filed with the Japanese government that related to NCC.  In the Status Report the Antitrust Division wrote:

“The attorney left Firm A and joined OIA in February 2015. Shortly thereafter, in March 2015, he performed several tasks to assist the Antitrust Division in executing and transmitting a Mutual Legal Assistance Treaty (“MLAT”) request to interview a witness in Japan, on topics including NCC’s conduct in the charged price-fixing conspiracy. The Antitrust Division remained unaware of his prior representation of NCC until February 15, 2018.”

The Antitrust Division conceded that the attorney should have recused himself but argued that there was no prejudice to NCC.  NCC strongly disagreed about the impact of a defense attorney “switching sides.”  The company unsuccessfully lobbied the DOJ to dismiss the indictment.  That request was declined but a plea agreement was reached that clearly was more favorable to NCC than the Antitrust Division  might have offered without the conflict issue.  The complete Status Report on the matter can be found here:  Case 4-17-cr-00540-JD Document 47 Filed 05:11:18

The Change of Plea Hearing

Judge Donato accepted the plea of NCC but reserved judgment on the sentence.  Sentencing is scheduled for October 3, 2018.  Judge Donato has required changes to negotiated plea agreements with other defendants in the capacitor investigation believing them to be too lenient.  If Judge Donato does not agree to sentence NCC within the parameters of its plea agreement, NCC can withdraw its plea.  The court spent approximately 30 minutes in closed session exploring the impact on the conflict lapse on the terms the Antitrust Division offered in the plea agreement.

Judge Donato was obviously upset at the lack of procedures at the DOJ to identify and prevent this conflict.  The Antitrust Division tried to demonstrate that it took the matter seriously by sending Marvin Price, the Acting Deputy Assistant Attorney General for Criminal Enforcement out to San Francisco to represent the Government at the hearing.

The case is U.S. v. Nippon Chemi-Con Corp., case number 4:17-cr-00540-JD.

More to come.

As many of you know, I spent my career with the Antitrust Division in the now closed Philadelphia field Office. I retired from the DOJ in 2013 and split time between Philadelphia and DC, working first with one of the world’s largest firms and then in a very small firm with a few of my colleagues who also had left the Antitrust Division. Over the last 18 months, I have been in transition to Palm Springs, California.  I am now a full-time resident of the California—the Golden State.

Since leaving the Antitrust Division, I have represented individuals in white-collar investigations, assisted plaintiffs in class action cases, and provided competition compliance for corporations.  I have also successfully handled a number of whistleblower (qui tam) cases.  Bid rigging qui tams on public contracts is a particular interest of mine; it always has been from my days at the Antitrust Division.  I have also handled various litigation matters such as successfully defending a Chinese company against spurious charges (dropped) that they were importing counterfeit coins.  I hope to continue working—on either Coast, as I enjoy visiting back East.  I still consult on some matters as Of Counsel with GeyerGorey, but I am now on my own and can be reached here.

I will continue with Cartel Capers and writing for other competition law outlets.   I appreciate everyone who reads the blog.  Antitrust/competition law has provided me with an extremely interesting career.  I’ve been blessed to work in an area that I am passionate about and I’m not done yet.

I have a new email address, though I’ll still get messages from my old address.  [email protected].

Thanks for reading.

Admitted:  California and Pennsylvania

According to a Department of Justice press release, on May 16, 2018 a federal grand jury returned an indictment against Christopher Lischewski, the President and Chief Executive Officer of Bumble Bee Foods LLC, for participating in a conspiracy to fix prices for packaged seafood sold in the United States. The indictment was filed in the U.S. District Court for the Northern District of California in San Francisco, and charged Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.

On May 9, 2018 Deputy Attorney General Rod Rosenstein delivered remarks to the New York City Bar White Collar Crime Institute. He announced a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.  The full prepared remarks are here.  Below is an excerpt:

Today, we are announcing a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.

The aim is to enhance relationships with our law enforcement partners in the United States and abroad, while avoiding unfair duplicative penalties.

It is important for us to be aggressive in pursuing wrongdoers. But we should discourage disproportionate enforcement of laws by multiple authorities. In football, the term “piling on” refers to a player jumping on a pile of other players after the opponent is already tackled.

Our new policy discourages “piling on” by instructing Department components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.

In highly regulated industries, a company may be accountable to multiple regulatory bodies. That creates a risk of repeated punishments that may exceed what is necessary to rectify the harm and deter future violations.

