US: CFIUS Review
The past year has been one of the most significant in US
anti-cartel enforcement in recent memory. While the year was marked by numerous important developments, two stand out and signal a new level of danger for multinational companies in highly competitive manufacturing industries. First, the Department of Justice Antitrust Division won a major victory in the first jury trial against a foreign corporation accused of criminal price fixing, while securing a jury finding on damages that enables the judge to impose a fine as high as $1 billion. Second, the Division’s auto parts investigation (on which we reported last year) has grown into the Division’s largest investigation ever. While it is ongoing and a number of its targets remain unknown, the investigation is on track to embroil an entire, nationally significant industry of a foreign country - the auto parts industry of Japan - and poses the danger of expanding into related industries as companies race for reduced fines under the Division’s ‘amnesty plus’ programme by disclosing cartel activity in other product areas.
We begin this year’s paper with our customary review of Antitrust Division enforcement statistics and then turn to the AU Optronics (AUO) trial, the auto parts investigation, and other significant developments in criminal antitrust enforcement over the past 12 months.
Antitrust Division enforcement remains steady
As we noted last year, the Antitrust Division continues its aggressive enforcement efforts against cartel activity around the globe. The Division filed 90 cases in fiscal year (FY) 2011, almost matching the record 92 cases filed in FY 1987, and exceeding the number filed in the preceding FY (2010) by 30 per cent.1 The volume of cases alone is impressive. Even more notable is the range of industries the Division targeted in its filings, including auto parts, electronics, and financial services. The Division obtained over $500 million in criminal fines in FY 2011. Total fines obtained in the first few months of 2012 are already higher.2
In addition to obtaining substantial fines, the Division is prosecuting individuals and sending them to prison frequently and for longer periods of time than ever before. In FY 2011, the average prison sentence was 17 months, more than twice the average of eight months in the 1990s. Notably, foreign nationals, with an average prison sentence of 10 months in FY 2011, continue to be favourite targets of the Division’s criminal enforcement.
Landmark cases in motion
United States v AU Optronics
Criminal price-fixing cases are most frequently resolved through negotiated plea agreements, in large part because defendants are risk-averse and generally choose not to ‘take their chances’ with a jury. Corporate defendants avoid jury trials because the potential fines can be staggering. Many individuals from other countries who are charged with criminal antitrust offences often simply avoid prosecution in the US by staying out of the country, thereby avoiding the jurisdictional reach of the Antitrust Division and the US courts. With the Division’s primary enforcement activity directed at foreign defendants, the result has been a dearth of large cartel cases.
Bucking an almost universal trend, the large Taiwanese manufacturer of LCD screens, AUO, and five of its executives decided to fight the Division’s allegations of criminal price fixing before a jury. Indeed, this marked the first time in 10 years that a corporate defendant has litigated an international criminal cartel case in a US court.
To recap the case, in 2006, Samsung Electronics Co sought amnesty from the Antitrust Division for its role in a conspiracy to fix the price of thin-film transistor liquid-crystal display panels (TFT-LCDs). The Division accepted Samsung into its leniency programme, and in June 2010, after a wave of guilty pleas by TFT-LCD suppliers and their executives, a federal grand jury indicted AUO, its US subsidiary and five current and former executives for violating Section 1 of the Sherman Act. The Division alleged that, from 2001 to 2006, the defendants conspired at more than 60 meetings with competitors to fix the prices of TFT-LCD panels.
The AUO trial lasted eight weeks. During the course of the trial, the Antitrust Division called a variety of witnesses, including co-conspirators who pled guilty and served prison terms in the US, representatives of US companies that were victims of the alleged cartel (such as Hewlett-Packard), and an economist who testified on the monetary impact of the conspiracy. Defence attorneys - lawyers representing AUO, lawyers representing its US subsidiary and lawyers representing each of the individual defendants - cross-examined the government’s witnesses aggressively. They did not, however, call any fact witnesses of their own. And none of the individual defendants took the stand. In fact, the only AUO witness was an economist who attempted to rebut the government’s damages evidence.
