United States: Cartels

Introduction

Though criminal antitrust enforcement in the United States remains depressed, the past year has seen an uptick in total fines imposed, a number of new case filings and several notable policy developments. The policy developments, and related comments by the Department of Justice’s (DOJ) Antitrust Division (the Division) officials, suggest efforts by the Division to reinvigorate its enforcement programme and serve as a reminder to companies not to be complacent about the risks of antitrust compliance failure.

Enforcement trends

As observed last year, there has been a noticeable decrease in the number of criminal antitrust cases filed and penalties imposed by the Division. The fines have seen a sharp drop since they reached a high in fiscal year 2015. After four consecutive years of annual criminal fines in excess of US$1 billion (with an apex of US$3.6 billion in 2015), 2016 saw a drop to only US$399 million, while total penalties reached a 10-year low of only US$67 million in 2017. In 2018, there was a modest uptick, with the Division collecting US$172 million in criminal fines. ¹

Consistent with these trends, there is a perception in the antitrust bar that the Division’s enforcement, including its leniency programme, has stagnated either because of less zealous enforcement or because the new investigations are not identifying large international cartels that dominated enforcement before 2016. The Division has pushed back against suggestions to this effect, with Assistant Attorney General (AAG) Makan Delrahim noting in 2019 that ‘despite some recent eulogies over the purported death of leniency, the Division’s Leniency Program is still alive and well. In fact, the number of leniency applications the Division received in 2018 was on par with our historical averages.’ ² In that same speech, Delrahim explained that those applications have contributed to 91 pending grand jury investigations. ³ Delrahim also told Congress in December 2018 that the Division ‘is trying more criminal cases than ever before and obtaining more prison sentences for individuals than in recent years’. ⁴

Since cartel investigations can take years from beginning to end, Delrahim’s comments point to a potential increase in case filings and corporate penalties in the coming years. They also suggest that the Division is motivated to dispel notions of decreased enforcement, which would be done most effectively by increasing the number of investigations and case filings.

Policy developments

The past year has seen a number of potentially significant policy developments, some of which appear to be a reflection of the Division’s efforts to reinvigorate its enforcement programme.

Compliance programme credit and deferred prosecution agreements

Most significantly, in July 2019, the Division announced that it would consider the existence of effective antitrust compliance programmes at the charging and sentencing stages of criminal antitrust investigations, creating the possibility that cartel participants could avoid prose­cution even if they are not a first-in leniency applicant. ⁵ The Division’s previous, and long-standing, approach had been not to consider compliance programmes at the charging stage, on the theory that a compliance programme is by definition ineffective if it fails to prevent a criminal violation of the antitrust laws. ⁶

The practical effect of this new policy is that the Division is likely to be more open to the use of deferred prosecution agreements (DPAs) to resolve criminal cartel matters, an option the Division had strongly resisted in the past. Under the new policy, a DPA may be available when the Division determines that the company had a strong compliance programme, even if the programme did not prevent the specific violation at issue. With a DPA, the company can avoid prosecution, although it may still be required to pay fines. The Division previewed this policy reversal in a May 2019 speech, where Delrahim stated that the ‘Division long has been home to the ultimate credit for an effective compliance program that detects and allows prompt self-reporting-leniency. Going forward, however, leniency will no longer be the only benefit.’ ⁷ Three weeks later, on 31 May 2019, the Division entered into a DPA with Heritage Pharmaceuticals (discussed below).

The Division’s new policy is reflected in revisions to its manual and new guidelines that Division prosecutors will use to evaluate corporate compliance programmes at the charging and sentencing stages. The new policy is in part designed to reward companies that make significant investments in antitrust compliance, with the Division stressing that it is seeking to create incentives for companies to make such investments. ⁸ It also appears to be an effort to encourage companies to increase self-detection of cartel conduct and self-report violations even where amnesty may not be available. ⁹

In light of this policy change, it is increasingly important for companies to assess their compliance programmes and ensure adequate investments in those programmes. Consistent with the Division’s new guidelines, when assessing its compliance programme, a company should ensure that (i) the programme is designed to address the company’s specific antitrust risks, (ii) the programme is implemented in a comprehensive and well-documented manner, and (iii) that any potential misconduct is brought to counsel’s and management’s attention as quickly as possible. ¹⁰ The primary benefit of a compliance programme remains preventing violations. Nevertheless, programmes that help identify past violations by, for example, educating employees about leniency, can bring additional benefits given the continuing availability of the Division’s leniency programme and the new guidelines’ direction to prosecutors to consider whether a programme is effective in identifying misconduct and the timeliness of self-reporting where leniency is not available.

