Time to Reopen Some Antitrust Division Field Offices?

Time to Reopen Some Antitrust Division Field Offices?

honoreebadgeThere has been much speculation about what a Trump presidency will mean for antitrust enforcement at the Antitrust Division and Federal Trade Commission. Much of the wonder is about whether Trump will take an activist approach he suggested during the campaign, for example, when he said he thought Amazon had “a huge antitrust problem” and he voiced opposition to AT&T’s effort to acquire effort to acquire Time Warner.   Or does the placement of Joshua Wright on the transition team signal a return to a more traditional Republican “hands off” role where the pendulum swings back to a belief that the market will correct concentration issues and the concern is more to prevent wrong-headed government intervention.

I have been thinking about whether there should be any adjustment in criminal enforcement. Criminal enforcement has generally been pretty steady over various administrations. They all have shared the belief that cartels are the “supreme evil of antitrust” and that jail sentences for culpable executives is the best deterrent. Two noteworthy developments in criminal enforcement, however, come to mind. Shortly after World War II, the legendary Thurman Arnold, head of the Antitrust Division, opened field offices to combat bid rigging in the construction trades. And, in 2013, then Assistant Attorney General Christine Varney closed four of the Division’s seven regional offices. The closed offices were Atlanta, Cleveland, Dallas and Philadelphia. New York, Chicago and San Francisco remained open. I think President-elect Trump should reverse that contraction and reopen field offices.

President-elect Trump has promised a massive public procurement effort to help rebuild America’s infrastructure. Two recent international cartel enforcement items brought to mind the wisdom of ramping up regional and local enforcement efforts to deter, investigate and prosecute bid rigging on these public projects. A couple of items caught my attention as I have been thinking of this subject.

 From Canada

On December 5, 2016, the Canadian press reported that:

The Competition Bureau of Canada says its efforts to identify and prevent bid rigging in construction contracts this year has already turned up potential criminal activity — just as new federal infrastructure money begins to flow.

Pierre-Yves Guay, the bureau’s assistant deputy commissioner, said some of the educational outreach the bureau has delivered since April has resulted in illegal activities being uncovered and inquiries being launched. (here)

From Brazil

USA Today reports on December 6, 2016

So far, there are indications that at least five bids related to World Cup stadiums were the subject of the cartel,” the anti-trust body CADE said in a statement…. Reports have been widespread about corruption linked to World Cup stadiums. Investigations are also on-going involving construction projects tied to this year’s Olympics in Rio de Janeiro.  (here).

I am going to write more about why I think it would be a good investment to open additional field offices. But first, a disclaimer. I was the Chief of the dearly departed Philadelphia Field Office and went down with the ship when the office was closed in 2013. I am not lobbying for my old job back, and in fact if I were adding field offices I would not at this time put one in Philadelphia. The real value of the Philadelphia office was the talent and experience of the staff there—and that, like Humpty Dumpty, can’t be put back to together again.   I do, however, think that the regional offices in Atlanta and Dallas should be reopened.

International cartels are a worthy focus of Antitrust Division resources but it’s worth remembering that the field offices played a huge role in the development of the Division’s international cartel program. The modern era of international cartel enforcement was the Archer Daniels Midland case brought by the Chicago Field Office. The record $500 million fine and other convictions in the vitamins investigation led by the Dallas Field Office followed that.  The Philadelphia Field Office had some “firsts” with the graphite electrode investigation and the extradition, trial and conviction of British executive Ian Norris. San Francisco has had accomplishments too numerous to mention as do the criminal sections headquartered in DC with blockbusters like air cargo and auto parts. The point is that international cartels can be investigated and prosecuted wherever there are talented and dedicated antitrust enforcers. But as for regional conspiracies, I don’t believe the opposite is true. The strength of the field offices had always been their ability to network with investigative agencies from the FBI, the gamut of federal IG’s offices, state and local prosecutors and public procurement officials. These local contacts were crucial to educating agents and purchasers about antitrust violations, and giving them the information (and motivation) needed to spot and report possible collusion.

Regional conspiracies do not produce the extraordinary fines that international cartels can. But, there is merit to investigating and prosecuting regional cartels. First, the harm from bid rigging on public procurement is very focused. It isn’t a case of millions of consumers losing pennies on a purchase, but a federal, state or local entity losing a big chunk of its scarce tax dollars. Bid rigging schemes are often more effective at raising prices. They can also be very long-lasting as the structure of public procurement can make these awards both more susceptible to bid rigging and more difficult for market forces to disrupt in the short-term. For these reasons, the Sentencing Guidelines give a modest one-point bump for bid rigging, recognizing it generally has a more serious impact on the victim.