On 13 March 2012, a federal jury returned split verdicts, but handed the Antitrust Division a decisive victory. The jury convicted AUO and its US subsidiary, as well as the two most senior AUO executives charged in the case. The jury failed to r
United States: national security review
The national security review process in the United States - often referred to as the Exon-Florio or CFIUS1 review process, after the relevant authorising statute and enforcement agency, respectively - has existed for decades. It originally focused, at least in practice, on the acquisition by foreign companies of US businesses directly or indirectly supplying the US Department of Defense, but especially after the 9/11 terrorist attacks, the concept of national security - and therefore the types of transactions subject to review under the regime - was broadened by statute and in practice. Today, the national security review process can be an important part of many transactions, even though it remains voluntary. Examples of industries in which notifications have been made include computers, network security, cyber systems, energy (development and transport), semiconductors, aerospace, telecommunications, optics, robotics, mining and natural resources, plastics and rubber, automotive, financial services, coatings and adhesives, chemicals, and steel.
The CFIUS review process also has become more time consuming and intensive, as exemplified by the more extensive investigations being undertaken by CFIUS. For example, about the same number of transactions were subjected to an in-depth investigation in 2008 and 2009 as had been for nearly all of the previous two decades (ie, from 1988, when the relevant statute was enacted, to 2007). For the last three years for which data has been reported (between 2008 and 2010), on average there were 104 filings per year, of which approximately 30 per cent went to Phase II investigations. This compares to the period between 2005 and 2007 when, on average, less than 5 per cent of transactions notified were subject to in-depth investigations.
Although submitting a transaction to CFIUS for a national security review is voluntary, the risk of not submitting a voluntary notification and obtaining a no-action letter can be substantial because of the risk of remedial action being taken. Furthermore, a filing ensures that government security clearances or licences issued under other federal regulations that are tied to the national security review process are not jeopardised. It may further insulate parties to a transaction from public and political criticism of a decision not to notify a particularly sensitive transaction. Consequently, it is advisable to consider the national security implications of cross-border transactions and to build appropriate provisions into transaction documents to address conditions before closing, cooperation and risk sharing.
Typically, fewer than 200 transactions per year are subject to the US national security review process,2 and only one transaction has ever been subjected to a formal order to be unwound since the relevant statute was adopted in 1988.3 Yet several transactions have garnered significant publicity as a result of US government opposition on national security grounds and have been subjected to delay, restructuring or abandonment. For example, Dubai Ports World’s (DPW) acquisition of container terminal operator P&O Steam Navigation Company (P&O) sparked a congressional debate that ultimately led DPW to abandon the transaction with respect to P&O’s US assets.4 More recently, Huawei Technologies Co abandoned its acquisition of assets from 3Leaf Systems.5 A number of other
transactions have been abandoned in light of CFIUS objections; for example, in 2010, at least five transactions were abandoned as a result of CFIUS opposition.
What is the regulation and who administers it?
The US national security review process is conducted pursuant to the Exon-Florio Amendment to the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (FINSA) (the Act).6 The Act grants the President the authority to review any transaction by a foreign person or persons that results in control over a US business (ie, a ‘covered transaction’) and to suspend or prohibit that transaction if it threatens to impair the national security of the United States.
CFIUS is charged with conducting the national security review on behalf of the President pursuant to the Act and, as appropriate, making a recommendation regarding Presidential action.
CFIUS is an inter-agency committee consisting of, as chair, the Secretary of the Treasury and, as members, the Secretaries of Commerce, State, Defense, Homeland Security and Energy, as well as the Attorney General, the United States Trade Representative, and the Director of the Office of Science and Technology Policy. The Secretary of Labor and the Director of National Intelligence serve as ex officio members. Other executive branch representatives observe and, as appropriate, participate in the Committee’s activities, including the Chairman of the Council of Economic Advisors, the Director of the Office of Management and Budget, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, and the Assistant to the President for Homeland Security and Counterterrorism.7
In practice, CFIUS operates both through its official senior-level members and, more frequently, through staff representatives from each of the CFIUS member agencies, although FINSA now requires that certain decisions be taken only by certain specified senior-level members. The Committee reaches decisions by consensus, but any member may seek to have a transaction subjected to in-depth review.
What is national security?
