On March 16, 2016, Antitrust Division’s New York Field Office obtained a conviction against John Bennett the former Chief Executive Officer with Bennett Environmental Inc., a Canadian-based company that treated and disposed of contaminated soil. Bennett was convicted on an indictment returned on Aug. 31, 2009 that charged that he participated in the conspiracy by approving kickbacks to Gordon McDonald, the project manager at the Federal Creosote site, for “last looks” (i.e. the bids submitted by other contractors that Bennett could then undercut).  The kickbacks were in the form of money transferred by wire to a co-conspirator’s shell company, lavish cruises for senior officials of the prime contractor, and various entertainment tickets. The indictment alleged conspiracy began at least as early as December 2001 and continued until approximately August 2004. The Antitrust Division had sought Bennett’s extradition from Canada since 2009. On November 17, 2014 Bennett was extradited and made his first appearance before a US District Court Judge in New Jersey.

Bennett’s trial started about three and a half weeks ago and featured the testimony of a Bennett subordinate who himself had pled guilty and was sentenced to 14 years in prison. The jury convicted Bennett of both counts: one count of conspiracy to commit wire fraud and major fraud against the United States and one count of substantive major fraud for his role in the bid-rigging scheme, which prosecutors said netted the contractor $43 million in ill-gotten contracts. An $80,000 Mediterranean cruise, a $4,000 flat-screen television and a pricey wine refrigerator were among the gifts Bennett Environmental Inc. gave in exchange for information about the bid prices of Bennett’s competitors for a toxic waste cleanup project.

The interesting part of the case for me was the question of why Bennett chose to go to trial, and, of course, I can only speculate. One reason to go to trial is because you believe you are innocent (or believe the government cannot prove its case beyond a reasonable doubt), and you hope to be acquitted.  It can be often difficult for the government to convict “the boss” because the evidence often is solely that of a subordinate who says the boss knew what was going on and approved the illegal conduct. Subordinates are subject to tough cross-examination for the “deal” they got for cooperating with the government and other possible impeachment problems that may be in their background. If the sole or principal evidence against the “boss’ is the testimony of a subordinate, a jury will often conclude the boss probably knew, but the government did not prove its case “beyond a reasonable doubt.”

Indeed, Bennett said he was unaware of the illegal conduct of a subordinate who he called a “misguided drug addict.” And, since the conspiracy ended long ago in 2004, and Bennett’s extradition fight delayed the trial by many years, Bennett might also have hoped that he would benefit from fading memories. But here, the testimony of the subordinate was corroborated by incredibly incriminating emails that showed Bennett’s direct knowledge of the scheme. One email to Bennett detailed the particulars of the scheme; another incriminating email said “Print and Delete.” Bennett’s explanations varied from, “I’m not sure I even had a computer at that time, if I did, it might not have been working, if it was working, I never read the emails.” He also testified that he thought the “Print and Delete” email was some kind of joke.  There were also very incriminating phone records.  Still, given the long sentence Bennett faced under the guidelines, and the long fourteen year sentence already received by his subordinate that might normally be a “floor” for the boss, Bennett might have thought that even a small chance of acquittal was worth the chance. [And a convicted defendant gets another shot on appeal.].

Another reason cases sometimes go to trial, in my opinion, is because they can serve as an extended sentencing hearing, giving the defense a chance to show the court the limited role of the defendant, or how the defendant’s role compared to other conspirators who may have gotten leniency, or very reduced sentences. Even after conviction after trial, courts have typically departed downward from the Antitrust Division’s recommendation of a very long guideline sentences. But, as noted above, in this case Bennett made the unusual choice to testify. The choice to testify was particularly risky in light of the damning emails the government had.  Its true, that without some explanation of the emails, it highly probable Bennett would have been convicted. But, by testifying, Bennett seemingly put himself in a worse position for sentencing. The jury did not believe his testimony and it is highly unlikely the sentencing judge found him credible. Putting the government to its proof, while the defendant’s right to be sure, is a sentencing “demerit” on the acceptance of responsibility score. Bennet likely made his situation much worse by testifying. One reason white-collar defendants don’t often take the stand is because if the judge believes that defendant has given false testimony, under oath, in their courtroom, this can really put the defendant in the hole (not literally).  Under the circumstances, it would be unlikely that Mr Bennet could receive a sentence less than 14 years received by his subordinate.  Mr. Bennett, however, is 80 years old, so his sentencing presents so interesting issues.