Finally, successful prosecution of a bid-rigging scheme can bring meaningful restitution to the public victim in the form of treble damages. It restores public confidence that tax dollars are being spent wisely. And the cost of publicly procured goods often sees a dramatic drop, sometimes even simply by the start of an investigation. I also think the prosecution and imprisonment of domestic price fixers and bid-riggers can generate publicity and pack more of a “deterrent punch” than prosecution of foreign executives, many whom remain fugitives.

These are just some quick thoughts on why I think a couple of field offices in strategically placed geographic areas would be a boon for antitrust enforcement. I’ll be thinking and writing more about this subject as I get some free time. But, what do you think? If you have any thoughts on the matter, I’d be happy to hear them.

Thanks for reading.  More to come.

Antitrust in Asia: HONG KONG: June 2-3, 2016

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I wanted to pass on some information about another great ABA Antitrust Section program“Antitrust In Asia.”  The program is in Hong Kong, China on June 2-3, 2016, but early registration savings end on May 12.  The faculty includes enforcers from China, Competition Commission of Hong Kong, Competition Commission of India, Japan Fair Trade Commission, Korea Fair Trade Commission, Competition Commission of Singapore, and the U.S. DOJ & FTC.

Antitrust enforcement in Asia has taken a prominent and increasingly important place in the global competition ecosystem. This conference features leading enforcers, academics, and practitioners who will address key developments across the Asia-Pacific region, as well as provide conference attendees unique opportunities to interact with top policy-makers.  Here is a link to the full agenda, which includes: Merger Review, Enforcement Directions in Asia, Abuse of Dominance, and Private Actions.  The conference also features a “Roundtable with Enforcers From China’s AML Agencies” (Ministry of Commerce (MOFCOM), National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC)).  While the panels are always great, even better are the informal encounters with the enforcers, corporate counsel and other colleagues who attend the event.

Unfortunately, I won’t be attending.  I blew my modest international travel budget on the ABA Cartel Workshop in Tokyo, Japan in February.  Here is a short Cartel Caper blog post from that conference and a link to a conference follow-up article I wrote for Law 360 (here).  If you do attend the Antitrust in Asia conference and would like to post a blog entry about it, I’d be happy to publish it.  I am always looking to expand the international content of the blog.

Thanks for reading.

CCC: Recommended Blog: “Grand Jury Target”

Recommended Blog: “Grand Jury Target”

I’ve been following a blog for a while that I find informative and interesting: Grand Jury Target: Tracking Federal Prosecutions of Corporate Executives.  The blog is by Sara Kropf, a trial lawyer in Washington, D.C.  A March 8th post was titled:  “Why Are we Falling for the Department of Justice’s Sales Pitch?  The blog recounted Ms. Kropf’s experience at the recent White Collar Crime seminar, including the constant pitches by DOJ officials to rush in to confess.

This approach—to quickly rush to DOJ to win cooperation credit—seems to be the sad reality of current white collar practice when you represent large companies. (Don’t even get me started in the antitrust amnesty program and the problematic incentives that program creates.)

Check out the blog.  I think you’ll be well rewarded for your time.

Thanks for reading this one too!

CCC’s: Brent Snyder’s Remarks On Individual Accountability for Antitrust Crimes

Brent Snyder, the Antitrust Division’s Deputy Assistant Attorney General for Criminal Enforcement, made extended remarks today at the Yale Global Antitrust Enforcement Conference (here). Mr. Snyder emphasized that the Division has long believed, and acted on this belief, that holding individuals accountable for antitrust crimes was both appropriate and the best means of deterrence:

This emphasis on individual accountability is fundamental to Antitrust Division prosecutors. The division has long touted prison time for individuals as the single most effective deterrent to the “temptation to cheat the system and profit from collusion.” My predecessors ensured that this message was often repeated. To quote just one of them, Scott Hammond said that “[i]t is indisputable that the most effective deterrent to cartel offenses is to impose jail sentences on the individuals who commit them.”

Mr. Snyder also made the first remarks (I believe) on how the September 9, 2015 Yatesmemorandum (here) has affected Antitrust Division practices:

Our record with respect to individual accountability speaks for itself. But we are embracing the Deputy Attorney General’s directive to do even better. We have adopted new internal procedures to ensure that each of our criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible and that we bring cases against individuals as quickly as evidentiary sufficiency permits to minimize the risk that cases will be time-barred or that evidence will become stale from the passage of time. We are also undertaking a more comprehensive review of the organizational structure of culpable companies to ensure that we are identifying and investigating all senior executives who potentially condoned, directed, or participated in the criminal conduct.

It will be interesting to see how/if the Yates memo affects Division prosecution decisions in regard to how far down the cartel bench in a given company the Division may go to hold individuals accountable. After all, many cartels, particularly international cartels, can involve many employees (and former employees) of a firm.

