Author Archives: Brad Geyer

Transportation Operator Sentenced to 14 Months for Defrauding the State Department

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April 6, 2018

A local transportation operator was sentenced to 14 months today for stealing federal funds intended for a foreign exchange program maintained by the U.S. Department of State.  Acting Assistant Attorney General John P. Cronan of the Department of Justice’s Criminal Division, Acting U.S. Attorney Tracy Doherty-McCormick of the Eastern District of Virginia, Inspector General Steve A. Linick of the U.S. Department of State and Andrew W. Vale, Assistant Director in Charge of the FBI’s Washington Field Office made the announcement.

Denon T. Hopkins, 49, of Germantown, Maryland, was sentenced by Senior U.S. District Judge T.S. Ellis, III of the Eastern District of Virginia.  Hopkins pleaded guilty to a one-count information charging him with conspiracy to commit honest services wire fraud and theft of public money on Dec. 21, 2017.

According to admissions made in connection with his plea, Hopkins was the operator and de facto owner of a transportation company that contracted with the State Department to provide bus and limousine services to a State Department component devoted to sports diplomacy and which sponsored a foreign exchange program for emerging athletes and coaches from various countries.  The exchange program was managed by George Mason University in Fairfax, Virginia, through a federal grant and cooperative agreement with the State Department.  During a time period when Hopkins received $247,200 in grant funds for legitimate transportation services, he and a State Department official conspired to steal portions of the federal money allocated to the exchange program by, among other things, falsifying vendor-related invoices and making fraudulent checks payable to Hopkins.  In total, Hopkins stole approximately $17,335 from the State Department.  He also admitted that he used portions of the funds to pay kickbacks to the State Department official to retain his transportation contract.

The Department of State’s Office of Inspector General and the FBI’s Washington Field Office investigated the case.  Trial Attorney Edward P. Sullivan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Kimberly R. Pedersen of the Eastern District of Virginia are prosecuting the case.

Department of Justice and Health and Human Services Return $2.6 Billion in Taxpayer Savings From Efforts to Fight Healthcare Fraud

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April 6, 2018 Departments Work to Stamp out Pill Mills and Opioid Overprescribing

Health and Human Services Secretary Alex Azar and Attorney General Jeff Sessions today released a fiscal year (FY) 2017 Health Care Fraud and Abuse Control Program report showing that for every dollar the federal government spent on healthcare related fraud and abuse investigations in the last three years, the government recovered $4. Additionally, the report shows that the departments’ FY 2017 Takedown event was the single largest healthcare fraud enforcement operation in history.

In FY 2017, the government’s healthcare fraud prevention and enforcement efforts recovered $2.6 billion in taxpayer dollars from individuals and entities attempting to defraud the federal government and Medicare and Medicaid beneficiaries. Some of these fraudulent practices include:

  • Providers operating “pill mills” out of their medical offices.
  • Providers submitting false claims to Medicare for ambulance transportation services.
  • Clinics submitting false claims to Medicare and Medicaid for physical and occupational therapy.
  • Drug companies paying kickbacks to providers to prescribe their drugs, and pharmacies soliciting and receiving kickbacks from pharmaceutical companies for promoting their drugs.
  • Companies misrepresenting capabilities of their electronic health record software to customers.

“Taxpayers work hard every day to help fund government programs for our fellow Americans,” Attorney General Sessions said. “But too many trusted medical professionals like doctors, nurses and pharmacists have chosen to violate their oaths and exploit this generosity to line their pockets, sometimes for millions of dollars.  At the Department of Justice, we have taken historic new actions to incarcerate these criminals and recover stolen funds, including executing the largest healthcare fraud enforcement action in American history.  These achievements are important, but the department’s work is not finished. We will keep up this pace and continue to prosecute fraudsters so that we can give financial relief to taxpayers.”

“Today’s report highlights the success of HHS and DOJ’s joint fraud-fighting efforts,” said HHS Secretary Azar. “By holding individuals and entities accountable for defrauding our federal health programs, we are protecting the programs’ beneficiaries, safeguarding billions in taxpayer dollars, and, in the case of pill mills, helping stem the tide of our nation’s opioid epidemic.”