Sentencing is scheduled for June 27, 2016 before Judge Susan D. Wigenton. The fraud conspiracy for which Bennett was found guilty carries a maximum penalty of five years in prison and a $250,000 criminal fine. The major fraud against the United States conviction carries a maximum of ten years in prison and a $1 million criminal fine for individuals. The maximum may be increased to twice the gain derived from the crime or twice the loss. Mr. Bennett intends to appeal his conviction.

A Word About “Last Look” Schemes

The case involved a “last look” scheme, not an “antitrust”bid-rigging scheme. No Sherman Act violation was charged. In a Sherman Act bid rig, one competitor asks another (or multiple competitors) to come in over a certain bid price with a complementary (cover) bid. (i.e. be over $1 million).  In this case, the conspirators paid off an insider for a “last look” so they can come in with a lower price. In theory, the “last look” may be somewhat less anticompetitive than traditional bid rigging because the company paying the bribe still has to beat a bid submitted by a bona fide competitor. But, it is still corruption of the competitive bidding process because instead of possibly coming in significantly under the competition, the conspirator company learns the price they have to be “just under.”  This typically leaves enough illegal gain to pay the kickbacks and make a nice profit.  Its fraud, and in this case, because of this scheme corrupted a federal contract over $1 million, the crime was Major Fraud. (18 U.S. Code § 1031 – Major fraud against the United States).

Thanks for reading.

I’ve been following a blog for a while that I find informative and interesting: Grand Jury Target: Tracking Federal Prosecutions of Corporate Executives.  The blog is by Sara Kropf, a trial lawyer in Washington, D.C.  A March 8th post was titled:  “Why Are we Falling for the Department of Justice’s Sales Pitch?  The blog recounted Ms. Kropf’s experience at the recent White Collar Crime seminar, including the constant pitches by DOJ officials to rush in to confess.

This approach—to quickly rush to DOJ to win cooperation credit—seems to be the sad reality of current white collar practice when you represent large companies. (Don’t even get me started in the antitrust amnesty program and the problematic incentives that program creates.)

Check out the blog.  I think you’ll be well rewarded for your time.

Thanks for reading this one too!

Bill Baer testified today (March 9, 2016) before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.  His prepared remarks covered all Division enforcement areas.  Below are his remarks regarding criminal enforcement.

Holding Companies & Individuals Accountable

As we discussed at this subcommittee’s 2013 hearing, halting and deterring pricing fixing cartels, dubbed the “supreme evil of antitrust” by the Supreme Court, is a top priority for us. Working with the Federal Bureau of Investigation and other law enforcement partners, we hold both corporations and senior executives accountable for criminal antitrust misconduct. We seek monetary penalties and jail sentences that are commensurate with the harm these crimes inflict on American consumers and businesses.

Last year we obtained over $3.6 billion in criminal fines and penalties, which resulted from our prosecuting collusion in many sectors. But a key target in recent years is the financial industry where we have exposed collusive conspiracies, including manipulation of the foreign currency exchange spot market and LIBOR rate setting, as well as bid rigging for municipal bond investment instruments and real estate foreclosure and tax lien auctions. The FBI is a critical partner to many of these investigations, providing support, expertise and state-of-the-art investigative techniques and technologies.

Over the last seven years, we have prosecuted over 400 individuals who committed antitrust crimes. We strive to hold accountable the highest level executives who participated in these conspiracies. In our ongoing auto parts investigation, for example, we so far have prosecuted nine parent or subsidiary presidents, seven vice presidents, two executive managing directors, one CFO and 30 division directors and general managers. We charged high-level executives in the DRAM and LCD investigations, including two chairmen/CEOs and four presidents. The president of the third largest LCD maker in the world is currently serving a 36-month jail term – the longest sentence ever imposed on a foreign national defendant for antitrust offenses.

The threat of prison time for individuals provides the single most valuable deterrent from cheating the system and profiting from collusion. The executives we convict are going to jail and for increasing periods of time. From 2006 to 2015, the average number of individuals sentenced to prison increased 85 percent, and the average sentence increased 65 percent over the preceding decade.

We hold offenders responsible for actions that injure U.S. commerce regardless of where they reside or whether they are citizens of the United States or foreign nationals. In the last 10 years we have increased by more than three times the number of foreign defendants convicted and jailed over the previous 10-year period. Over that same time period, the length of sentence increased by more than four times. Working with our international partners and Department of Justice colleagues, we seek extradition where appropriate and will continue to seek it in appropriate cases.

