1. 1 THE RECOVERY ACT: Understanding, Detecting & Reporting Antitrust Violations John Terzaken, Assistant Chief U.S. Department of Justice, Antitrust Division Nat’l Criminal Enforcement Section (202) 307-0719 / john.terzaken@usdoj.gov

2. 2 What is Antitrust?

3. 3 The Sherman Act (15 U.S.C. §1) “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Prohibits agreements among competitors in restraint of trade or commerce

4. 4 Sherman Act Elements Agreement Unreasonable restraint of trade –Price-Fixing –Customer/Market Allocation –Bid-Rigging Interstate commerce Statute of Limitations: 5 years from the last act in furtherance of the conspiracy

5. 5 Price Fixing Agreements among competitors to: –Same price or raise prices –Eliminate discounts or have uniform discounts –Establish minimum or floor prices –Establish a standard pricing formula

6. 6 Allocation Agreements among competitors to: –Allocate customers –Allocate territories –Allocate sales volumes –Allocate production volumes –Allocate market shares

7. 7 Bid Rigging Agreement in advance to manipulate outcome of bidding process Types: –Bid Suppression –Complementary Bidding –Bid Rotation

8. 8 What do you think the penalties are for Sherman Act violations?

9. 9 It's risky, of course---if we're caught, it could mean many hours of community service.

10. 10 Penalties Are Significant Corporation –Up to $100 million Individual –$1,000,000; and/or –10 years incarceration Corporation or Individual –Twice gain to defendant; or –Twice loss to victim

11. 11 Companion Violations Bribery/Gratuities (18 U.S.C § 201) False & Fictitious Claims (18 U.S.C. § 287) Conspiracy to Defraud U.S. (18 U.S.C. § 371) False Statements (18 U.S.C. § 1001) Mail/Wire Fraud (18 U.S.C. §§ 1341, 1343) Obstruction of Justice (18 U.S.C. § 1519)

12. 12 Why am I here?

13. 13 Detecting Violations You! Amnesty Program – Self Reporting Agent Referrals Anonymous Complaints

14. 14 U.S. v. Godfrey Allen Payne d/b/a Allen Payne Surplus Criminal No.: 93-20059-01 (D. Kan.) The seal was lifted on a one-count indictment which was filed on June 22, 1993 in U.S. District Court in Kansas City, Kansas, charging Godfrey Allen Payne d/b/a Allen Payne Surplus with participating in a conspiracy between May 1988 and August 1990 to rig bids, in violation of Section 1 of the Sherman Act, involving auctions of government surplus conducted by the Defense Reutilization and Marketing Office and the General Services Administration ("GSA") in Kansas, Missouri and Nebraska. The investigation is being conducted by the Chicago Field Office of the Antitrust Division with the assistance of the Army Criminal Investigative Division; the Defense Criminal Investigative Service; GSA, Office of the Inspector General in Kansas City, Missouri; and the U.S. Attorney's Office for the District of Kansas. Working Together

15. 15 PUERTO RICO EXECUTIVE CHARGED WITH CONSPIRING TO DEFRAUD HIS EMPLOYER WASHINGTON, D.C. — A Puerto Rico federal grand jury today indicted a former executive of Tricon Restaurants International (Tricon), for conspiracy to commit mail fraud in connection with a kickback scheme used to defraud his employer, the Department of Justice announced. … According to the indictment, from October 2000 until February 2004, Matos received $31,000 in kickback payments from Albith Colón, the president of Gate Engineering Corporation (Gate), an electrical contractor, in exchange for Matos providing favored treatment to Gate by awarding it more than $1 million worth of electrical contracts. Although the contracts were awarded on behalf of Tricon, the company was unaware of the kickback payments. Working Together

16. 16 Recovery Act Risk Management Agencies must immediately review the risk framework provided in Chapter 3 of this Guidance, capture and report against the common government-wide accountability measures, identify any additional agency-specific risks not provided for in Chapter 3, prioritize risk areas, and initiate risk mitigation strategies. At a minimum, immediate risk mitigation actions must address: Audits and investigation of Recovery Act funds to identify and prevent wasteful spending and minimize waste, fraud, and abuse; Qualified personnel overseeing Recovery Act funds; Competitive awards maximized; Timely award of dollars; Timely expenditure of dollars; Cost overruns minimized; and Improper payments minimized. To assess how well the Federal government and funding recipients are progressing in meeting the items above, agencies should begin preparing to track progress against the above accountability measures.

