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Antitrust Division Criminal Enforcement Program

Presentation on Antitrust Violations & Prosecutions

Michelle PionkowskiTrial Attorney

U.S. Department of Justice, Antitrust Division Philadelphia Office

Direct Dial: (215) 597-7568Michelle.Pionkowski@usdoj.gov

American Apparel & Footwear Association

Government Contract Committee Spring MeetingMarch 24, 2006

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Criminal Sections

Seven Field Offices & One D.C. Section:• Atlanta • Chicago

• Cleveland • Dallas

• NCES • New York

• Philadelphia • San Francisco

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Sherman Antitrust Act(1890)

Every contract, combination, or conspiracy in restraint of trade is

declared to be illegal.

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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.”

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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.”

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Antitrust Enforcement

• Criminal Enforcement

• Merger Review

• Monopolies and Other Civil Violations

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Criminal Enforcement

• Punishment

• Restitution for Victims

• Return to Competitive Markets

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What We Investigate & Prosecute

Agreements Among Competitors To:Fix Prices Rig BidsAllocate Markets (Customer/Territories)Allocate Sales Volumes/Restrict Output

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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

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What We Investigate & Prosecute

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

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What We Investigate & Prosecute

• Crimes Threatening Integrity Of InvestigationsPerjury and False Declarations To Grand Jury –

18 U.S.C. §§ 1621, 1623Obstruction Of Justice - 18 U.S.C. §§ 1503, 1505, 1510, 1512, 1519False Statements - 18 U.S.C. § 1001 Criminal Contempt - 18 U.S.C. §§ 401, 402

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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

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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

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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

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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

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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”)

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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

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Bid Rigging

Any agreement between competitors concerning who will bid, what the bids will be, or who

will be the low bidder.

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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

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Things That Make You Go Hmmm(Indicators of Collusion)

• Bid Patterns Over Time

• Clues in Bid Documents

• Non-Competitive Pricing

• Vendor Comments

• Sham Bidders

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United States v. Atlantic Disposal

Bid Documents

1. Few Bidders2. Atlantic Disposal Always Won3. Common Typeface4. Common Mathematical Errors5. Subcontracts to Losing Bidders6. Sham Bidder

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Bid Rigging at WorkBoston Globe, November 3, 1991

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

1983 1984 1985 1986 1987 1988 1989

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.

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WHEN Might Collusion Occur?

• Few Sellers/Friendly Competitors

• Restrictive Specifications

• Standardized (Commodity) Product

• Repetitive Purchases

• International Trade

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HOW Do Antitrust Conspiracies Work?

• Opportunity to Scheme

• Means to Divide Illegal Overcharge

• Method of Communication

• Mechanism to Monitor the Agreement

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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!)

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The Cost of Collusion

• Conspiracies are Lengthy

• Often Spread to Other Goods and Services

• The Result is that Victims are Overcharged and Defrauded

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$4.2 millionCompany C

$5.1 millionCompany B

$4.8 millionCompany A

ElectricalContracting

AgreedPost-Bid

Company C withdraws winning bid in exchange for a subcontract atinflated price from Company A.

Subcontracting to Losing Bidders

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Subcontracting to Losing Bidders

$5.5 millionCompany C

$5.1 millionCompany B

$4.8 millionCompany A

ElectricalContracting

AgreedPre-Bid

Company C bids $5.5 million, but later accepts a subcontract fromCompany A at an inflated price.

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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 $10.00Frass $13.00

Brenner $12.00Frass $15.00

Brenner $14.00Frass $17.00

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Rotation of BidsMen’s Outdoor Gloves

Firm A $10.00Firm B $12.00Firm C $13.00Firm D $14.00

Men’s Dress Gloves

Firm C $10.00Firm D $12.00Firm A $13.00Firm B $14.00

Women’s Outdoor Gloves

Firm B $10.00Firm C $12.00Firm D $13.00Firm A $14.00

Women’s Dress Gloves

Firm D $10.00Firm A $12.00Firm B $13.00Firm C $14.00

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Forms ofAllocation Agreements

• Agreements among competitors to:– Allocate customers– Allocate territories– Allocate sales volumes– Allocate production volumes– Allocate market shares– Allocate market growth

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Where are these cartelconspiracies 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

04/19/23 Click here to type in text for footer

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Who Are CommonCo-Conspirators?