We continue as well to prosecute local, regional and national criminal conspiracies. In recent years, we have charged over 100 individuals in four states – Alabama, California, Georgia and North Carolina – for conspiring at local real estate foreclosure auctions. These conspiracies depressed auction prices and stole money from distressed homeowners and their lenders. In another example, the presidents of two heir location services firms recently pled guilty to conspiring to eliminate competition among their firms that identify people who may be entitled to an inheritance from the estate of a relative who died without a will. For nearly a decade, these companies lined their pockets at the expense of those heirs.

The use of technology to manipulate the prices for products and services is a growing concern for us. American consumers have the right to a free and fair marketplace online as well as in brick and mortar businesses. We recently charged two individuals and a U.K. corporation for fixing the price of certain posters sold online through Amazon Marketplace. The scheme was 21st century for sure. The conspirators coordinated pricing algorithms to offer identical prices for the sale of certain poster art on the Internet. This eliminated price competition by offering online shoppers the same price for the same product. The effect on consumers was the same as any other price-fixing scheme – eliminating the price competition to which they were entitled.

Mr. Baer’s full remarks can be found here.

PS. Mr. Baer noted that cartels are the “supreme evil of antitrust.”  I also note on Cartel Capers front page: “The US Supreme Court has called cartels ‘the supreme evil of antitrust.’ Price fixing and bid rigging may not be all that evil as far as supreme evils go, but an individual can get 10 years in jail and corporations can be fined hundreds of millions of dollars.”

Thanks for reading.

I am pleased to announce that I will be moderating a panel at a GCR Live Cartels conference sponsored by Global Competition Review on Tuesday, 5 April at One CityCenter, Washington D.C. My panel is titled: The U.S. Antitrust Sentencing Guidelines: Too Harsh, Too Lenient, or Just About Right? The panel is part of a one-day event, co-chaired by Phillip Warren, Covington & Burling, and Dennis Carlton, Compass Lexecon will bring together leading private practitioners, corporate counsel and governmental representatives to discuss a variety of topics at the forefront of antitrust law.

Three of my co-panelists are people I know well and who have a great deal of experience with antitrust sentencing and the sentencing guidelines. They are John Connor [Expert Economist at OnPoint Analytics, Inc.]; Megan Dixon [Partner, Hogan Lovells] and Jeffrey Martino, Chief of the Antitrust Division’s New York Field Office. And, we are fortunate that Alan Dorhoffer, Deputy Director, Office of Education for the United States Sentencing Commission will be joining us.

Antitrust sentencing guideline reform has been a major interest of mine. I’ve written about it several times (here) (here) and have submitted comments to the Sentencing Commission (here). Some of the issues I expect we will be discussing/debating are:

• Is the volume of commerce adjustment for individuals too harsh and too disconnected from culpability to be useful?
• Why is it so a rare for an antitrust individual defendant to be sentenced within the guidelines range?
• Are the corporate fines too high, especially in light of private damage actions and enforcement actions by other competition agencies? or,
• Are the corporate guidelines too low and not sufficient to provide adequate deterrence?
• Should the sentencing guidelines be amended so that a corporation can get credit for a bona fide antitrust compliance program even if senior executives are involved in the wrongdoing?

The GCR Cartel program will also include the following panels:

• Session one: Punishing global cartels – are there any limits? with María Luisa Tierno Centella, European Commission
• Keynote address: Eric Holder, Covington and Burling and Former U.S. Attorney General
• Session two: Did the enforcers go bananas in Dole v. Commission? What are the boundaries of cartel conduct – and why does it matter? with Brent Snyder, US Department of Justice
• Session three: Et tu?: Where are private cartel actions in Europe headed? with Hon. Justice Peter Roth, Competition Appeal Tribunal
• Session four: – Cartel enforcement challenges in newer enforcement regimes with Alejandra Palacios Prieto, Mexican Federal Economic Competition Commission
• Session five: Managing the challenge of global antitrust compliance

The conference will include a networking lunch and then a cocktail reception to conclude the event.  Tickets can be purchased here. 

I am pleased to announce that GeyerGorey LLP will be hosting the Bi-Monthly Criminal Cartel Update this Thursday, February 18th at 12:30 EST.  The program is a little different this month.  Usually the Update is hosted by one firm with international offices.  GeyerGorey does not have international offices–but we do have friends who do.