Sometimes government authorities coordinate well.  They are force multipliers in their respective efforts to punish and deter fraud. They achieve efficiencies and limit unnecessary regulatory burdens.

Other times, joint or parallel investigations by multiple agencies sound less like singing in harmony, and more like competing attempts to sing a solo.

Modern business operations regularly span jurisdictions and borders. Whistleblowers routinely report allegations to multiple enforcement authorities, which may investigate the claims jointly or through their own separate and independent proceedings.

By working with other agencies, including the SEC, CFTC, Federal Reserve, FDIC, OCC, OFAC, and others, our Department is better able to detect sophisticated financial fraud schemes and deploy adequate penalties and remedies to ensure market integrity.

But we have heard concerns about “piling on” from our own Department personnel. Our prosecutors and civil enforcement attorneys prize the Department’s reputation for fairness.

They understand the importance of protecting our brand. They asked for support in coordinating internally and with other agencies to achieve reasonable and proportionate outcomes in major corporate investigations.

And I know many federal, state, local and foreign authorities that work with us are interested in joining our efforts to show leadership in this area.

“Piling on” can deprive a company of the benefits of certainty and finality ordinarily available through a full and final settlement. We need to consider the impact on innocent employees, customers, and investors who seek to resolve problems and move on. We need to think about whether devoting resources to additional enforcement against an old scheme is more valuable than fighting a new one.

Our new policy provides no private right of action and is not enforceable in court, but it will be incorporated into the U.S. Attorneys’ Manual, and it will guide the Department’s decisions.

This is another step towards greater transparency and consistency in corporate enforcement. To reduce white collar crime, we need to encourage companies to report suspected wrongdoing to law enforcement and to resolve liability expeditiously.

There are four key features of the new policy.

First, the policy affirms that the federal government’s criminal enforcement authority should not be used against a company for purposes unrelated to the investigation and prosecution of a possible crime. We should not employ the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case.

That is not a policy change. It is a reminder of and commitment to principles of fairness and the rule of law.

Second, the policy addresses situations in which Department attorneys in different components and offices may be seeking to resolve a corporate case based on the same misconduct.

The new policy directs Department components to coordinate with one another, and achieve an overall equitable result. The coordination may include crediting and apportionment of financial penalties, fines, and forfeitures, and other means of avoiding disproportionate punishment.

Third, the policy encourages Department attorneys, when possible, to coordinate with other federal, state, local, and foreign enforcement authorities seeking to resolve a case with a company for the same misconduct.

Finally, the new policy sets forth some factors that Department attorneys may evaluate in determining whether multiple penalties serve the interests of justice in a particular case.

Sometimes, penalties that may appear duplicative really are essential to achieve justice and protect the public. In those cases, we will not hesitate to pursue complete remedies, and to assist our law enforcement partners in doing the same.

Factors identified in the policy that may guide this determination include the egregiousness of the wrongdoing; statutory mandates regarding penalties; the risk of delay in finalizing a resolution; and the adequacy and timeliness of a company’s disclosures and cooperation with the Department.

Cooperating with a different agency or a foreign government is not a substitute for cooperating with the Department of Justice. And we will not look kindly on companies that come to the Department of Justice only after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments. In those instances, the Department will act without hesitation to fully vindicate the interests of the United States.

The Department’s ability to coordinate outcomes in joint and parallel proceedings is also constrained by more practical concerns.  The timing of other agency actions, limits on information sharing across borders, and diplomatic relations between countries are some of the challenges we confront that do not always lend themselves to easy solutions.

The idea of coordination is not new. The Criminal Division’s Fraud Section and many of our U.S. Attorney’s Offices routinely coordinate with the SEC, CFTC, Federal Reserve, and other financial regulators, as well as a wide variety of foreign partners. The FCPA Unit announced its first coordinated resolution with the country of Singapore this past December.

The Antitrust Division has cooperated with 21 international agencies through 58 different merger investigations during the past four years.

Here is a link to the policy on Coordination of Corporate Resolution Penalties.

As the Deputy Attorney General stated, coordination is not new.  The Antitrust Division routinely coordinates with other federal and state agencies on most investigations.  And some coordination always occurs on international investigations.  In the recent financial crimes investigations such as Libor and FOREX the amount of coordination was extensive among federal agencies such as the Antitrust Division, Criminal Division, FBI, SEC, CFTC, state AG office, as well as with many foreign jurisdictions.  It is rumored that meetings were held in the Great Hall at the Department of Justice since no conference room could hold the throngs of participating enforcers.

