POWELL, GOLDSTEIN, FRAZER & MURPHY LLP ORIGINAL IDEAS. UNCOMMON SOLUTIONS. U.S. INTERNATIONAL CARTEL ENFORCEMENT Presented by Neil R. Ellis Vienna, Austria October 13, 2000 Presented by Neil R. Ellis Vienna, Austria October 13, 2000

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Expansion of U.S. enforcement against cartels  Enormous increase in criminal fines and prison terms  Increase in percentage of investigations of cartels with international participants  Expansion of U.S. enforcement against cartels  Enormous increase in criminal fines and prison terms  Increase in percentage of investigations of cartels with international participants

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  U.S. anti-cartel enforcement based on Section 1 of the Sherman Act  Declares every “conspiracy in restraint of trade” to be illegal  Imposes stiff penalties:  Up to $10,000,000 fine on corporations  Up to $350,000 fine and 3 years in prison for individuals  U.S. anti-cartel enforcement based on Section 1 of the Sherman Act  Declares every “conspiracy in restraint of trade” to be illegal  Imposes stiff penalties:  Up to $10,000,000 fine on corporations  Up to $350,000 fine and 3 years in prison for individuals

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Another U.S. statute authorizes far larger criminal penalties:  Up to twice the unlawful gain obtained by the conspirators or the losses imposed on victims  Also, U.S. law permits private suits for treble damages  Criminal conviction and evidence can be used in “follow-on” private suits  Another U.S. statute authorizes far larger criminal penalties:  Up to twice the unlawful gain obtained by the conspirators or the losses imposed on victims  Also, U.S. law permits private suits for treble damages  Criminal conviction and evidence can be used in “follow-on” private suits

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  “Effects” test: Conduct outside U.S. that has “effects” in U.S. can be subject to U.S. antitrust laws  Extremely controversial with foreign governments  “Comity” principles limit extraterritorial application of U.S. antitrust law  “Effects” test: Conduct outside U.S. that has “effects” in U.S. can be subject to U.S. antitrust laws  Extremely controversial with foreign governments  “Comity” principles limit extraterritorial application of U.S. antitrust law

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  U.S. Supreme Court severely limited application of comity in 1993 Hartford Fire Insurance decision  Held U.S. courts should exercise jurisdiction unless “there is in fact a true conflict” between U.S. and foreign law  Question is whether conduct that violates the U.S. antitrust laws is compelled by a foreign sovereign  U.S. Supreme Court severely limited application of comity in 1993 Hartford Fire Insurance decision  Held U.S. courts should exercise jurisdiction unless “there is in fact a true conflict” between U.S. and foreign law  Question is whether conduct that violates the U.S. antitrust laws is compelled by a foreign sovereign

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Three major reasons for increased cooperation despite Hartford Fire:  Increasing international acceptance of basic competition principles  Development of new vehicles for cooperation  1993 revisions to the Antitrust Division’s Leniency Program  Three major reasons for increased cooperation despite Hartford Fire:  Increasing international acceptance of basic competition principles  Development of new vehicles for cooperation  1993 revisions to the Antitrust Division’s Leniency Program

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Increasing international acceptance of competition principles  In 1990s, large number of governments enacted competition laws for the first time  Some have coordinated with U.S. to enforce existing laws more rigorously and consistently  International organizations (OECD, WTO) have encouraged adoption of competition laws  Increasing international acceptance of competition principles  In 1990s, large number of governments enacted competition laws for the first time  Some have coordinated with U.S. to enforce existing laws more rigorously and consistently  International organizations (OECD, WTO) have encouraged adoption of competition laws

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Development of new vehicles for cooperation:  Agreements between competition authorities  Enactment of International Antitrust Enforcement Assistance Act of 1994 (“IAEAA”)  Mutual legal assistance treaties (“MLATs”)  Development of new vehicles for cooperation:  Agreements between competition authorities  Enactment of International Antitrust Enforcement Assistance Act of 1994 (“IAEAA”)  Mutual legal assistance treaties (“MLATs”)

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  IAEAA  Grants authority to U.S. enforcement agencies to enter into “antitrust mutual assistance agreements” with foreign governments  U.S. agencies may request from, or provide assistance to, foreign competition authorities  First agreement under IAEAA entered into with Australia in 1999  IAEAA  Grants authority to U.S. enforcement agencies to enter into “antitrust mutual assistance agreements” with foreign governments  U.S. agencies may request from, or provide assistance to, foreign competition authorities  First agreement under IAEAA entered into with Australia in 1999

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  MLATs  Authorize assistance by one government in the other government’s criminal investigations  U.S. currently has 36 MLATs in effect  MLATs  Authorize assistance by one government in the other government’s criminal investigations  U.S. currently has 36 MLATs in effect

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  1993 Revisions to Antitrust Division’s Leniency Program  Result has been an increase in amnesty applications from 1-2 per year to over 20 per year  First party in a cartel that voluntarily cooperates with the Division is immunized from criminal prosecution  1993 Revisions to Antitrust Division’s Leniency Program  Result has been an increase in amnesty applications from 1-2 per year to over 20 per year  First party in a cartel that voluntarily cooperates with the Division is immunized from criminal prosecution