17. 17 Evolution of Collusion Motive 12 Means 3 Opportunity 4 Agreement

18. 18 PRE-AWARD COLLUSION See the Signs M.A.P.S. M arket A pplication P atterns S uspicious Behavior

19. 19 MARKET Are Conditions Conducive to Collusion? There are few sellers in an industry, or a small group of major vendors controls a large percentage of the market

20. 20 MARKET

21. 21 MARKET Other Indicators The product is standardized and other competitive factors, such as design, quality, or service are not prevalent Repeat competing vendors Competitors frequently interact through social conventions, trade association meetings, shifting employment, etc.

22. 22 APPLICATION The Dumb Crook Similar applications – handwriting; typeface; stationery; typos; mathematical errors Last-minute changes – white-outs or physical alterations to prices Vendor picks up an extra bid package for another vendor OR submits a competing vendor’s bid

23. 23

24. 24

25. 25

26. 26 Paper v. Electronic Same basic fraudulent conduct Other M.A.P.S. factors to look for: –Metadata (hidden data) –Cover e-mail header info. incorrect –Same math errors, typos, etc.

27. 27 Metadata Can be Revealing:

28. 28 PATTERNS Study History The same vendors submit bids and each one seems to take a turn as the winning bidder (bid rotation) A winning bidder subcontracts work to competitors that submitted unsuccessful bids or withdrew bids All bidding companies end up winning the same amount of work over a series of bids Same company always wins a particular bid Fewer than normal number of bidders

29. 29 PATTERNS Bid Rotation Bid 1: Company A wins Bid 2: Company B wins Bid 3: Company C wins Bid 4: Company A wins Bid 5: Company B wins Bid 6: Company C wins

30. 30 PATTERNS Bid Suppression Bid 1: Companies A, B, C, and D bid Bid 2: Companies B, C, and D bid Bid 3: Companies A, C, and D bid Bid 4: Companies A, B, and D bid Bid 5: Companies A, B, and C bid Also watch for subcontracts to the company that sits out!

31. 31 PATTERNS Who Is Getting What Bid 1: A wins a $3 million contract Bid 2: B wins a $5 million contract Bid 3: C wins a $1 million contract Bid 4: C wins a $4 million contract Bid 5: A wins a $2 million contract Everyone = $5 million

32. 32 PRIOR BID PROPOSALS (Numbers are in 1000’s) ProposalCompany ACompany BCompany C 1$3000$3230$3330 2$5500$5000$5100 3$2200$2150$2000 4 $2650$2320 5$2200$2150$2000 6$1200$1150$1000

33. 33 SUSPICIOUS BEHAVIOR Itching to Get Caught No Chance Bidder – Bids submitted by vendor known to lack the ability to perform the contract Betting Bidder – Vendor brings multiple bids to an opening or submits bid once other bidders are determined Loud Mouth Bidder – Suspicious statements indicating advance notice of a competitor’s prices or that vendors have discussed bids

34. 34 WHAT YOU CAN DO Discourage Collusion Expand the list of bidders/applicants Require sealed bids/applications to be delivered by a specified time and to a specified location and date and time stamp the packages when they are received Require a certification of independent price determination to be submitted with all bids/applications Ask questions

35. 35 WHAT YOU CAN DO Detect Collusion Use a highlighter to mark typos, errors, etc. Retain bids, envelopes, Federal Express slips, fax transmittal sheets, e-mail messages, etc. Keep a chart of competition over time for products and services you purchase Keep your eyes and ears open Ensure your whole team is familiar with M.A.P.S.

36. 36 PARTING WORDS Remember M.A.P.S. Ensure that all purchasing officers are familiar with M.A.P.S. Find our M.A.P.S. checklist at: www.usdoj.gov/atr/public/criminal/recovery_ initiative.htm John Terzaken, Assistant Chief U.S. Department of Justice, Antitrust Division Nat’l Criminal Enforcement Section (202) 307-0719 / john.terzaken@usdoj.gov