Coordination by the Antitrust Division with enforcers from other federal, state and international enforcers is not new, but there is a continual debate about whether such coordination prevents “piling on.”  Of course, what a defense attorney may call piling on, the prosecutors may deem to be a hard but fair hit.  There is no referee or instant replay.  The question of piling on or double counting is a subject of continuing debate in antitrust circles.  It’s a tough question as foreign jurisdictions are injured by international cartels and they have stakeholders that want a significant penalty.  Sorting out proportional penalties among sovereign nations is a particularly tough ongoing challenge. This new policy document is not going to end that debate but a written policy document (while creating no new rights) could enhance defendants’ power of persuasion with the Department of Justice if they have some credible numbers to back up a “piling on” argument.

Thanks for reading.

PS.  Several publications have reported that Richard Powers will become the next Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division.  The Antitrust Division has made no announcement yet.  One of the many qualifications Mr. Powers will bring to the position, if he is named as the Criminal Deputy, is his experience in multi-agency, international prosecutions. He worked on both Libor and Forex while a member of the Antitrust Dvision’s New York Field Office.

Yesterday John Pecman gave his last public talk as Commissioner of Competition for the Canadian Competition Bureau.  The remarks were made at the Canadian Bar Association’s Spring Conference in Toronto.  Mr. Pecman became acting Commissioner in 2012 and was subsequently named Commissioner.  In his final remarks (here), Mr. Pecman discussed the four goals he had as Commissioner and the successes the agency achieved in realizing those goals:

“Looking at this job, I saw four must-do things to make the transition work:

• Adopt a shared compliance approach;
• Increase our guidance;
• Enhance our domestic and international partnerships; and
• Restructure the organization through an internal realignment.”

As always, Mr. Pecman was candid in describing areas where improvement was needed.  For example:

“Simply put, the Bureau’s current cartel model is inefficient.

It ties up Bureau resources and leads to poor outcomes. It needs to be examined and repaired, in keeping with the approach adopted by a number of our international counterparts, like the ACCC, who have employed “dual track” approaches to proceeding against hard-core cartels.”

Lastly, I was happy to see that Mr. Pecman and I share a strong support of “whistleblower” programs to prevent, destabilize and prosecute cartels.  Mr. Pecman stated:

Finally, I firmly support establishing a stand-alone “whistleblower” program, similar to the model employed by the Ontario Securities Commission and some of our international counterparts, which would provide financial rewards to whistleblowers who provide information and meet certain eligibility requirements. This would be an extremely effective enforcement tool for addressing the most egregious and most challenging anti-competitive behaviour to detect.

The full text of Mr. Pecman’s remarks is here.

I have written numerous posts on Cartel Capers in support of whistleblower legislation (here) (here).  They are summarized in an article I coauthored with a former Antitrust Division colleague, Kimberly Justice.  The article, “It’s a Crime There Isn’t A Criminal Antitrust Whistleblower Statute” can be found here.

Thanks for reading.  And many thanks to John Pecman for his long service on behalf of consumers and competition law enforcement.  Congratulations John on your successful stewardship!

In a recent Cartel Capers post, I wrote about the first instance where the Competition Commission of India granted 100% immunity from a fine under the CCI’s leniency provisions (here).  Below is some additional important information on the case provided by the New Delhi, India Iaw firm of Luthra & Luthra.

***************************************************

Luthra & Luthra Guest Post:  CCI on leniency[1]

In its second decision based on a leniency application, the CCI held Eveready Industries, Indo National, and Panasonic Energy India Co. guilty of cartelizing in the market for dry cell batteries along with the Association, which was found to facilitate the cartel. Complete immunity from the fine was granted to Panasonic (and the six employees found to be involved), being the first leniency applicant,[2] and based on which the investigation was opened. The office of the Director General of Investigation carried out raids on the premises of all three companies. Following the raids, Eveready and Indo National also decided to file leniency applications, in that order, shortly after the raid. The Association, for some odd reason, decided to contest the charges.

Since all the manufacturers applied for leniency, the tussle was mainly for securing the maximum reduction in penalty possible based on the nature of their respective disclosures and the vitality of the evidence presented. With respect to Eveready and Indo Nat, the Commission observed that the evidence seized by the DG during the dawn raid was independently sufficient to establish the cartel and the additional evidence submitted by them post the raid did not result in ‘significant value addition.’  However, considering they had provided genuine, full, continuous and expeditious cooperation during the course of investigation, the CCI granted Eveready (and their office bearers) a reduction of 30 per cent and Indo National (and their office bearers) a reduction of 20 per cent in the total leviable penalty. The Association of course received no such reduction.