It will also be interesting to see if the new policy memo has any effect on the Division’s Corporate Leniency Program. It can be argued that granting leniency to all culpable current employees of the leniency applicant is inconsistent with the Yates memo if the necessary cooperation could be gained at a lower cost. That may be a  topic covered in an upcoming ABA program: The DOJ Amnesty Program After The Yates Memo (here).

Thanks for reading.

Bi-Monthly Criminal Cartel Update–Thursday–Feb 18th

I am pleased to announce that GeyerGorey LLP will be hosting the Bi-Monthly Criminal Cartel Update this Thursday, February 18th at 12:30 EST.  The program is a little different this month.  Usually the Update is hosted by one firm with international offices.  GeyerGorey does not have international offices–but we do have friends who do.

The program will be moderated by Hays Gorey, Jr. my partner at GeyerGorey.  I will be reporting on developments in the United States.  My bio is hereDorothy Hansberry Bieguńska of Hansberry Tomkiel, Warsaw, Poland will be covering matters in Europe.  Hays and I both know Dorothy from the years she worked at the Antitrust Division of the DOJ.  Dorothy has gone on to have a very interesting international career and is a founder of Hansberry Tomkiel, a leading Polish competition law firm.  Masayuki Atsumi, a lawyer at Mori Hamada & Matsumoto, Tokyo, Japan will be covering developments in Asia.  I first got to know Masayuki when he contributed posts to Cartel Capers.  Masayuki is now seconded to Covington & Burling and is stationed in Covington’s DC office.

I hope we can bring you an interesting program and match the usual high quality of these ongoing updates.  You can register here.  The official ABA announcement is below. 

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Dear Friends,

We hope you will join us on February 18th from 12:30 to 1:30 EDT for the Bi-Monthly Criminal Cartel Update. You can register for the Bi-Monthly Criminal Cartel Update here:

CRIMINAL ANTITRUST UPDATE

February 18th 2016

12:30 p.m. – 1:30 p.m. Eastern Time

This continuing program series offers an excellent opportunity to learn about recent developments in criminal antitrust law that may impact your clients, company or litigation strategy. Our presenters will report on recent Antitrust Division enforcement actions and related litigation, policy updates, international coordination, and other important developments in criminal antitrust law. The presentation will last about one hour, including an opportunity at the end for participants to ask questions.

This program will be moderated by Hays Gorey, Jr., at GeyerGorey LLP, and includes an excellent panel of speakers:

Robert E. Connolly – GeyerGorey LLP, Philadelphia, Pa.

Dorothy Hansberry Bieguńska – Hansberry Tomkiel, Warsaw, Poland

Masayuki Atsumi – Mori Hamada & Matsumoto, Tokyo, Japan

Program materials will be distributed to participants prior to the program.

A Carrot and Stick Approach to Leniency and Compliance Programs

Since I attended the International Cartel Workshop program in Tokyo on February 3-5, I’ve been thinking a lot about the Antitrust Division’s policies on a) leniency and b) not awarding credit for preexisting compliance programs.  The two policies were demonstrated very clearly in a well constructed hypothetical dramatization at the Cartel Workshop, complete with mock negotiations between companies and the USDOJ. In the first instance, Company A, arguably the most culpable member of the hypothetical cartel, received leniency.  Meanwhile, the second-in company sought credit for its compliance program, but that plea fell on deaf ears.  A senior executive at the Vice-President level of the company (and a subordinate) were involved in the cartel and the Antitrust Division does not give credit for failed compliance programs.

I don’t think the Antitrust Divison’s policy on compliance programs is logical or good policy.  I wrote an article on this for Law 360Compliance Thoughts From the International Cartel Workshop.  But, here are a few additional thoughts.

Leniency has been touted by the DOJ as the greatest cartel-busting tool in the enforcers’ arsenal. And leniency has become a bedrock of anti-cartel efforts of competition agencies around the world.  While there are some differences among leniency programs, leniency has been a great American export.  And it works.  Leniency undoubtedly prevents cartels from forming because the risk of detection is too high.  And, leniency destabilizes cartels that do form because of the likelihood that someone is going to break the ranks of secrecy and inform on the cartel.  But, leniency works in part because the incentives to grab the leniency are very high.  A company and its executives who were engaged in illegal activity get a complete pass from prosecution.  There is no requirement that the leniency company disgorge the illegal profits (though it is assumed that those profits will evaporate through private class action litigation).  The leniency company is not put on probation or subject to a compliance monitor.  There is no requirement that culpable executives be fired or at least removed from their current position.  There is not even a requirement that the leniency company engage in any remedial measures to enhance its compliance program.  Many of these ideas to impose some remedial measures on the leniency “winner” have been suggested to the Antitrust Division, but the Division is not in a mood to add any requirements that might give a leniency company even slightly less incentive to come forward.  Leniency works, and the government does not want to mess with success.

