1. 1 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 Procurement Fraud & The Building Block Principle TITLE 15 

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 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

6. 6 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)

7. 7 Evolution of Collusion Motive 12 Means 3 Opportunity 4 Agreement

8. 8 PRE-AWARD COLLUSION See the Signs M.A.P.S. M arket A pplication P atterns S uspicious Behavior

9. 9 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

10. 10 T-37 Nose WheelF-5 Main Wheel Estimate$275$1000 2009 BidsSmith & Smith $465Jay-Em$1416 HYPOTHETICAL

11. 11 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.

12. 12 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

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15. 15 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.

16. 16 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

17. 17 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

18. 18 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!

19. 19 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

20. 20 HYPOTHETICAL T-37 Nose WheelF-5 Main Wheel 2007Smith & Smith $275Jay-Em$1000 2008Jay-Em$455Smith & Smith $1390 2009Smith & Smith $465Jay-Em$1416

21. 21 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

22. 22 HYPOTHETICAL

23. 23 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

24. 24 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.

25. 25 Prevention Enforcement Best Practices Use Us As A Resource EFFECTIVE DETERRENCE

26. 26 PARTING WORDS Remember M.A.P.S. Use us as a resource Find more information 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