The Act does not define ‘national security’, but requires CFIUS to consider the following factors:
- domestic production needed for projected national defence requirements;
- the capability and capacity of domestic industries to meet national defence requirements, including the availability of human resources, products, technology, materials, and other supplies and services;
- the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet the requirements of national security;
- the potential effects of the proposed or pending transaction on sales of military goods, equipment or technology to any country:
- identified by the secretary of state as a country that supports terrorism, is a country ‘of concern’ regarding missile proliferation or the proliferation of chemical and biological weapons, or is listed on the Nuclear Non-Proliferation Special Country List; or
- that poses a potential regional military threat to the interests of the US;
- the potential effects of the proposed or pending transaction on US international technological leadership in areas affecting US national security; and
- the potential for national security-related effects from the acquisition of US critical technologies and infrastructure, including energy.
Critical technologies are defined by reference to a number of export control regulations including, among others, the International Traffic in Arms Regulation (ITAR) and the Export Administration Regulation (EAR).
Critical infrastructure is defined as those systems and assets, whether physical or virtual, that are so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.
What is a covered transaction?
The Act applies to any ‘covered transaction’ (ie, a transaction by or with any foreign person that could result in control of a US business by a foreign person).8 Each of these terms is further defined in the regulations.
A ‘transaction’ includes mergers, acquisitions or takeovers, and can include the acquisition of an ownership interest, the conversion of convertible voting instruments and the formation of a joint venture.
The concept of control is broader than in the US antitrust context, because it is based on function rather than structure. Control turns on the ability to determine, direct or decide matters affecting an entity, and the regulations specifically recognise dominant minority control.9 In practice, CFIUS interprets control very broadly.
Foreign persons include any foreign national, foreign government, or foreign entity, or any entity over which control is exercised or exercisable by a foreign national, foreign government or foreign entity.
A US business is one engaged in interstate commerce in the United States and thus is not limited to businesses incorporated in the United States. Accordingly, the Act may be implicated when a foreign entity acquires another foreign entity and indirectly acquires its US subsidiary.
What information is required in a filing?
The notification must include substantial information regarding the nature of the transaction, the nature of the business to be acquired and the identity of the foreign acquiring person. The specific information that must be included is outlined in the regulations.10 With respect to the US business to be acquired, CFIUS requires information about, among other things, its US government contracts, clearances and licences. With respect to the foreign acquiring person, information must be provided regarding its ownership structure, and certain personal identifier information must be provided about its board of directors and executive management to permit background checks to be conducted by the US government.
What is the review period?
The official review process begins with the submission of a voluntary notification by the parties (or on self-initiation by CFIUS). However, the regulations recommend that the parties notify CFIUS at least five business days in advance of formally filing a notification. The regulations do not require the parties to submit a draft notification during the pre-notification period, but because CFIUS has the discretion to reject a notification as incomplete (thereby delaying the start of the review period), parties may want to do so.
In practice, CFIUS requires the notification to be submitted jointly (when the transaction is not hostile), and no filing fee is required. Receipt of a properly prepared notice triggers an initial 30-day review of the notified transaction.
By the end of the 30-day period, CFIUS must decide whether to clear the transaction if it perceives no potential threat to national security or to initiate a more comprehensive 45-day investigation.
During either the 30-day or the 45-day period CFIUS can request additional information, and under some circumstances, stop the review clock as a result. Furthermore, CFIUS may decide during either the 30-day or the 45-day period to issue a no-action letter or to require the parties to enter into a mitigation agreement to resolve any potential national security concerns. Alternatively, at the end of a 45-day investigation, CFIUS may refer the matter to the President. The President then has 15 days to take any action.
If a transaction is by a foreign government-controlled entity or involves critical infrastructure of or within the United States and could impair US national security if the threat has not been mitigated, the Act requires that a 45-day investigation be undertaken (unless waived by the relevant CFIUS member agencies).
Although 45-day investigations historically have been infrequent, they have recently become more common.
What are the powers of the authorities to prohibit or otherwise interfere with a transaction?
The Committee has the authority to review a covered transaction and to impose mitigation measures to address any national security concerns. Mitigation measures may be imposed only after CFIUS has identified a specific threat to US national security and determined that a mitigation measure is reasonably necessary to address that threat. Nonetheless, CFIUS has broad authority to develop mitigation measures, although it uses that authority in only a handful of cases each year. Between 2008 and 2010, only 16 cases resulted in the use of legally binding mitigation measures. In 2010, mitigation measures were applied to acquisitions in the computer software, telecommunications and energy sectors.11
Mitigation measures vary on a case-by-case basis and have included, for example, commitments with respect to domestic production, cyber-security measures or government access to assets such as computer servers or telecommunications networks for law enforcement purposes. More invasive mitigation measures that have been adopted include a requirement to establish certain corporate firewall procedures between the US business and its foreign parent.