DOJ civil enforcement under the Clayton Act section 4A

In addition to the new compliance policy, the Division has been adjusting its enforcement programme to open new avenues for enforcement. In particular, the Division has announced that going forward it will use section 4A of the Clayton Act to seek civil recoveries on behalf of the government where the government is a victim of cartel conduct. ¹¹ The Division has noted that one reason for the policy change is to increase incentives to seek leniency, because successful leniency applicants will be able to lower their civil exposure under the Antitrust Criminal Penalty Enhancement and Reform Act, which can eliminate joint and several liability, and treble civil damages for successful leniency applicants. ¹²

International coordination and cooperation

In recent years, the Division has acknowledged the need for ‘greater international cooperation and coordination on cartel cases’. ¹³ Recognising the steady increase of multi-jurisdictional investi­gations and the corresponding burdens imposed on companies subject to investigations in multiple jurisdictions, the Division has championed efforts among international enforcers to ‘coordinate their activities, focus their investigations, and streamline processes’. ¹⁴ Most significantly, the Division announced in June 2018 that it would propose a multilateral framework on procedures to be adopted worldwide. ¹⁵

Modified procedures were unanimously approved by the Steering Group of the International Competition Network in April 2019. These procedures include commitments to universal due process principles such as:

• non-discrimination;
• transparency and predictability;
• proper notice;
• access to information, meaningful and timely engagement, and opportunity to defend;
• timely resolution of proceedings;
• confidentiality protections;
• avoidance of conflicts of interest;
• access to counsel and privilege;
• written enforcement decisions and public access to decisions; and
• availability of independent review of enforcement decisions. ¹⁶

As with other recent policy developments, the Division’s efforts to ensure greater coordination and efficiency in multi-jurisdictional investigations seek to bolster the effectiveness of its enforcement programme.

As Deputy AAG Andrew Finch noted at a conference in Korea:

The Antitrust Division’s corporate lenience policy has been an important part of its criminal antitrust enforcement program for 25 years. For it to continue to play this role in the next 25 years, we will have to work internationally to ensure that reporting regimes in various jurisdictions are not so complex that it becomes impossible for a company seeking leniency in multiple jurisdictions to navigate. ¹⁷

No-poach agreements

The Division has also continued to implement and refine its recent policy of prosecuting naked ‘no-poach’ agreements, or agreements between employers not to recruit or hire each other’s employees. ¹⁸ The Division announced in 2016 what was then a new policy to criminally prosecute such agreements. ¹⁹ In February 2018, the Division announced that companies can apply for leniency from civil, in addition to criminal, liability arising from no-poach agreements. ²⁰ In 2019 filings in civil no-poach litigations, the Division also sought to clarify when no-poach agreements cross the line of per se illegality. Only per se illegal antitrust violations are prosecuted criminally in the United States. For example, the Division has argued that the per se rule is not appropriate in agreements between a franchisor and its franchisee not to hire each other’s employees, because these agreements are part of a vertical (rather than horizontal) relationship. ²¹

Since its policy change in 2016, the Division has brought a number of enforcement actions in this space, although each was ultimately resolved with civil, rather than criminal, settlements. The Division chose not to bring criminal charges in these cases, because the alleged conduct occurred prior to the policy change in 2016. ²² Although there have been no criminal prosecutions to date, Division officials have noted ‘surprise’ at the number of no-poach investigations, and have observed that it is ‘shocking’ how prevalent those agreements have become. ²³

Recent case developments

Korean fuels

In November 2018, three Korean fuel companies –SK Energy, GS Caltex and Hanjin – pled guilty to criminal charges for bid-rigging on sales to US military facilities in Korea. ²⁴ In March, two more companies, Hyundai Oilbank Co Ltd and S-Oil Corp, also pled guilty. Seven Korean individuals have been charged in the investigation. ²⁵ The alleged conspiracy ran for more than 10 years, from 2005 until 2016. The Division alleged that the Department of Defense was overcharged by ‘well over $100 million’. ²⁶

Both the criminal and civil investigations resulted from tips by whistle-blowers. On the criminal side, the anonymous tipster notified the Defence Logistics Agency inspector general of the alleged bid-rigging through the agency’s tip hotline. On the civil side, an unnamed Korean individual filed a claim under the False Claims Act. ²⁷

After investigating the tips, the Division brought civil and criminal actions against the Korean oil companies. Through their plea agreements and civil settlements, each of the three companies originally charged agreed to cooperate and collectively paid a total of US$82 million in criminal fines and another US$150 million in civil settlements with the government. ²⁸ The two companies charged in March 2019 agreed to pay a total of US$75 million in criminal fines and US$52 million in civil settlements, bringing the Division’s total recovery to around US$359 million. ²⁹

This case underscores the Division’s commitment to leveraging section 4A of the Clayton Act. Following the recoveries from the Korean oil companies, the Division stressed its use of section 4A and noted ‘as far as we can tell based on our records, they are the largest settlements the government has ever recovered since the enactment of section 4A’. ³⁰

Financial instruments

The Division also brought charges against two foreign banks, Industrial and Commercial Bank of China Financial Services (ICBCFS) and Banca IMI Securities Corp, for an alleged conspiracy to rig bids to borrow pre-release American depositary receipts (ADRs). Both banks pled guilty in mid-2019.