Fair enough, but now compare the treatment of the leniency winner with the second-in that seeks some credit for their compliance program, which admittedly has failed.  The second-in may be, and often is, less culpable than the leniency company.  And, as the Antitrust Division often notes, the second-in may have missed the leniency marker by minutes.  The Division’s response to a plea for credit for a compliance program is “The Sentencing Guidelines don’t give any credit for a failed compliance program [with the participation of high-level executives]. Why should we?”  I think there are two answers to the “Why should we give credit for a failed compliance program?”  The first answer is that like leniency, compliance programs help prevent cartels from forming and destabilizes existing cartels.  Bona fide compliance programs certainly reduce the formation of cartels. Just as you can’t quantify the number of cartels that do not form because of leniency, it would be impossible to quantify the number of cartels that would not form if senior executives had a glimpse of the parade of horribles that await them for involvement in a cartel.  But, no one disputes that a robust competition compliance program and training will result in fewer cartels.

Compliance programs that have mechanism for detection of and reporting of violations will also destabilize cartels that still might form. A cartel generally involves many individuals in a company at different levels of authority. A subordinate who has antitrust compliance training, a hotline and a grudge (for any reason), is a weak link in the cartel code of silence. Just as leniency breeds distrust among cartel members, a compliance hotline might give senior executives a second thought about delegating execution of the cartel to subordinates. The more concerned a senior executive is about lower-level employees “blowing the whistle,” the fewer whistles will be given out. The smaller the circle of people within a company who are available to help carry out a cartel, the less likely it will be effective or that someone will inform on the cartel.

Preventing the formation of cartels and destabilizing them are rational reasons for the Antitrust Division to give credit for existing compliance programs.  The Division has now given credit for a “forward looking” compliance program (i.e. a program instituted once the company is caught in a violation and begins to immediately cooperate.)  The Antitrust Division has explained the components of a reward-worthy program in the sentencing memorandum in United States v. Kayaba Corp., S.D. Ohio, No. 15-cr-00098, Dkt. 21, (Oct. 5, 2015).  It is not logical to give no credit for such a compliance program if it is in place before the violation occurred, but to allow a company with no compliance program to get credit if it takes these measures after getting caught.

The second reason the Antitrust Division should adopt a policy of giving credit for compliance programs that meet the Kayaba standard is because it is the right thing to do.  The Division has done a great job of increasing the deterrence side of cartel enforcement with ever-increasing penalties.  Jail sentences are measured in years, not months, the Division seeks extradition whenever it can; foreign executives (the vast majority of defendants in international cartel cases) have their lives seriously negatively impacted just by being indicted and put on Red Notices.  As the “stick” gets heavier, however, the fair thing to do is to dangle a carrot to encourage companies to educate their employees about competition law and the serious consequences that await executives caught in a price-fixing cartel.  This is an excerpt from my Law 360 article:

One of the parts of the job [when I was a prosecutor with the Antitrust Division] where my white hat seemed a little off-color was when prosecuting a lower-level employee who had had no competition law compliance training, and who was ordered by the boss to engage in the illegal activity. This was a particularly difficult situation with mid-to lower-level foreign executives — the vast majority of international cartel defendants. To be sure, the employee had an idea that what he was doing was not legal, but perhaps little appreciation of the consequences: up to 10 years in jail, red notices, extradition, etc. The subordinate also may have had no way to report the conduct anonymously, or otherwise.

In other words, as the Antitrust Division increases the pound of flesh it seeks for a cartel violation, it should do what it can to encourage compliance programs and training–complete with a way for subordinates to report illegal conduct anonymously.  Encouraging compliance programs and training is not going to have the effect on destabilizing cartels that leniency has.  But, encouraging compliance programs can come at relatively little cost.  The Antitrust Division can still require a guilty plea from the company–and an executive who has had compliance training and crossed the line anyway, might merit even more serious jail time.  The cost of rewarding bona fide compliance programs would be modest and worth the price of encouraging compliance with the law–before a violation occurs.

In the interest of full disclosure, I should note that I was not always a fan of “credit for compliance programs.”  My view was that compliance programs should be incentivized by adding an upward adjustment for a company that did not have a rigorous antitrust compliance program and training.  I also thought an executive who directed subordinates to engage in cartel activity, who was high up enough in the company to institute compliance training and chose not to, should get an upward adjustment.  It is especially foul play to order a subordinate to break the law in an organization that has no compliance program or training.  I submitted comments to the Sentencing Commission along these lines (here).  But, I have come around to the idea that the Antitrust Division should also offer the incentive of a reward for a robust compliance program, even if some knucklehead(s) violate the program.  One thing I did not fully appreciate when I was with the Antitrust Division is that companies have limited compliance budgets and it is difficult to get resources allocated to competition compliance programs when the Antitrust Division does not give credit for compliance programs and the Criminal Division does.