The Departments of Justice (DOJ) and Health and Human Services (HHS), through the Health Care Fraud Prevention and Enforcement Action Team (HEAT) effort, use data analytics and surveillance to crack down on, prevent and prosecute healthcare fraud. While the program continues to be very successful, the return on investment fluctuates from year to year, in part because cases resulting in large settlements take multiple years to complete. Additionally, there has been a reduction in large monetary settlements as many of the large pharmaceutical manufacturers have entered into Corporate Integrity Agreements with the HHS Office of the Inspector General to establish protections against fraudulent activities.

With teams comprised of law enforcement agents, prosecutors, attorneys, auditors, evaluators and other staff, last year DOJ opened 967 new criminal healthcare fraud investigations of which federal prosecutors filed criminal charges in 439 cases involving 720 defendants.  A total of 639 defendants were convicted of healthcare fraud related crimes. In FY 2017, the DOJ and HHS joint Medicare Fraud Strike Force filed 253 indictments and charges against 478 defendants who allegedly billed federal healthcare programs more than $2.3 billion. The Strike Force obtained more than 290 guilty pleas, litigated 33 jury trials and won guilty verdicts against 40 defendants. The Fraud Strike Force secured prison sentences for more than 300 defendants, with an average sentence of 50 months. Since its inception in 2007, Strike Force prosecutors filed more than 1,660 cases charging more than 3,490 defendants who collectively billed the Medicare program more than $13 billion.

Beyond criminal prosecution, the HHS Office of Inspector General (OIG) remains vigilant in excluding providers and suppliers who committed fraud or engaged in the abuse or neglect of patients in federal health programs. A total of 3,244 individuals and entities were excluded in FY 2017. Others were excluded as a result of licensure revocations. These exclusions help to safeguard beneficiaries from future harm that could otherwise be inflicted by such convicted individuals or entities. HHS can also suspend Medicare payments to providers during investigations of credible allegations of fraud.  During FY 2017, there were 551 related payment suspensions.  More than 4 million claims are reviewed by Medicare each day; resulting in more than one billion claims processed annually for timely payments to healthcare providers and suppliers. Given the volume of claims processed by Medicare each day and the significant cost associated with conducting medical review of an individual claim, the Centers for Medicare and Medicaid Services uses automated edits to help prevent improper payments without the need for manual intervention.  The National Correct Coding Initiative consists of edits designed to reduce improper payments in Medicare Part B, and this program saved Medicare $186.9 million during the first nine months of FY 2017.

As the opioid epidemic continues to devastate communities and families across the nation, both DOJ and HHS are responding with new approaches. One out of every three beneficiaries received prescription opioids through Medicare Part D in 2016. Additionally, 401 prescribers were found to have questionable prescribing patterns for beneficiaries at serious risk of opioid misuse or overdose, based on an OIG analysis. Last July, DOJ and HHS announced the largest ever healthcare fraud enforcement action, involving 412 charged defendants across 41 federal districts, including 115 doctors, nurses and other licensed medical professionals, for their alleged participation in healthcare schemes involving approximately $1.3 billion in false billings. Of those charged, more than 120 defendants, including doctors, were charged for their roles in prescribing and distributing opioids and other dangerous narcotics.

In August, Attorney General Sessions announced the formation of the Opioid Fraud and Abuse Detection Unit, a new DOJ pilot program that will use data to help combat and prosecute individuals and entities involved in illegal activities that fuel the crisis. As part of that task force, the department funded 12 experienced assistant United States attorneys for a three-year term to focus solely on investigating and prosecuting healthcare fraud related to prescription opioids, including pill mill schemes and pharmacies that unlawfully divert or dispense prescription opioids for illegitimate purposes. Those prosecutors have already charged several with unlawful distribution of opioids, and their continued success is crucial in combatting this deadly epidemic.

For more details on the Health Care Fraud and Abuse Control Program and today’s report, visit: https://oig.hhs.gov/publications/docs/hcfac/FY2017-hcfac.pdf

CCC’s: Will the Antitrust Division Need Its Own Compliance Monitor?

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The headline sounds funny, but the story is no laughing matter.  A plea agreement in the electrolytic capacitor investigation between the United States and Nippon Chemi-Con (“NCC”) is in jeopardy because of an unfortunate conflict of interest lapse by an attorney at the Department of Justice.  There was a hearing before Judge Donato yesterday on NCC’s change of plea.  Judge Donato, who has been critical of previous plea agreements in the electrolytic capacitor investigation, accepted the guilty plea but reserved judgment on the sentence to be imposed.  The plea agreement calls for a fine of between $40 and $60 million.  NCC may withdraw its plea if the Judge imposes a fine greater than that called for by the plea agreement.  A sentencing hearing is scheduled for October 3, 2018.