According to the plea agreements, between May 2012 and at least August 2014, the banks agreed to submit coordinated bids to borrow pre-release ADRs from US depositary banks at artificially low rates, often agreeing to submit the same bid. ³¹ ICBCFS was fined more than US$3 million and Banca IMI was fined more than US$2 million for their involvement in the conspiracy. ³²

Packaged chicken

In June, the Division intervened in a long-running civil lawsuit against chicken processors. Chicken distributors have accused Tyson Foods Inc, Pilgrim’s Pride Corp, Sanderson Farms Inc, Perdue Farms Inc and others, of colluding to artificially inflate the price of chicken and sharing sensitive information about operating costs and the age of their chickens. ³³ Maplevale Farms initially brought a class action lawsuit alleging the conspiracy, but in June 2019, the Division announced that it was running a parallel criminal investigation and asked the presiding judge to stay discovery in the civil case. ³⁴

Generic pharmaceuticals

The Division has also shown some progress in its long-running investigation of generic drug makers. In May 2019, three years after its former CEO and former president were charged with price-fixing and bid-rigging, Heritage Pharmaceuticals entered into a DPA with the Division. Under the terms of the agreement, Heritage will pay a US$225,000 criminal fine and roughly US$7 million in civil penalties. ³⁵ The Division’s investigation into price-fixing and bid-rigging in generic pharmaceuticals is ongoing. Sentencing for the two former executives is set for September 2019.

Insulation contractors

The Division has continued to prosecute local cartel conduct. The Division charged two executives working at Connecticut-based contractors for bid-rigging on insulation installation projects in the north-east United States. The executives entered into plea agreements and are awaiting sentencing, which is scheduled for August 2019. According to the Division, the insulation contractors conspired to inflate bid prices on approximately US$45 million worth of insulation projects across the region between October 2011 and March 2018. ³⁶ The conspirators allegedly communicated through burner phones and encrypted, disappearing messaging apps. ³⁷

E-commerce (customised promotional products)

The Division also brought charges relating to price-fixing of specialised products sold by small vendors on online retailers, such as Amazon.com. ³⁸ To date, the Division has charged six individuals and five companies for price-fixing of promotional products. ³⁹ Individual sentences range from three to eight months in prison, and the corporate fines range from US$400,000 to US$1.9 million. ⁴⁰

Packaged seafood

The Division has continued its prosecutions in the alleged packaged seafood cartel. The Division uncovered evidence of the packaged seafood cartel while investigating a proposed merger between Bumble Bee Foods, LLC (Bumble Bee) and Chicken of the Sea. According to Deputy AAG Barry Nigro, the parties were pursuing the merger by advancing ‘clear loser arguments’, which allowed the Division to review document productions that were apparently more extensive than what would have been produced had the parties abandoned the merger earlier. ⁴¹ As the Division spent ‘more and more time’ with the documents, it concluded that there was a price-fixing conspiracy between the merging companies. ⁴² Nigro noted that advancing ‘loser’ arguments during the merger review process provides the Division with ‘a wonderful opportunity to wade through more of your documents, talk to more of your customers and hear more complaints about the transaction’. ⁴³

In May 2018, the Division indicted Christopher Lischewski, the former CEO of Bumble Bee, for his role in the alleged conspiracy. Bumble Bee pled guilty in May 2017 and agreed to pay a fine of ‘at least US$25 million’. ⁴⁴ Mr Lischewski is the fourth individual prosecuted in this investigation. Starkist pled guilty to price-fixing in October 2018. The Starkist plea agreement recommended a fine in the range of US$50 million to US$100 million, with the final figure to be set by the presiding judge. ⁴⁵ In a related civil hearing, Starkist has informed the court that it is financially unable to pay a fine in excess of US$50 million because of its exposure in the parallel civil litigations. ⁴⁶ This raises the total number of charges that have resulted from this investigation to six. Of those six charged, two companies and four executives have pled guilty. Mr Lischewski is scheduled to go to trial in November 2019.

* The authors would like to thank Ben Fleshman, a 2019 summer associate, for his assistance.

Notes