This is a subject that deserves more attention than a blog  post, and I hope to continue to learn and write in this area.  If you have any thoughts, or real life experiences from the trenches that are relevant, I’d love to hear from you.

Thanks for reading.

CCC’s: Live From Tokyo: The 11th International Cartel Workshop

I am at the ABA/IBA International Cartel Worksop in Tokyo.  It is the 11th biennial international cartel workshop–and each workshop is becoming more international.  There are attorneys from 26 countries and enforcers from 12 different countries at this event.   Donald Klawiter and D. Jarrett Arp are the conference co-chairs.  The conference is unique (in my experience) in that most of the panels are interactive demonstrations modeling realistic discussions.  The demonstrations cover a wide range of scenes from: a) a company board of directors being advised of possible options including leniency when cartel conduct is discovered; b) [actual] regulators from seven jurisdictions coordinating their dawn raids/search warrants; c) subsequent discussions among defense counsel about various strategies in seven jurisdictions; and many more.

The glue of the program is a hypothetical cartel that is discovered during a compliance training session and the action, starting with the rush for leniency/amnesty, flows from there.  The hypothetical is very realistic, rich in complexity and factual detail.  There was an actual dramatization video of the February 2013 meeting among competitors where the alleged agreement for the hypothetical was reached.

The realistic hypothetical brought to life the pluses and minuses of the leniency program, which, with minor modifications, has been adopted around the world.  In the hypothetical, when a company (Acme) conducted competition compliance training at a very recently acquired company, (B-Wheels), counsel learned that B-Wheels was involved in a world-wide bicycle wheel price-fixing/market allocation cartel.  The cartel agreement was reached at a private dinner at a trade association event in February 2013. [the key meeting the program created a video tape for].  The President of B-Wheels was the main speaker and strong advocate for the agreement.  One competitor, Chelun Ltd, clearly accepted B-Wheels offer to collude.  A third competitor, Jit-Ho, a recent disruptive entrant into the market, was noncommittal.  Post-meeting prices increased in the market and market shares seemingly aligned with the price/market allocation discussion.  There was other evidence of competitor contact after the initial cartel meeting, but it related to B-Wheel and Chelun.

From the demonstrations, you could see why the leniency program is so effective.  After the discovery of the B-Wheels cartel at a compliance training session, there really was no  other choice for Acme but to seek immunity.  Trying to end the cartel and keep quiet was not an option because one of the other companies, or an individual, would likely approach the government when the cartel ended.   Waiting was too great a risk to take.  The benefits of seeking amnesty/leniency were overwhelming.

Acme/B-wheels considered which major jurisdictions to approach for a leniency marker.  Each jurisdiction in the hypo (US, Canada, Mexico, Brazil, EU, Japan, Korea, and South Africa) had a similar leniency/amnesty program: no fine for the illegal activity; not even restitution for the illegal profits made.  More, or equally important, the culpable executives would face certain jail time in the United States unless they obtained amnesty.  And, while the United States is certain to seek jail for culpable executives, jail is at least a possibility in many other jurisdictions.

Leniency only covers the governmental action and the Acme discussed the private redress/class action cases that would follow around the world.  But, even here, there were benefits to getting leniency such as single damages in the United States if the amnesty applicant cooperated with the plaintiffs.  I’m not an economist, but it is conceivable that with sufficiently broad leniency coverage, the cartel may turn out to have been profitable for B-Wheels, even with civil damages.  Moreover, in the United States, the Antitrust Division will not require any compliance program or other remedial monitoring action be taken  by the leniency company.  Nonetheless, in my experience, anyone or any company that goes through the leniency process would never consider it to be a “bargain.” Still, leniency does allow a conspirator, even the most culpable (but not the “ringleader”), to escape the brunt of the possible negatives consequences, while “unleashing hell” on its competitors.  All in all, the interactive panel demonstrations showed how the incentives for creating a “Race to the Courthouse” is very effective around the world.

All the “carrots” of leniency do not come without a cost, however.  As the hypothetical was structured, the leniency company, B-Wheels, clearly seems to be the most culpable actor.  But, its role in organizing the cartel would not be enough to be disqualified for leniency.  The Antitrust Division’s leniency disqualification standard is: “The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.”  B-Wheels did not coerce any participation in the cartel and since the others, or at least Chelun, voluntarily agreed, B-Wheel was not considered the leader.  (Besides, who goes in for leniency and describes themselves as having coerced others to go along?).  But, having played at least a/the driving role in forming the cartel, B-Wheel will not pay a fine in any jurisdiction in which it obtains leniency while its competitors will.  B-Wheel will likely do better in civil damage cases because it does not have guilty plea.  And, while the most senior executive in B-Wheels will get personal immunity under the leniency agreement, the government(s) will focus on seeking jail time against its competitors.  And, under the Yates memo, the Antitrust Division may seek to indict even more individuals than they had been doing previously.