The program will be moderated by Hays Gorey, Jr. my partner at GeyerGorey.  I will be reporting on developments in the United States.  My bio is here. Dorothy Hansberry Bieguńska of Hansberry Tomkiel, Warsaw, Poland will be covering matters in Europe.  Hays and I both know Dorothy from the years she worked at the Antitrust Division of the DOJ.  Dorothy has gone on to have a very interesting international career and is a founder of Hansberry Tomkiel, a leading Polish competition law firm.  Masayuki Atsumi, a lawyer at Mori Hamada & Matsumoto, Tokyo, Japan will be covering developments in Asia.  I first got to know Masayuki when he contributed posts to Cartel Capers.  Masayuki is now seconded to Covington & Burling and is stationed in Covington’s DC office.

I hope we can bring you an interesting program and match the usual high quality of these ongoing updates.  You can register here.  The official ABA announcement is below.  [Read more…]

Since I attended the International Cartel Workshop program in Tokyo on February 3-5, I’ve been thinking a lot about the Antitrust Division’s policies on a) leniency and b) not awarding credit for preexisting compliance programs.  The two policies were demonstrated very clearly in a well constructed hypothetical dramatization at the Cartel Workshop, complete with mock negotiations between companies and the USDOJ. In the first instance, Company A, arguably the most culpable member of the hypothetical cartel, received leniency.  Meanwhile, the second-in company sought credit for its compliance program, but that plea fell on deaf ears.  A senior executive at the Vice-President level of the company (and a subordinate) were involved in the cartel and the Antitrust Division does not give credit for failed compliance programs.

I don’t think the Antitrust Divison’s policy on compliance programs is logical or good policy.  I wrote an article on this for Law 360: Compliance Thoughts From the International Cartel Workshop.  But, here are a few additional thoughts.

Leniency has been touted by the DOJ as the greatest cartel-busting tool in the enforcers’ arsenal. And leniency has become a bedrock of anti-cartel efforts of competition agencies around the world.  While there are some differences among leniency programs, leniency has been a great American export.  And it works.  Leniency undoubtedly prevents cartels from forming because the risk of detection is too high.  And, leniency destabilizes cartels that do form because of the likelihood that someone is going to break the ranks of secrecy and inform on the cartel.  But, leniency works in part because the incentives to grab the leniency are very high.  A company and its executives who were engaged in illegal activity get a complete pass from prosecution.  There is no requirement that the leniency company disgorge the illegal profits (though it is assumed that those profits will evaporate through private class action litigation).  The leniency company is not put on probation or subject to a compliance monitor.  There is no requirement that culpable executives be fired or at least removed from their current position.  There is not even a requirement that the leniency company engage in any remedial measures to enhance its compliance program.  Many of these ideas to impose some remedial measures on the leniency “winner” have been suggested to the Antitrust Division, but the Division is not in a mood to add any requirements that might give a leniency company even slightly less incentive to come forward.  Leniency works, and the government does not want to mess with success.

Fair enough, but now compare the treatment of the leniency winner with the second-in that seeks some credit for their compliance program, which admittedly has failed. [Read more…]

I am at the ABA/IBA International Cartel Worksop in Tokyo.  It is the 11th biennial international cartel workshop–and each workshop is becoming more international.  There are attorneys from 26 countries and enforcers from 12 different countries at this event.   Donald Klawiter and D. Jarrett Arp are the conference co-chairs.  The conference is unique (in my experience) in that most of the panels are interactive demonstrations modeling realistic discussions.  The demonstrations cover a wide range of scenes from: a) a company board of directors being advised of possible options including leniency when cartel conduct is discovered; b) [actual] regulators from seven jurisdictions coordinating their dawn raids/search warrants; c) subsequent discussions among defense counsel about various strategies in seven jurisdictions; and many more.

The glue of the program is a hypothetical cartel that is discovered during a compliance training session and the action, starting with the rush for leniency/amnesty, flows from there.  The hypothetical is very realistic, rich in complexity and factual detail.  There was an actual dramatization video of the February 2013 meeting among competitors where the alleged agreement for the hypothetical was reached.

The realistic hypothetical brought to life the pluses and minuses of the leniency program, which, with minor modifications, has been adopted around the world.  In the hypothetical, when a company (Acme) conducted competition compliance training at a very recently acquired company, (B-Wheels), counsel learned that B-Wheels was involved in a world-wide bicycle wheel price-fixing/market allocation cartel.  The cartel agreement was reached at a private dinner at a trade association event in February 2013. [the key meeting the program created a video tape for].  The President of B-Wheels was the main speaker and strong advocate for the agreement.  One competitor, Chelun Ltd, clearly accepted B-Wheels offer to collude.  A third competitor, Jit-Ho, a recent disruptive entrant into the market, was noncommittal.  Post-meeting prices increased in the market and market shares seemingly aligned with the price/market allocation discussion.  There was other evidence of competitor contact after the initial cartel meeting, but it related to B-Wheel and Chelun.