While the Committee is charged with reviewing a transaction and imposing mitigation measures, the Act grants the President, and only the President, the authority to suspend or prohibit a covered transaction. The Committee therefore must refer a transaction to the President if the Committee recommends that the President suspend or prohibit the transaction. The Committee also refers the transaction to the President if the members of the Committee are unable to reach a decision on whether to recommend to the President that the transaction be suspended or prohibited, or if the Committee requests that the President make a final determination with regard to a transaction.
To exercise the authority to suspend or prohibit a transaction, the President must find both that there is credible evidence that a ‘foreign interest exercising control might take action that threatens to impair the national security,’ and that other laws do not, in the President’s judgement, ‘provide adequate and appropriate authority’ to protect the national security.
Presidential action is rare, partly because mitigation measures often address national security concerns and partly because parties typically decide to abandon a transaction following a recommendation from CFIUS to the President that the President issue a blocking order. Determinations by CFIUS or the President under the Act are not subject to judicial review.
Involvement of third parties?
The CFIUS process is confidential and third parties have no right to participate in the process. CFIUS deliberates only among itself, without seeking input from private parties. However, other federal (eg, members of Congress), state (eg, governors) and local government officials (eg, mayors) often informally contribute to the review process and occasionally take a public position or write to CFIUS regarding the national security implications of specific transactions. This typically occurs in the case of publicly reported transactions, ones that are politically sensitive or ones that may impact a particular Congressional district. As a result, it may be prudent to engage public and government relations experts to contact third-party constituencies.
What types of transactions are subject to review?
Because the national security review process is confidential, CFIUS does not disclose information about particular cases under review. However, since 2008, CFIUS has regularly published an annual report of aggregated case statistics. The annual reports show that transactions involving acquiring parties from the UK, Canada, France and Israel regularly account for a significant percentage of transactions reviewed by CFIUS. In fact, the UK alone typically accounts for 20 to 30 per cent of cases reviewed each year. However, from 2008 to 2010, CFIUS reviewed transactions involving foreign acquiring persons from approximately 38 different countries, including Ukraine, Russia, China, Brazil and the UAE.12
The reports also provide information at a very general level regarding the industries involved in transactions subject to CFIUS review. The annual reports show that transactions involving manufacturing typically account for the highest percentage of cases reviewed by CFIUS, although the finance, information and services sector, as a percentage of annual transactions, has increased steadily since 2008.13 Within the manufacturing sector, transactions involving the acquisition of a manufacturer of computer and electronic products accounted for the largest percentage of transactions reviewed between 2008 and 2010, followed by acquisitions of transportation equipment manufacturers (including aerospace products and parts).14 In the critical infrastructure area, transactions were reviewed with respect to utilities and oil and gas extraction.
To file or not to file?
Because the national security regime is voluntary, counsel for the parties to a transaction typically consult with each other with respect to the national security profile of a particular transaction in order to determine whether a filing is warranted in a particular case. In practice, there can be two-way due diligence: buyer considers target’s business activity, licences and clearances to determine whether to file; target considers buyer’s track record of compliance with certain laws and national origin to determine the risk buyer poses to clearance (especially in an auction).
As noted above, there is no legal obligation to file, but a filing potentially offers a number of benefits:
- obtaining a no-action letter provides a safe harbour against future presidential action, provided parties comply with obligations under the Act;
- filing may ensure that relevant government security clearances and licences are not jeopardised that would negatively affect the ability to do business;
- in practice, related regulations involving clearances and licences require parallel notifications (eg, one under the Act and one under the ITAR); and
- filing and observing the waiting periods may avoid public and political criticism.
Factors that tend to suggest a filing should be made include:
- Does the target have classified contracts or access to classified information requiring facility or personal security clearances?
- Does the target have any non-classified (prime or sub) contracts related to defence or homeland security?
- Does the target have any technology related to cyber-security, communication network security, or personal identifier information (eg, for personnel security)?