The way the hypothetical was set up, the ambiguous role of Jit-Ho highlights another potential danger–but one that is common to all prosecutions.  In negotiating “full cooperation” in return for leniency, government’s will press hard to get evidence against all culpable actors.  There will be some skepticism if B-Wheels story is that Jit-Ho executives were non-committal at the dinner, particularly in light of subsequent market activities where prices have increased and market shares appear to be in  line with the agreement B-Wheels proposed.

In the hypothetical, Chelun will also likely “race to the courthouse” to get the substantial reward of being second-in (greatly reduced fines and more favorable plea deals for fewer executives).  In order to have substantial cooperation to offer in return for this favorable treatment (a departure from the guidelines range), the pressure will be enormous to say that the Jit-Ho executives at the seminal meeting agreed to go along.  In real life there will be no tape of the event, and recollections can be influenced by the need to offer someone to the prosecution in order to “cooperate.”  The program illustrated what an incredibly powerful weapon leniency/amnesty is [as are other very favorable deals].  “With great power, comes great responsibility” and while there are certainly differences of opinion in particular cases, on the whole, there is a great deal of respect for the way in which the agencies exercise their power.

The program is just mid-way.  As the program continues, it will be interesting to learn the fate of Jit-Ho, both in how the prosecutors view the company/individuals, and what strategy defense lawyers use to defend.

There are many “teachable moments” that have been demonstrated in the hypothetical.  Two came to mind right away.  The cartel was discovered during competition compliance training after Acme bought B-Wheel.  Compliance programs give companies a head’s up even when there is a violation because executives are more likely to know about the leniency program and take action when it seems the cartel may collapse.  Also, if Jit-Ho had had some antitrust training the executives would have known how dangerous it is to attend a private dinner with competitors–even if they did not agree.  Regardless of what the Jit-Ho executives said, or didn’t say at that dinner meeting, just being there looks bad and is powerful circumstantial evidence that they agreed to collude.

There much more going on at the program, but this is what struck me at the first about the first day.

And, please forgive if there are more typos/run on sentences than normal.  The jet lag is still with me.

Thanks for reading.

CCC’s: Hong Kong Shipping Association Seeks Liner Exemption

The Hong Kong Liner Shipping Association has submitted to the Hong Kong Competition Commission for consideration a block exemption for liner shipping agreements.  The HK Commission gave interested parties until March 24 to comment on the Association’s request. Hong Kong’s new Competition Ordinance, which bans cartel and other anticompetitive agreements, took effect just last month (see blog post Hong Kong Competition Ordinance Takes Effect), and without an exemption would presumably prohibit the types of agreements proposed under the exception request.

In the summary of its application (here), the Hong Kong Shipping Association says it seeks immunity for two types of agreements: (i) voluntary discussion agreements (“VDAs”); and (ii) vessel sharing agreements (“VSAs”). VDAs are commercial agreements between carriers whereby parties exchange and review market data and trade flows, supply/demand forecasts and business trends to better inform business decisions.  They may discuss, develop and agree to recommend voluntary guidelines for rates, charges, service contract or tariff terms and other similar commercial issues. Contracts with shippers are then negotiated and agreed by individual carriers (not the VDA), who may or may not follow the VDA’s guidelines. VDAs bring about: rate stability; service stability; and rate and surcharge transparency, all of which represent efficiencies that benefit customers (and ultimately the wider Hong Kong economy) by enabling better planning and budgeting of long-term shipping costs. VSAs, by contrast, are operational and similar to airline code-sharing agreements, with carriers discussing and agreeing on “technical and operational arrangements relating to the provision of liner shipping services, including the coordination or joint operation of vessel services, and the exchange or charter of vessel space.

The HK Competition Commission is calling for interested parties to submit their views in relation to the application (here). In particular, the Commission said it is seeking comment on experiences with using the two types of agreements in Hong Kong business operations, specific concerns related to either agreement, economic efficiencies related to either and broad market conditions in the industry, “including the state of competition.”  The decision could be critical to the continuation of Hong Kong’s shipping industry, as discussed in this Journal of Commerce article (here).