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  1993 revisions:  Amnesty automatic if the party volunteers before investigation launched  Amnesty available (though not automatic) even after investigation already commenced  Amnesty granted to all cooperating officers, directors, and employees  1993 revisions:  Amnesty automatic if the party volunteers before investigation launched  Amnesty available (though not automatic) even after investigation already commenced  Amnesty granted to all cooperating officers, directors, and employees

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Amnesty agreements require commitment to make personnel and documents available, even if outside the U.S.  Provides access to foreign information that the Antitrust Division would have difficulty obtaining  Has enabled the Division to successfully prosecute foreign cartel members  Amnesty agreements require commitment to make personnel and documents available, even if outside the U.S.  Provides access to foreign information that the Antitrust Division would have difficulty obtaining  Has enabled the Division to successfully prosecute foreign cartel members

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Currently, over 30 grand juries are investigating cartel activities in 100 cities in 35 countries  Since late 1997, approximately half of all corporate defendants in criminal cases were foreign-based  In most instances involving fines of $10 million or more, corporate defendants included foreign-based companies  Currently, over 30 grand juries are investigating cartel activities in 100 cities in 35 countries  Since late 1997, approximately half of all corporate defendants in criminal cases were foreign-based  In most instances involving fines of $10 million or more, corporate defendants included foreign-based companies

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Penalties have increased enormously each year:  In 1992, largest fine to this point was $2 million  In 1997, $100 million fine on ADM in lysine case  And in 1999, record was broken again  $500 million fine on F. Hoffmann-La Roche in vitamins case  $225 million fine on BASF in vitamins case  Penalties have increased enormously each year:  In 1992, largest fine to this point was $2 million  In 1997, $100 million fine on ADM in lysine case  And in 1999, record was broken again  $500 million fine on F. Hoffmann-La Roche in vitamins case  $225 million fine on BASF in vitamins case

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Total fines have increased dramatically

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Substantial penalties on foreign individuals:  $10 million fine on the CEO of a German company in vitamins case  Prison terms imposed on the executives of Swiss and German companies in vitamins case  Substantial penalties on foreign individuals:  $10 million fine on the CEO of a German company in vitamins case  Prison terms imposed on the executives of Swiss and German companies in vitamins case

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCMENT  Developments have dramatically changed the atmosphere at the Antitrust Division  Success has led to higher goals  The FBI is taking antitrust more seriously  Officials are willing to devote more resources to criminal antitrust investigations  Developments have dramatically changed the atmosphere at the Antitrust Division  Success has led to higher goals  The FBI is taking antitrust more seriously  Officials are willing to devote more resources to criminal antitrust investigations

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Appropriate response: Take antitrust seriously if you do business in the United States  Even if your U.S. business consists just of shipping merchandise to that market  Even if you do not have an office or personnel in the U.S.  Appropriate response: Take antitrust seriously if you do business in the United States  Even if your U.S. business consists just of shipping merchandise to that market  Even if you do not have an office or personnel in the U.S.

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Two basic means of taking antitrust seriously  Antitrust audit  Antitrust compliance program  Two basic means of taking antitrust seriously  Antitrust audit  Antitrust compliance program

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Antitrust audit should include:  Evaluation of knowledge of antitrust rules by personnel in sensitive positions, such as:  Positions of authority  Positions with regular contact with your competitors and trade associations  Antitrust audit should include:  Evaluation of knowledge of antitrust rules by personnel in sensitive positions, such as:  Positions of authority  Positions with regular contact with your competitors and trade associations

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Antitrust audit (cont.)  Review of participation in trade associations  Review of documents  Review of rules by which documents are retained or destroyed  Antitrust audit (cont.)  Review of participation in trade associations  Review of documents  Review of rules by which documents are retained or destroyed

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP U.S. CARTEL ENFORCEMENT  Antitrust compliance program:  Establish on-going program before authorities come knocking  Will not immunize the company or personnel, BUT --  It is a factor considered in reducing penalties  Antitrust Division considers it in deciding how aggressively to pursue a target  Antitrust compliance program:  Establish on-going program before authorities come knocking  Will not immunize the company or personnel, BUT --  It is a factor considered in reducing penalties  Antitrust Division considers it in deciding how aggressively to pursue a target

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP  Antitrust compliance program should include:  Education sessions for new employees  Regular updates, particularly for officers and personnel in sensitive positions  “Surprise” interviews and reviews of document  Antitrust compliance program should include:  Education sessions for new employees  Regular updates, particularly for officers and personnel in sensitive positions  “Surprise” interviews and reviews of document U.S. CARTEL ENFORCEMENT

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP  Antitrust compliance program (cont.)  Review of the company’s document retention and destruction programs  Review of the company’s participation in trade associations and standard setting organizations  Processes to ensure that antitrust issues are handled on a “real time” basis  Antitrust compliance program (cont.)  Review of the company’s document retention and destruction programs  Review of the company’s participation in trade associations and standard setting organizations  Processes to ensure that antitrust issues are handled on a “real time” basis U.S. CARTEL ENFORCEMENT