The Antitrust Review of the Americas 2009

Antitrust Compliance in the Age of Multi-Jurisdictional Leniency: New Ideas and New Challenges

Not since Kurt Eichenwald's The Informant1 chronicled Mark Whitacre's involvement with the global lysine price-fixing scheme has an antitrust investigation generated as much international intrigue and notoriety as the marine hose cartel. On 30 April 2007, thousands of industry professionals flocked to Houston, Texas to discuss technological developments in the oil and natural gas industry at the Offshore Technology Conference. Among the attendees were eight executives travelling from France, Italy, Japan and the United Kingdom - all of whom made the fateful decision to attend a 1 May cartel meeting in one of the hotel's conference rooms. Unbeknownst to these eight executives, one of the conspirators had already broken rank and reported the misconduct to the US Department of Justice (DoJ). With the help of this amnesty applicant, the DoJ obtained arrest warrants and set an elaborate trap for the other members of the cartel, wiring the executives who initiated the meeting and planting hidden cameras in the conference room. The DoJ's quiet tenacity paid off as they memorialised a full-blown cartel meeting on video. The eight executives were awakened by federal marshals pounding on their hotel room doors in the early morning hours of 2 May. For the 'Marine Hose 8' - most of whom did not speak fluent English - being placed under arrest and having their belongings seized in the middle of the night must have been a harrowing experience. After submitting to interrogation by federal enforcers, the executives were sent to a federal detention centre for pre-trial and holdover inmates in Houston, known as the 'Death Penalty Capital' of the US because approximately 4 per cent of the country's current death row inmates are tried in Harris County, Texas.2 Most of the Marine Hose 8 remained in jail for several hours - some significantly longer - until bail was posted. Meanwhile, the arrests, and concurrent dawn raids throughout Europe, became headline news, causing consternation and embarrassment to the executives and their employers. The arrest was the first chapter in a long saga for the Marine Hose 8. According to the terms of their bonds, all eight executives had to surrender their passports and remain within the US during the investigation. Even the first executives to plead from Trelleborg Industrie SAS in Clermont Ferrand, France would be detained in the US for eight-and-a-half months before beginning their prison sentences. Because these executives were arrested on US soil and did not have to surrender voluntarily, the DoJ was emboldened to seek sentences comparable to those imposed on US citizens. Moreover, none of their time spent in the US cooperating with enforcers would count toward time served. Given that the DoJ only started imposing short prison sentences on non-US executives in 1999,3 the detention of the Marine Hose 8 represents a dramatic shift in policy. The British executives embroiled in the marine hose cartel received even harsher sentences. After months of negotiations with the DoJ and the UK Office of Fair Trading (OFT) and public prosecutors, defence counsel brokered a deal that would allow the executives to return to the UK to face trial once they had been sentenced in the US. According to the terms of their plea agreements, if the UK sentences matched or exceeded the US sentences, then the three executives could serve their sentences in a UK prison. In the event that the UK sentences were lower than those stipulated in the US plea agreements, the executives agreed to return to the US to serve the remainder of their sentences. On 11 June 2008, a UK Crown Court judge imposed the first prison sentences for cartel offences pursuant to section 188 of the Enterprise Act of 2002 upon three British executives. Much to the surprise of legal commentators who predicted the UK court would hand down lower sentences,4 Judge Geoffrey Rivlin meted out sentences between 30 and 36 months - significantly more than the 20 to 30 month sentences that the executives received in the US.5 The steep sentences were accompanied by a warning from the judge that future sentences for cartel offences would be even higher. In wake of Judge Rivlin's ruling, two of the three British defendants have decided to appeal.6 The companies that employed the Marine Hose 8 face daunting consequences as well. The DoJ has opened a criminal investigation, and the European Commission has issued a Statement of Objections against the companies. As a result, the companies are likely to pay tens of millions of dollars in criminal and administrative fines. Other enforcement agencies - including some that previously refrained from prosecuting even hard-core offences - have indicated that they will follow suit.7 The companies must also face private damages actions in the US and attempt to stave off the threat of treble damages. Adding insult to injury, the companies will expend staggering sums of money defending themselves and the employees who need counsel during the course of the investigation. In the case of the Marine Hose 8, the companies will also pay housing costs and living expenses for the employees detained in the US until they either plead guilty or are exonerated and return home. The marine hose investigation - and, in particular, the UK sentencing - heralds a new era of international cartel enforcement. Non-US executives who violate antitrust laws on either side of the Atlantic will increasingly face prison sentences commensurate with those imposed upon US wrongdoers because antitrust enforcers in Europe and elsewhere have signalled that they might prosecute hard-core violations with the same vigor as their US counterparts. Additionally, countries relatively new to antitrust enforcement have shown an increased willingness to extradite foreign executives who flout US laws from abroad. As demonstrated by the most recent ruling in the extradition case of Ian Norris, the former chief executive officer of Morgan Crucible, the mere fact that the cartel activity was not a criminal offence in the wrongdoer's home country will no longer shield him or her from the consequences of his or her actions - particularly if obstruction of justice charges are also looming.8 In sum, the marine hose investigation underscores the importance of frequent and up-to-date compliance training for all companies operating in a global marketplace. While the Marine Hose 8 likely knew that their meetings and conduct were improper and illegal, they probably never dreamed that they could be detained, arrested and held in the US indefinitely and sentenced to serious jail time for their actions. Standard compliance training could not - and did not - prepare them for what they faced in Houston. During this era of heightened enforcement, effective compliance training must (i) engage senior executives and sales teams separately; (ii) explain the real-life scenarios that may get them in trouble; (iii) train them on what to do if the worst happens and the investigators visit; (iv) present the high personal costs of non-compliance; and (v) institute internal policies - including a leniency programme - that reinforce the company's commitment to eradicating cartel activity, both as a seller and a buyer.

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