- Is the target business in critical infrastructure or technology (eg, energy)?
- Are the target’s exports (including data) subject to the ITAR or other export restrictions?
Any filing analysis must also consider that CFIUS may pro-actively contact parties involved in a transaction that CFIUS thinks implicates national security to encourage the parties to notify a transaction, before or after closing. Although this occurs infrequently, it does happen. For instance, in 2011, Huawai Technologies Co abandoned its acquisition of assets from 3Leaf Systems because of CFIUS opposition. Huawei did not initially notify the transaction, but was contacted by CFIUS after closing and asked to submit a notification.15
In cross-border transactions involving the acquisition of a US business, it is important to consider not only the merger control implications but also the potential national security implications of a transaction. As outlined above, the US national security review process covers a variety of industries (and the US process should be considered along with those of other countries that also have national security review regimes, including, for example, China, France, and Germany). If a transaction might implicate US national security issues, it is important to determine whether the issues are significant enough to warrant a filing and, if so, to ensure the relevant transaction document accounts for the process and risk. Furthermore, it is important to engage with CFIUS to try to ensure a timely and efficient review process, as well as, in some cases, applicable third party constituencies such as customers (eg, if a target company does significant business with the US Department of Defense or a US defence contractor).
- The Committee on Foreign Investment in the United States (CFIUS or the Committee).
- The number of notices filed each year has varied fairly widely, for example, from 65 in 2009 to 155 in 2008. Committee on Foreign Investment in the United States Annual Report to Congress for CY 2010, available at http://www.treasury.gov/resource-center/international/foreign-investment/Documents/2011%20CFIUS%20Annual%20Report%20FINAL%20PUBLIC.pdf (CFIUS 2010 Annual Report).
- President George H W Bush issued an executive order in 1990 that directed China National Aero-Technology Import and Export Corporation (CATIC) to divest all interests in the Seattle-based company MAMCO, a manufacturer of aircraft components. 55 Fed. Reg. 3935 (1990).
- Reuters, ‘AIG unit to buy Dubai company’s U.S. ports’, USA Today, 12 December 2006, available at http://www.usatoday.com/money/industries/2006-12-11-dubai-ports_x.htm.
- See statement issued by the Embassy of the People’s Republic of China in the United States of America, ‘Chinese ministry regrets Huawei’s dropping deal to buy 3Leaf assets’’, available at http://www.china-embassy.org/eng/gdxw/t801101.htm (21 February 2011) (Embassy Statement).
- 50 USC App 2170.
- These members were appointed pursuant to Executive Order 11858 (23 January 2008).
- 31 CFR section 800.207.
- 31 CFR section 800.204.
- 31 CFR part 800.
- CFIUS 2010 Annual Report.
- See Embassy Statement, supra note 5.
ach a verdict against a third defendant, Steven Leung, resulting in a mistrial. It acquitted the two most junior AUO defendants. A retrial of Leung is presently scheduled for October.
The jury also found that the conspiracy resulted in an illicit gain of $500 million dollars. Under the ‘alternative fine provision’ of the Sentencing Reform Act, corporate defendants convicted of a cartel offence can be fined up to twice the amount of the illicit gain. AUO therefore faces a criminal fine of up to $1 billion. To put the potential fine in perspective, the highest penalty ever imposed for a cartel offence was a $500 million fine entered against F Hoffmann-La Roche in 1999 for its role in the vitamins cartel.
The AUO trial also represented the first time the Antitrust Division had to prove to a jury the illicit gain from a conspiracy, the necessary element to trigger application of the alternative fine provision.3 Absent that proof, the maximum fine for a Sherman Act violation is $100 million. While the US Department of Justice (DoJ) has successfully obtained 19 fines greater than the $100 million statutory maximum, it has only done so through negotiated plea agreements, never at trial.
An important issue in the AUO trial was the applicability of the Supreme Court’s decision in Apprendi v New Jersey,4 which held that any request for an increase of a penalty beyond the statutory maximum must be submitted to a jury and proven beyond a reasonable doubt. The AUO court applied Apprendi, forcing the Division to prove the amount of any gross gains to the jury beyond a reasonable doubt.5 The DoJ’s expert testimony that AUO’s prices were higher than they would have been in absence of the conspiracy apparently convinced the jury that the gross gain to the conspirators in the US exceeded $500 million.