Background

On October 18, 2017 a federal grand jury returned an indictment against NCC for participating in a conspiracy to fix prices for electrolytic capacitors. The indictment, filed in the U.S. District Court for the Northern District of California, charges that NCC, based in Japan, conspired to fix prices for electrolytic capacitors from as early as September 1997 until January 2014.  Three current NCC executives, and one former NCC executive, were previously indicted for their participation in the conspiracy: Takuro Isawa, Takeshi Matsuzaka, Yasutoshi Ohno, and Kaname Takahashi.  The DOJ’s press release can be found here.

The indictment alleges NCC carried out the conspiracy by agreeing with co-conspirators to fix prices of electrolytic capacitors during meetings and other communications.  According to the indictment, NCC and its co-conspirators took steps to conceal the conspiracy, including the use of code names and providing misleading justifications for prices and bids submitted to customers in order to cover up their collusive conduct.  The indictment can be found here.

To date, eight companies and ten individuals have been charged with participating in the conspiracy to fix prices of electrolytic capacitors.

The Problem (if you’re the Government) or Opportunity (if you’re the defense)

The issue that was debated at the change of plea hearing before Judge Donato was first identified in a Joint Status Report filed on May 11, 2018.  The parties reported that an attorney who formerly had represented NCC left his law firm, joined the Department of Justice and later did some work on an MLAT request the Department filed with the Japanese government that related to NCC.  In the Status Report the Antitrust Division wrote:

“The attorney left Firm A and joined OIA in February 2015. Shortly thereafter, in March 2015, he performed several tasks to assist the Antitrust Division in executing and transmitting a Mutual Legal Assistance Treaty (“MLAT”) request to interview a witness in Japan, on topics including NCC’s conduct in the charged price-fixing conspiracy. The Antitrust Division remained unaware of his prior representation of NCC until February 15, 2018.”

The Antitrust Division conceded that the attorney should have recused himself but argued that there was no prejudice to NCC.  NCC strongly disagreed about the impact of a defense attorney “switching sides.”  The company unsuccessfully lobbied the DOJ to dismiss the indictment.  That request was declined but a plea agreement was reached that clearly was more favorable to NCC than the Antitrust Division  might have offered without the conflict issue.  The complete Status Report on the matter can be found here:  Case 4-17-cr-00540-JD Document 47 Filed 05:11:18

The Change of Plea Hearing

Judge Donato accepted the plea of NCC but reserved judgment on the sentence.  Sentencing is scheduled for October 3, 2018.  Judge Donato has required changes to negotiated plea agreements with other defendants in the capacitor investigation believing them to be too lenient.  If Judge Donato does not agree to sentence NCC within the parameters of its plea agreement, NCC can withdraw its plea.  The court spent approximately 30 minutes in closed session exploring the impact on the conflict lapse on the terms the Antitrust Division offered in the plea agreement.

Judge Donato was obviously upset at the lack of procedures at the DOJ to identify and prevent this conflict.  The Antitrust Division tried to demonstrate that it took the matter seriously by sending Marvin Price, the Acting Deputy Assistant Attorney General for Criminal Enforcement out to San Francisco to represent the Government at the hearing.

The case is U.S. v. Nippon Chemi-Con Corp., case number 4:17-cr-00540-JD.

More to come.

CCC’s: DOJ Announces “Coordination of Corporate Resolution Penalties” Policy

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On May 9, 2018 Deputy Attorney General Rod Rosenstein delivered remarks to the New York City Bar White Collar Crime Institute. He announced a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.  The full prepared remarks are here.  Below is an excerpt:

Today, we are announcing a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.

The aim is to enhance relationships with our law enforcement partners in the United States and abroad, while avoiding unfair duplicative penalties.

It is important for us to be aggressive in pursuing wrongdoers. But we should discourage disproportionate enforcement of laws by multiple authorities. In football, the term “piling on” refers to a player jumping on a pile of other players after the opponent is already tackled.

Our new policy discourages “piling on” by instructing Department components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.

In highly regulated industries, a company may be accountable to multiple regulatory bodies. That creates a risk of repeated punishments that may exceed what is necessary to rectify the harm and deter future violations.