• Corporate Executives– Intelligent– Confident– Wealthy– Powerful– Profit Driven

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The Executive’s Decision to Enter a Cartel

• Premeditated decision

• Classic cost-benefit analysis

• Executive weighs the:

Rewards:

• Money

• Market share

Risks:• Punishment

(Sanctions)• Getting caught

(Detection)

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“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

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“If no one talks, everyone walks.”

“We can hang together, or hang separately.”

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Cornerstones of EffectiveAnti-Cartel Enforcement

• Severe sanctions against companies and executives who participate in the illegal activity

• Fear of detection

• Clear enforcement policies

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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

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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

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How Investigations Get Started

• Spin-offs from Existing Fraud Cases

• Anonymous Complaints

• Amnesty

• Purchasing Agents

• Proactive Contract Review

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Most Effective Investigative Tool -

Division’s 1993 Corporate Leniency Policy

No Criminal Prosecution For Self ReportingAll Cooperating Directors, Officers, Employees Of Qualifying Corporation Also Receive AmnestyCompany Must Cooperate Throughout InvestigationCompany Must Not Be “The” RingleaderCompany Must Terminate Conduct Promptly and Effectively Upon DiscoveryCompany Must Pay Restitution To Victims BUT -- Only The First To Qualify Gets It Strict Confidentiality Policy

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Benefits Of Corporate Leniency Policy

Detection Of Cartels That Otherwise Would Remain Undetected Prosecution Of Co-ConspiratorsOpportunity For Covert OperationsAccess To Documents Regardless Of LocationAccess To Witnesses Regardless Of Nationality

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Corporate Leniency Policy

Obligation To Cooperate Throughout InvestigationHammer – Violate Amnesty Agreement = Removal From Program

Subject To ProsecutionAll Evidence Provided May Be Used Against Company

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Leniency Program’s Value

Major Role In Cracking International Cartels

Last Nine Years – Over $2.5 Billion In FinesNot So Much Absolution For The Guilty As It Is The Anti-Cartel Enforcer’s Most Potent Weapon

Allows Prosecution Of Co-Conspirators

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Evidence Of Leniency Program’s Value

VitaminsF. Hoffmann-La Roche - $500 MillionBASF $225 Million

DRAMInfineon $160 MillionHynix $185 MillionSamsung $300 Million

Graphite ElectrodesUCAR $110 MillionSGL $135 MillionMitsubishi $134 Million

Fine Arts AuctionsSotheby’s $ 45 Million

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Amnesty For Cooperating Executives

Could Be The Program’s Biggest RewardGraphite Electrodes -Amnesty Executives = No Prosecution; UCAR Executives = 17 Months; 9 Months; & Indicted FugitiveVitamins - Amnesty Executives = No Prosecution; Six Hoffmann-La Roche and BASF Executives Jailed In USFine Arts Auctions - Amnesty Executives = No Prosecution; Sotheby’s Chairman = One Year In Jail

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Use Of Alternative Fine Statute To Obtain Corporate Fines That Deter

(FY 1997)

FY 86 - 91 Average Fine Total - $27 MillionFY 97 - $205 MillionFY 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+ Million51 Defendants - $10+ Million

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Significant Jail Sentences Against Culpable Corporate Executives

(FY 2000)

FY 97 - Average Jail Sentence - 4 MonthsFY 00 – Average Jail Sentence – 10 MonthsFY 05 - Average Jail Sentence – 24 MonthsLongest Sentences In Division Prosecutions

August 2001 - 4 YearsNovember 2001 - 63 MonthsJanuary 2002 - 10 Years May 2005 – Over 11 Years

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Antitrust Division Criminal Enforcement Program

Michelle PionkowskiTrial Attorney

U.S. Department of Justice, Antitrust Division

Philadelphia OfficeDirect Dial: (215) 597-7568

Michelle.Pionkowski@usdoj.gov

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Criminal Enforcement Program

We’ll End With A Scene From A Recent Cartel Meeting

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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."