From the demonstrations, you could see why the leniency program is so effective.  After the discovery of the B-Wheels cartel at a compliance training session, there really was no  other choice for Acme but to seek immunity.  Trying to end the cartel and keep quiet was not an option because one of the other companies, or an individual, would likely approach the government when the cartel ended.   Waiting was too great a risk to take.  The benefits of seeking amnesty/leniency were overwhelming.

[Read more…]

With Richard R. Vuylsteke, President, The American Chamber of Commerce in Hong Kong (AmCham).

I had a most interesting luncheon today at the American Chamber of Commerce in Hong Kong.  This very active organization sponsors many programs and I was honored to be part of a panel on Trade Policy with a focus on competition law and the Trans-Pacific Partnership Agreement (“TPP”).  I was fortunate to learn much from the two other panelists, Professor Bryan Mercurio, Professor and Vice Chancellor’s Outstanding Fellow of the Faculty of Law, Chinese University, Hong Kong, and Brian Bedell, Consul, Economic Affairs U.S. Consulate General, Hong Kong.  Their breadth of knowledge about economic activity in Asia was very interesting, as well as was their comments on the TPP.

My contribution was comparatively modest, but I was delighted, and a bit incredulous, to be part of the panel.  When I started as baby prosecutor in the Antitrust Division, US Dept. of Justice many years ago, my territory was basically Pennsylvania and half of New Jersey.  (And if we wandered into the northern part of New Jersey, the Chief of the New York office, the great Ralph Giordano, would be on the phone in a New York minute.  We protected our [legal] territories with great zeal, though thankfully with only verbal assaults.)  I digress with fond memories, but by the time I left the Philadelphia office as Chief in 2013, our work was primarily international cartels.  And one of those cartels was the parcel tanker ocean shipping cartel prosecution that I led, so it was interesting to talk a little about that to the Transportation and Logistics committee of AmCham, Hong Kong.

Transportation in various forms has been a frequent target of antitrust prosecutions, and not just by the US Dept. of Justice, but also by the EU, Korea, Brazil and many other jurisdictions.  Many modes of transportation tend to be in oligopolistic industries where collusion is possible and the lure of profits (or, as is often the case–to try to stop the bleeding of price wars) provides temptation.  Additionally, legitimate joint venture agreements, and industry wide exemptions are common, because there are pro-competitive efficiencies to be gained by agreements like code sharing, so competitors are in contact with each other talking about grey area items such as pricing, surcharges and customers.  The road (or flight or shipping lane) from a legitimate joint venture or an approved exemption to illegal cartel activity can sometimes be crossed without due concern for the consequences.

And the consequences are real.  The United States is the leader in imposing prison sentences for price-fixing/market allocation/bid rigging and with extradition treaties and Interpol Red Notices, the reach of the US antitrust laws is global.  But, other jurisdictions around the world have a seat at the cartel enforcement table and impose substantial corporate fines for cartels that effect their consumers.  Huge markets such as China and India have also more recently developed significant, sophisticated competition commissions and enforcement agendas.

We discussed that Hong Kong very recently began enforcing its new Competition Ordinance, which I discussed in a prior post here.  And the Hong Kong Competition Commission is currently considering a block exemption request submitted by the Hong Kong Shipping Association, also covered in an earlier post here.  One of the items we discussed was the pro-competitive, efficiency enhancing benefits that can come result from certain types of competitor cooperation.  And the cooperation need not be, and usually isn’t, in the form of an exemption.  Joint ventures can be a from of consumer friendly cooperation.  One of the reasons competition compliance training is important is to understand not just the “That Shall Not’s” but also the “Yes, you can do that.”  Fear of antitrust problems is a legitimate concern, but unwarranted concern shouldn’t chill pro-competitive efforts.

I really enjoyed the Q&A, which continued after lunch.  As further evidence of the global nature of competition law, I am now on my way to Tokyo for the American Bar Association International Cartel Workshop.  I wish I could have spent a little more time in Hong Kong.  Beautiful city.

Thanks for reading.

PS.  The nature of my talk and this blog post was general and not intended as legal advice.  While competition law has sprouted to over 100 competition agencies around the world, and there is more commonality among competition laws then there are differences, some of those differences are very significant.