While the result in the AUO trial is being appealed, the jury’s verdict is likely to have far-reaching effects on US cartel enforcement efforts. As an initial matter, the defendants’ appeals may well be rejected - particularly in light of some very strong factual evidence (evidence that was likely a driver in each of the other companies’ decisions to plead). More generally, the trial ‘victory’ is almost certain to embolden the Antitrust Division. The Division will likely be more aggressive in plea negotiations, while companies that find themselves on the other side of the table may well look to the AUO example and find themselves more likely to accede to the DoJ demands. The DoJ is likely to continue its push for ever higher penalties - both for corporations and individual defendants (including foreign nationals like the AUO executives). The DoJ may also be more willing to push the envelope to demand plea agreements and fines for conduct that may have escaped prosecution in the past.
The auto parts investigation
The auto parts investigation began like many international cartel investigations. In February 2010, European Commission officials raided company offices in several EU member states, in connection with alleged price fixing of wire harnesses, which link an automobile’s computers to its various relevant functions. The investigation quickly spread to other automobile components. Under the US Antitrust Division’s (and most other national cartel enforcers’) policies, companies can receive a fine reduction in one product area if they disclose violations in another product. For example, under the Division’s ‘amnesty plus’ programme, a company caught for price fixing wire harnesses has incentives to conduct an internal investigation across other related product lines to identify additional violations. If it is the first to report a violation in a second product line, it receives amnesty or immunity for that conduct and a fine reduction on the initial product investigated by the Division.
The full power of the amnesty plus programme appears to be on display in the auto parts investigation. Notably, the following corporate and individual fines have been obtained in the auto parts investigation:
- Yazaki Corporation: $470 million (the second-largest criminal antitrust fine ever);
- Furukawa Electric Company Ltd: $200 million;
- DENSO Corporation: $78 million; and
- nine individuals charged, with sentences ranging from a year and a day to 24 months.
And this appears to be the tip of the iceberg. As a general rule, the Antitrust Division’s investigations of a specific company or individual are not disclosed until charges are filed or a plea agreement is announced. According to the DoJ, ‘The auto parts investigation is the largest criminal investigation the Antitrust Division has ever pursued.’ The three corporate defendants who have agreed to pay fines for automobile components in FY 2012 alone have already paid $750 million in fines, more than all of the fines imposed in FY 2011. And, as discussed in more detail below, the Division has drastically ratcheted jail sentences for individuals in the auto parts investigation, nearly doubling the average sentence in the most recent major international cartel investigation (the TFT-LCD investigation).6
Enforcement against foreign nationals
In recent years, the DoJ has significantly ratcheted up its enforcement efforts against individual defendants, seeking longer prison terms for more individuals. From 1990 to 1999 the average prison sentence for individuals convicted of antitrust violations was only eight months. From 2000 to 2009, the average rose to 19 months. Most recently, from 2010 to 2011, the average term of incarceration for individuals jumped to 24 months.7
The DoJ’s rigorous enforcement efforts have not been limited to domestic defendants, with foreign nationals increasingly facing prosecution and longer jail terms. The longest sentence handed down in the LCD investigation was 14 months and was imposed upon Jau-Yang ‘JY’ Ho, the president of a large Taiwanese company.8 However, the majority of the sentences imposed on the LCD defendants, including several high-ranking executives such as a chairman and CEO and several vice presidents, were between seven and nine months.9 In the auto parts investigation on the other hand, mid-level managers have been receiving sentences in the 12- to 24-month range.
United States v VandeBrake
Another landmark case that has progressed since we discussed it last year is US v VandeBrake. In May 2010, Steven VandeBrake agreed to plead guilty to three counts of price fixing in the ready-mix concrete industry in exchange for a 19-month prison sentence and a $100,000 fine. The district court rejected the plea agreement, and imposed a record-tying 48-month jail sentence and a fine of $829,715.85.10 VandeBrake appealed to the Eighth Circuit, and this year a divided three judge panel affirmed the sentence.11 In a two-to-one decision, involving three individual opinions, the Eighth Circuit affirmed the sentence, determining that the sentence was not an abuse of discretion and that the district court judge’s upward departure from the antitrust sentencing guidelines was justified. Mr VandeBrake has sought rehearing en banc. Although the Eighth Circuit may ultimately reverse the sentence, individuals accused of price fixing should take note that a judge may well seek harsher penalties than the DoJ is willing to consent to in plea agreements.
