1 Antitrust Division Criminal Enforcement Program Presentation on Antitrust Violations & Prosecutions Michelle Pionkowski Trial Attorney U.S. Department of Justice, Antitrust Division Philadelphia Office Direct Dial: (215) American Apparel & Footwear Association Government Contract Committee Spring Meeting March 24, 2006

2 Criminal Sections  Seven Field Offices & One D.C. Section: Atlanta Chicago Cleveland Dallas NCES New York Philadelphia San Francisco

3 Sherman Antitrust Act (1890) Every contract, combination, or conspiracy in restraint of trade is declared to be illegal.

4 What We Investigate & Prosecute 15 U.S.C. § 1: “Every contract, combination..., or conspiracy, in restraint of trade or commerce...” is declared to be illegal.”

5 United States v. Topco Assoc. (U.S. Supreme Court 1972) “Antitrust laws in general and the Sherman Act in particular are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”

6 Antitrust Enforcement Criminal Enforcement Merger Review Monopolies and Other Civil Violations

7 Criminal Enforcement Punishment Restitution for Victims Return to Competitive Markets

8 What We Investigate & Prosecute  Agreements Among Competitors To:  Fix Prices  Rig Bids  Allocate Markets (Customer/Territories)  Allocate Sales Volumes/Restrict Output

9 What We Investigate & Prosecute Related Crimes:  Mail & Wire Fraud - 18 U.S.C. § 1341, 1343  Attempts To Fix Prices  Conspiracy To Commit Mail Or Wire Fraud - 18 U.S.C. §§ 371, 1349  False Statements To Government Agency - 18 U.S.C. § 1001  Bribery - 18 U.S.C. §§ 201, 666

10 What We Investigate & Prosecute Related Crimes:  Conspiracy To Defraud U.S U.S.C. § 371  Money Laundering - 18 U.S.C. §§ 1956, 1957  Aiding & Abetting - 18 U.S.C. § 2  Tax Offenses - 26 U.S.C. §§ 7201, 7206

11 What We Investigate & Prosecute Crimes Threatening Integrity Of Investigations  Perjury and False Declarations To Grand Jury – 18 U.S.C. §§ 1621, 1623  Obstruction Of Justice - 18 U.S.C. §§ 1503, 1505, 1510, 1512, 1519  False Statements - 18 U.S.C. § 1001  Criminal Contempt - 18 U.S.C. §§ 401, 402

12 Price Fixing Contrary to what it sounds like, price fixing does not only mean that people have agreed to specific prices, or agreed to always charge the same exact price Price fixing is an agreement or understanding between two or more persons to tamper with price competition

13 Forms of Price-Fixing Agreements among competitors to: –Charge the same price –Raise prices –Eliminate discounts –Establish a minimum price –Establish a standard pricing formula

14 Price Fixing Price Fixing is illegal –Even if the parties to the agreement did not eliminate all forms of competition among themselves; or –If some parties cheated on the agreement; or –Even if the agreement was not as successful as the members intended

15 Price Fixing Like any criminal conspiracy, it is the agreement to act together that is the crime Whether the agreement is actually carried out or whether it succeeds or fails does not matter

16 Price Fixing There does not need to be a formal, express or written agreement among the co- conspirators Evidence need only show that co- conspirators came to a mutual understanding to accomplish a common and unlawful goal (“meeting of the minds”)

17 Price-Fixing is Per Se Illegal Illegal in and of itself because of its inhibiting effect on competition and lack of any redeeming virtue Illegal without elaborate inquiry into the precise harm caused by or the business excuse for the conduct

18 Bid Rigging Any agreement between competitors concerning who will bid, what the bids will be, or who will be the low bidder.

19 Forms of Bid Rigging Agreements among competitors to: –Divide projects or contracts –Rotate projects or contracts –Submit intentionally high bids or refrain from bidding altogether in return for a payoff or the promise of a future project or contract

20 Things That Make You Go Hmmm (Indicators of Collusion) Bid Patterns Over Time Clues in Bid Documents Non-Competitive Pricing Vendor Comments Sham Bidders

21 United States v. Atlantic Disposal Bid Documents 1. Few Bidders 2. Atlantic Disposal Always Won 3. Common Typeface 4. Common Mathematical Errors 5. Subcontracts to Losing Bidders 6. Sham Bidder

22 Bid Rigging at Work Boston Globe, November 3, 1991 The average price per pound of ocean perch sold by New England fish processors to the Dept. of Defense rose and fell in line with the power of the cartel.

23 WHEN Might Collusion Occur? Few Sellers/Friendly Competitors Restrictive Specifications Standardized (Commodity) Product Repetitive Purchases International Trade

24 HOW Do Antitrust Conspiracies Work? Opportunity to Scheme Means to Divide Illegal Overcharge Method of Communication Mechanism to Monitor the Agreement

25 Why? Very Effective Way to Overcharge (make a lot of money) Very Difficult to Detect and/or Convict Conspirators “Justify” Overcharges Modest Penalties (Not anymore!)