The big negative – the CCI discloses a disturbing amount of detail in its order, including the names of the certain customers; description of specific pieces of evidence such as emails, their senders and recipients, dates and contents; and the extent of overcharge.

Confidentiality is of extreme importance to leniency applicants who run the risk of follow-on civil damages claims and reputational loss. Without broad and robust confidentiality protection, potential leniency applicants may be deterred from coming forward to report cartel activity. Publishing details as the CCI has done could potentially attract numerous claims, which in-turn would act as a huge disincentive for future applicants seeking leniency. This is more so for global cartel participants, who may face claims not only in India but in other jurisdictions.

Third party access to leniency documents is another sensitive topic and it remains to be seen whether, and to what extent, the CCI will allow access to potential claimants.

***********************************************************

[1] This post does not constitute legal advice.  Should you require any assistance or clarifications, please feel free to contact the Competition Law Team at [email protected] or any of the contacts listed alongside. CONTACTS: Gurdev Raj Bhatia, Partner – Head Competition Law; Abdullah Hussain Partner; Kanika Chaudhary Nayar, Partner.

[2]  Under Section 46 of the Act and the CCI’s Lesser Penalties Regulations, 2009.

Dr. Ai Deng of Bates White Economic Consulting has been a long time and frequent contributor to Cartel Capers.  He is a leading voice in the area of artificial intelligence and algorithmic collusion.  You can follow him on LinkedIn (here).  HIs most recent post is below:

************************************

The European Union just announced proposed rules designed to guarantee protection to whistleblowers who report infringements of EU law.  The proposal requires approval from EU countries and the European Parliament before it can become law. Currently only 10 EU countries offer full protection to whistleblowers.

From the EU Press Release

Brussels, 23 April 2018

Recent scandals such as Dieselgate, Luxleaks, the Panama Papers or the ongoing Cambridge Analytica revelations show that whistleblowers can play an important role in uncovering unlawful activities that damage the public interest and the welfare of our citizens and society.

Today’s proposal will guarantee a high level of protection for whistleblowers who report breaches of EU law by setting new, EU-wide standards. The new law will establish safe channels for reporting both within an organisation and to public authorities. It will also protect whistleblowers against dismissal, demotion and other forms of retaliation and require national authorities to inform citizens and provide training for public authorities on how to deal with whistleblowers.

First Vice-President Frans Timmermans said: “Many recent scandals may never have come to light if insiders hadn’t had the courage to speak out. But those who did took enormous risks. So, if we better protect whistleblowers, we can better detect and prevent harm to the public interest such as fraud, corruption, corporate tax avoidance or damage to people’s health and the environment. There should be no punishment for doing the right thing. In addition, today’s proposals also protect those who act as sources for investigative journalists, helping to ensure that freedom of expression and freedom of the media are defended in Europe.”

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality added: “The new whistleblowers’ protection rules will be a game changer. In the globalised world where the temptation to maximise profit sometimes at the expense of the law is real we need to support people who are ready to take the risk to uncover serious violations of EU law. We owe it to the honest people of Europe.

The European Commission also issued a press release on Whistleblower Protection: Frequently Asked Questions

My former Antitrust Division colleague, Kimberly Justice and I have been advocating strongly for a criminal antitrust whistleblower statute; one that would not only give retaliation protection to whistleblowers but would provide a financial incentive for information that leads to exposure and prosecution of a cartel.  See It’s a Crime There Isn’t an Criminal Antitrust Whistleblower Statute.

One objection I’ve heard to a criminal antitrust whistleblower statute is that a whistleblower statute would undermine the Corporate Leniency program.  I think the truth would be quite the opposite.  Once a whistleblower helps initiate a cartel investigation, the race would be on to be the first company to qualify for leniency.  Also, the fact that a whistleblower could come forward may also increase Type A Corporate Leniency—leniency for a company that self-reports before there is even an investigation. And, in the ideal world (except for those of us who make a living from cartel investigations), the threat of a whistleblower would prevent a cartel from forming in the first place.  This notion was expressed in a Reuters article about the proposed EU legislation (here):

The Association of Chartered Certified Accountants (ACCA) said increasing whistleblower protection will help businesses.

“Companies have to see speak-up as something that would help them manage risks and avoid more serious issues such as violation of law, inappropriate conduct, crime or any type of harms,” ACCA head of corporate governance Jo Iwasaki said.

Thanks for reading.  Bob Connolly