Liner agreements are common in the shipping industry because cooperation can have pro-competitive efficiency enhancing effects that can benefit customers through increased service and lower prices. The Hong Kong Shipping Association has documented the benefits of, and widespread acceptance of, shipping agreements in the international community (here).  But, even if the liner agreement exemptions are approved, it is critical for the industry to understand that the exemptions are limited to the specific terms of the immunity. Carriers that confer with one another on legal exemptions have to be particularly aware of the limitations of the immunity and the consequences of reaching broader or non-reported agreements.  Over the years, there have been enforcement actions brought against carriers in industries where the agreements reached extended beyond the limited scope of any immunity.  I myself led a prosecution of a worldwide ocean parcel tanker price fixing/customer allocation agreement that ran from at least 1998 into 2002.

More recently, the Antitrust Division of the United States Department of Justice has brought criminal actions against shippers and individuals in the auto roll off carrier industry for industry wide-price fixing. United States prosecutes cartels, include shipping cartels, as crimes, punishable by huge fines and jail sentences for individuals.  An employee of Japan-based NYK pled guilty and was sentenced to 15 months in a U.S. prison for his involvement in a conspiracy to fix prices, allocate customers and rig bids of international ocean shipping services for roll-on, roll-off cargo, such as cars and trucks, to and from the United States and elsewhere.  This was the third case against an individual in the Antitrust Division’s ocean shipping investigation, and the first against an individual from NYK.  Three corporations have agreed to plead guilty and to pay criminal fines totaling more than $136 million, including NYK, which has agreed to pay a criminal fine of $59.4 million.  See the DOJ press release here.   The investigation by the US DOJ has spurred enforcement actions by several other jurisdictions including the EU, China, South Africa and others, though the US is usually alone in seeking jail for individuals.  Here is a blog post I did on the huge fines recently imposed in China–China Fines 7 Shipping Companies $65 Million.

Briefly put, immunity for two carriers to discuss and agree on code sharing for a specific route is not a license for an industry wide agreement to fix prices. Or, on non-legal terms as my Mom used to say, “I said you could borrow the car; I didn’t say you could drive to Las Vegas.” [She said that to my brother; I was an angel.]

On a related note, I will be giving a talk before the American Chamber of Commerce in Hong Kong as part of a trade policy panel on February 1, 2016 (here). The topic will include how the US goes about prosecuting international cartels and how Hong Kong’s new Competition Commission begin its enforcement efforts.

Thanks for reading.

International Cartel Workshop–Tokyo, February 3-5

International Cartel Workshop–Tokyo, February 3-5

I will be attending the International Cartel Worksop in Tokyo from February 3-5.  The workshop centers around a hypothetical international cartel investigation with enactments of the many behind the scenes interactions such as discussions among various enforcement agencies plan simultaneous dawn raids, the decision of in-house and outside counsel about whether to seek amnesty/leniency and the tough choices that counsel for individual defendants/targets face in deciding whether to cooperate.  The roles on the panels are played by actual enforcers and counsel experienced in this area.  I will be portraying a target of the investigation discussing options with my counsel.  There will also be mock courtroom proceedings. (Hopefully one where my innocence is established!)

I’ve reposted a message below from Roxann Henry, Chair of the ABA Antitrust Section with a link to the program in case you are interested;

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It’s not too late to register for the International Cartel Workshop to be held in Tokyo on February 3-5, 2016. With over 300 already registered, the participation of top enforcers from jurisdictions around the globe — including the US, EC, Canada, Brazil, and Japan — and mock courtroom proceedings in both civil and criminal cases before a US federal judge, Tokyo will abound with new insights and fantastic networking. A special, one-time only 50% discount for in-house legal departments has driven attendance from the corporate world in Japan and brought new members to the ABA and the Section. (The least expensive way for in-house legal department members from outside the US to register is to join the ABA at the international rate and the Section, then take advantage of the Section rate.) If your practice involves cartels, don’t miss this event!

As the Section year nears its halfway mark, I once again want to thank everyone for their work on behalf of the Section.

Roxann Henry, Chair

CCC’s: Avinash Amarnath Provides India Update

Below is a comprehensive post by Avinash Amarnath, attorney with Vinod Dhall & TT&A, New Delhi, India.  Mr. Amarnath covers several subjects including the new Chair of the Competition Commission of India.

India Update 2016 – Vol I

Hello and a happy new year to all readers. There were a few significant cartel developments towards the end of 2015 in India which I will be covering in this post along with some recent administrative developments.

 New Chairman of CCI appointed

Mr. D. K. Sikri, a former officer of the Indian Administrative Service (IAS) has been appointed by the Government of India as the new Chairman of the Competition Commission of India (CCI). Mr. Sikri succeeds Mr. Ashok Chawla, whose tenure ended on 7 January 2016.