26 The Cost of Collusion Conspiracies are Lengthy Often Spread to Other Goods and Services The Result is that Victims are Overcharged and Defrauded

27 Subcontracting to Losing Bidders

28 Subcontracting to Losing Bidders

29 Complementary Bids Bandages Year 1 Frass $10.00 Brenner $13.00 Year 2 Frass $12.00 Brenner $15.00 Year 3 Frass $14.00 Brenner $17.00 Medical Boxes Brenner $10.00 Frass $13.00 Brenner $12.00 Frass $15.00 Brenner $14.00 Frass $17.00

30 Rotation of Bids Men’s Outdoor Gloves Firm A$10.00 Firm B$12.00 Firm C$13.00 Firm D$14.00 Men’s Dress Gloves Firm C$10.00 Firm D$12.00 Firm A$13.00 Firm B$14.00 Women’s Outdoor Gloves Firm B$10.00 Firm C$12.00 Firm D$13.00 Firm A$14.00 Women’s Dress Gloves Firm D$10.00 Firm A$12.00 Firm B$13.00 Firm C$14.00

31 Forms of Allocation Agreements Agreements among competitors to: –Allocate customers –Allocate territories –Allocate sales volumes –Allocate production volumes –Allocate market shares –Allocate market growth

32 Where are these cartel conspiracies operating? Everywhere –Our investigations have uncovered meetings of international cartels in well over 100 cities in more than 35 countries –Domestic illegal antitrust conspiracies have been prosecuted in virtually every judicial district in the United States

34 Who Are Common Co-Conspirators? Corporate Executives –Intelligent –Confident –Wealthy –Powerful –Profit Driven

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36 “They [the customers] are not my friends. You’re my friend. I wanna be closer to [my competitor] than I am to any customer. ‘Cause you can make us... money.” -Terry Wilson, ADM Vice President--Serving a 33 month prison sentence

37 “If no one talks, everyone walks.” “We can hang together, or hang separately.”

38 Cornerstones of Effective Anti-Cartel Enforcement Severe sanctions against companies and executives who participate in the illegal activity Fear of detection Clear enforcement policies

39 Threat of Severe Sanctions Maximum Criminal Penalties for offenses committed on or after June 2004: –Individuals: 10 years in jail & $1 million fine –Corporations: $100 million fine –Alternative Fine: Double the gain or double the loss caused by the illegal activity

40 Threat of Severe Sanctions Obstruction of Justice Penalties: –Perjury: 5 years in jail & $250,000 fine –False Statements: 5 years in jail & $250,000 fine –Document Destruction: 20 years in jail & $250,000 fine –Witness Tampering: 20 years in jail & $250,000 fine –Bribery: 15 years in jail & greater of $250,000 or three times the amount of the bribe

41 How Investigations Get Started Spin-offs from Existing Fraud Cases Anonymous Complaints Amnesty Purchasing Agents Proactive Contract Review

42 Most Effective Investigative Tool - Division’s 1993 Corporate Leniency Policy  No Criminal Prosecution For Self Reporting  All Cooperating Directors, Officers, Employees Of Qualifying Corporation Also Receive Amnesty  Company Must Cooperate Throughout Investigation  Company Must Not Be “The” Ringleader  Company Must Terminate Conduct Promptly and Effectively Upon Discovery  Company Must Pay Restitution To Victims  BUT -- Only The First To Qualify Gets It  Strict Confidentiality Policy

43 Benefits Of Corporate Leniency Policy  Detection Of Cartels That Otherwise Would Remain Undetected  Prosecution Of Co-Conspirators  Opportunity For Covert Operations  Access To Documents Regardless Of Location  Access To Witnesses Regardless Of Nationality

44 Corporate Leniency Policy  Obligation To Cooperate Throughout Investigation  Hammer – Violate Amnesty Agreement = Removal From Program  Subject To Prosecution  All Evidence Provided May Be Used Against Company

45 Leniency Program’s Value  Major Role In Cracking International Cartels  Last Nine Years – Over $2.5 Billion In Fines  Not So Much Absolution For The Guilty As It Is The Anti-Cartel Enforcer’s Most Potent Weapon  Allows Prosecution Of Co-Conspirators

46 Evidence Of Leniency Program’s Value  Vitamins  F. Hoffmann-La Roche - $500 Million  BASF $225 Million  DRAM  Infineon$160 Million  Hynix$185 Million  Samsung$300 Million  Graphite Electrodes  UCAR $110 Million  SGL $135 Million  Mitsubishi $134 Million  Fine Arts Auctions  Sotheby’s $ 45 Million

47 Amnesty For Cooperating Executives  Could Be The Program’s Biggest Reward  Graphite Electrodes -Amnesty Executives = No Prosecution; UCAR Executives = 17 Months; 9 Months; & Indicted Fugitive  Vitamins - Amnesty Executives = No Prosecution; Six Hoffmann-La Roche and BASF Executives Jailed In US  Fine Arts Auctions - Amnesty Executives = No Prosecution; Sotheby’s Chairman = One Year In Jail

48 Use Of Alternative Fine Statute To Obtain Corporate Fines That Deter (FY 1997)  FY Average Fine Total - $27 Million  FY 97 - $205 Million  FY 99 – Over $1.1 Billion (Highest)  FY 04 - Over $350 Million (2nd Highest)  FY 05 - Over $338 Million (3rd Highest)  Nine Years Ago Largest Fine - $2 Million  Today - Nine Defendants $100+ Million  51 Defendants - $10+ Million

49 Significant Jail Sentences Against Culpable Corporate Executives (FY 2000)  FY 97 - Average Jail Sentence - 4 Months  FY 00 – Average Jail Sentence – 10 Months  FY 05 - Average Jail Sentence – 24 Months  Longest Sentences In Division Prosecutions  August Years  November Months  January Years  May 2005 – Over 11 Years

50 Antitrust Division Criminal Enforcement Program Michelle Pionkowski Trial Attorney U.S. Department of Justice, Antitrust Division Philadelphia Office Direct Dial: (215)

51 Criminal Enforcement Program We’ll End With A Scene From A Recent Cartel Meeting

52 Picnic "I love the beauty, the break from family life, and the camaraderie---but what will always make this place for me is the price-fixing."