United States v Florida West International Airways, Inc
Another notable case is US v Florida West International Airways, Inc. The DoJ charged Florida West with conspiring to fix rates on cargo shipments from Columbia to Miami. The DoJ also charged the company’s former vice president, but Florida West maintains that the executive was secretly employed by another airline and thus that the company should not be held liable for his actions. Notably, Florida West has argued that a nolo contendere plea, which would allow the company to accept punishment without conceding to any wrongdoing, is appropriate under these circumstances. The DoJ has strenuously opposed a nolo plea, under a policy to invariably insist that defendants plead guilty as part of any negotiated resolution of its cases. At a hearing on 1 June 2012 the district court told the parties that it was likely to allow the plea and set a 23 July change of plea hearing date.12 It will be interesting to observe the impact of such a ruling on the Division’s insistence on guilty plea resolutions, particularly against the backdrop of several recent non-prosecution agreements in the financial services industry, which the DoJ has struggled to explain to a defence bar opposed to its unrelenting push for guilty pleas.13
Developments over the past 12 months signal a new enforcement environment that significantly raises the stakes for companies that have engaged in cartel activity or competitor communications that can be characterised as such by the Antitrust Division or competitors seeking immunity or amnesty plus credit. The Division will most certainly approach new cases and plea negotiations more aggressively than in the past, with its confidence bolstered by the AUO trial as well as the ongoing auto parts investigation. Corporate defendants should expect Antitrust Division fine demands that will push the bar ever higher, while individuals now face an environment where one- to two-year negotiated sentences are increasingly becoming the norm in Division demands. And the diffusion of the auto parts investigation through corporate Japan signals a new era where entire national industries may come under the microscope of an aggressive foreign law enforcement agency, whose sights will doubtless be cast on other countries after the full effects of its current activities take hold in Japan.
- US DoJ, Antitrust Division Update 2012, Criminal Program, available at www.justice.gov/atr/public/division-update/2012/criminal-program.html.
- Id. The Division has obtained over $567 million in criminal fines this year.
- 18 USC section 3571(d).
- 530 US 466 (2000).
- Interestingly, on 21 June, the Supreme Court decided that under the Sixth Amendment, criminal fines, in addition to imprisonment and death sentences, are covered by the Apprendi rule, thus implicitly validating the AUO court’s ruling. See Southern Union Co v United States, 567 US (2012).
- Prison sentences thus far in the TFT-LCD investigation range from six to 14 months, while sentences in the auto parts investigations range from a year and a day to 24 months.
- Antitrust Division Criminal Enforcement, Fine and Jail Charts, 2000-2011, available at www.justice.gov/atr/public/criminal/264101.html.
- See Jau-Yang ‘JY’ Ho Plea Agreement at 5 (2 June 2010).
- See Chang Suk Chung Plea Agreement at 5 (17 February 2009); Chih-Chun Liu Plea Agreement at 5 (27 February 2009); Jui Hung Wu Sentencing Transcript at 14-15 (12 November 2010); Chieng Hon Lin Plea Agreement at 5 (20 February 2009).
- See Plea Agreement, United States v Baci, No. 08-cr-350-J-32 TEM (MD Fla 2008), available at www.usdoj.gov/atr/cases/f238800/238829.htm.
- United States v VandeBrake, No. 11-13890 (8th Cir 27 April 2012).
- A nolo plea is highly unusual in the antitrust context; in fact, the most recent antitrust case Florida West cited in its filing occurred 18 years ago. If the court accepts one here, it could set a dangerous precedent for the DoJ insofar as it could encourage parties to attempt to circumvent the remedial measures of the amnesty programme, which requires restitution to wronged parties on top of admission of guilt. Florida West maintains that nothing about the nolo plea diminishes the sentencing judge’s discretion to impose a strict sentence; however, the DoJ’s concern would be that such a plea will effectively put downward pressure on ultimate sentencing decisions.
- Major financial institutions such as UBS AG, JPMorgan Chase and Wachovia Bank NA have all entered non-prosecution agreements with the DoJ.