COMPAT sets aside cartel fines against cement companies

The most significant cartel development of 2015 happened to come right at the end. On 11 December 2015, the Competition Appellate Tribunal (COMPAT) set aside an order of the CCI imposing fines amounting to approx. USD 945.4 million on 11 cement companies and their trade association for operating a cartel. The order was set aside on due process grounds and the matter was remitted back to the CCI for a fresh hearing and decision. The cement companies, amongst others, argued before the COMPAT that the CCI’s order violated the rules of natural justice and in particular, the rule that he who hears must decide as the Chairperson of the CCI who did not attend the oral hearings of the parties had participated in the decision making process by signing the order. The CCI’s position was that it only performs administrative functions and therefore, the rules of natural justice should not be applied to it in a strict manner. Further, the CCI argued that no real prejudice had been caused to the parties as a result of this alleged violation of the rules of natural justice.

The COMPAT observed that the basic question to be determined was whether the CCI is merely an administrative body or whether the CCI performs quasi-judicial functions and is therefore, bound by the rules of natural justice. After an extensive review and discussion on the powers of the CCI under the Indian Competition Act, 2002 (Competition Act), the procedure for dealing with a case and several case law of the Supreme Court of India on whether the rules of natural justice apply to administrative and quasi-judicial actions, the COMPAT concluded that it was evident that the CCI performed quasi-judicial functions while hearing and disposing off antitrust cases. Accordingly, the CCI was bound by the rules of natural justice including the rule that he who hears must decide. The COMPAT also rejected the argument of the CCI that no prejudice was caused to the parties as a result of this lapse by distinguishing the facts of this case from other precedents relied on by the CCI. Further, the COMPAT found that actual prejudice had been caused by this lapse as the Chairperson had lent his signature to the final order without having heard the various substantive arguments raised by the parties during oral hearing. In any event, it would be very difficult to judge whether prejudice had been caused as it would be impossible to determine the outcome of the case had the Chairperson not participated in the decision making process. Finally, the COMPAT urged the CCI to evolve a comprehensive protocol and lay down guidelines for investigating and hearing a case in consonance with rules of natural justice.

There can be no doubt that the CCI performs quasi-judicial functions and must follow the rules of natural justice while investigating and hearing a case. Whilst the CCI does not possess powers to impose criminal sanctions, it does possess significant fining powers and can impose penalties of up to 10% of the global turnover or 3 times the profit of an enterprise in a cartel case. There is an argument in the European Union that similar powers vested with the European Commission should be characterized as criminal or quasi-criminal in nature. One could argue that the lapse in the present case i.e. the Chairperson signing the final order despite not attending the oral hearings was not significant enough to warrant setting aside the entire order as proceedings before the CCI tend to be mostly written and a hearing before the CCI cannot be equated to a hearing before a court. However, the counter-argument to that would be that whist it is not mandatory to grant an oral hearing in proceedings before the CCI, once granted, such an oral hearing must conform to the rules of natural justice. Further, the age old adage that justice must not only be done but must also be seen to be done should be respected in such cases. The rules of natural justice assume special significance in the Indian system where the CCI dons the role of both prosecutor and adjudicator. At the same time, it is important to avoid a situation where rules of natural justice are elevated to such a level that it becomes disproportionately difficult for the CCI to enforce the law. In the words of Whish, ‘a balance has to be struck between the private interest of undertakings not to be found guilty of behaviour of which they are innocent and the public interest of punishing serious infringement of the law’.

The COMPAT’s order can be accessed here.

Trade association and pharma company fined for insisting on no objection certificate

Similar to a long line of previous cases against such a practice, on 1 December 2015, the CCI imposed the maximum permissible fine of 10% of turnover (amounting to approx. USD 6500) on the chemist and druggist trade association in the state of Kerala for insisting that pharmaceutical companies should obtain a no objection certificate from the association before appointing a new chemist or druggist in the state. The distinguishing factor in this case is that this is the first case where a pharmaceutical company has also been fined for agreeing with the association to implement this practice. As discussed in my previous post (http://cartelcapers.com/blog/flurry-activity-cci-india-update/), the CCI had found in the Himachal Pradesh Chemist and Druggist Association case that agreements between pharmaceutical companies and trade associations would not qualify as horizontal agreements (falling under Section 3(3) of the Competition Act) or as vertical agreements (falling under Section 3(4) of the Competition Act); nonetheless such agreements could be analysed under the general prohibition on anti-competitive agreements (Section 3(1) of the Competition Act) and would be subject to a rule of reason analysis. In this case, based on a very cursory analysis, the CCI found that Alkem, a pharmaceutical company had an understanding with the trade association and that such an understanding had an appreciable adverse effect on competition in India. Alkem was fined 3% of its turnover (approx. USD 11.16 million).

The CCI’s order can be accessed here.

Mr. Amarnath can be reached atavinash.aba@gmail.com.