Sometimes government authorities coordinate well.  They are force multipliers in their respective efforts to punish and deter fraud. They achieve efficiencies and limit unnecessary regulatory burdens.

Other times, joint or parallel investigations by multiple agencies sound less like singing in harmony, and more like competing attempts to sing a solo.

Modern business operations regularly span jurisdictions and borders. Whistleblowers routinely report allegations to multiple enforcement authorities, which may investigate the claims jointly or through their own separate and independent proceedings.

By working with other agencies, including the SEC, CFTC, Federal Reserve, FDIC, OCC, OFAC, and others, our Department is better able to detect sophisticated financial fraud schemes and deploy adequate penalties and remedies to ensure market integrity.

But we have heard concerns about “piling on” from our own Department personnel. Our prosecutors and civil enforcement attorneys prize the Department’s reputation for fairness.

They understand the importance of protecting our brand. They asked for support in coordinating internally and with other agencies to achieve reasonable and proportionate outcomes in major corporate investigations.

And I know many federal, state, local and foreign authorities that work with us are interested in joining our efforts to show leadership in this area.

“Piling on” can deprive a company of the benefits of certainty and finality ordinarily available through a full and final settlement. We need to consider the impact on innocent employees, customers, and investors who seek to resolve problems and move on. We need to think about whether devoting resources to additional enforcement against an old scheme is more valuable than fighting a new one.

Our new policy provides no private right of action and is not enforceable in court, but it will be incorporated into the U.S. Attorneys’ Manual, and it will guide the Department’s decisions.

This is another step towards greater transparency and consistency in corporate enforcement. To reduce white collar crime, we need to encourage companies to report suspected wrongdoing to law enforcement and to resolve liability expeditiously.

There are four key features of the new policy.

First, the policy affirms that the federal government’s criminal enforcement authority should not be used against a company for purposes unrelated to the investigation and prosecution of a possible crime. We should not employ the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case.

That is not a policy change. It is a reminder of and commitment to principles of fairness and the rule of law.

Second, the policy addresses situations in which Department attorneys in different components and offices may be seeking to resolve a corporate case based on the same misconduct.

The new policy directs Department components to coordinate with one another, and achieve an overall equitable result. The coordination may include crediting and apportionment of financial penalties, fines, and forfeitures, and other means of avoiding disproportionate punishment.

Third, the policy encourages Department attorneys, when possible, to coordinate with other federal, state, local, and foreign enforcement authorities seeking to resolve a case with a company for the same misconduct.

Finally, the new policy sets forth some factors that Department attorneys may evaluate in determining whether multiple penalties serve the interests of justice in a particular case.

Sometimes, penalties that may appear duplicative really are essential to achieve justice and protect the public. In those cases, we will not hesitate to pursue complete remedies, and to assist our law enforcement partners in doing the same.

Factors identified in the policy that may guide this determination include the egregiousness of the wrongdoing; statutory mandates regarding penalties; the risk of delay in finalizing a resolution; and the adequacy and timeliness of a company’s disclosures and cooperation with the Department.

Cooperating with a different agency or a foreign government is not a substitute for cooperating with the Department of Justice. And we will not look kindly on companies that come to the Department of Justice only after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments. In those instances, the Department will act without hesitation to fully vindicate the interests of the United States.

The Department’s ability to coordinate outcomes in joint and parallel proceedings is also constrained by more practical concerns.  The timing of other agency actions, limits on information sharing across borders, and diplomatic relations between countries are some of the challenges we confront that do not always lend themselves to easy solutions.

The idea of coordination is not new. The Criminal Division’s Fraud Section and many of our U.S. Attorney’s Offices routinely coordinate with the SEC, CFTC, Federal Reserve, and other financial regulators, as well as a wide variety of foreign partners. The FCPA Unit announced its first coordinated resolution with the country of Singapore this past December.

The Antitrust Division has cooperated with 21 international agencies through 58 different merger investigations during the past four years.

Here is a link to the policy on Coordination of Corporate Resolution Penalties.

As the Deputy Attorney General stated, coordination is not new.  The Antitrust Division routinely coordinates with other federal and state agencies on most investigations.  And some coordination always occurs on international investigations.  In the recent financial crimes investigations such as Libor and FOREX the amount of coordination was extensive among federal agencies such as the Antitrust Division, Criminal Division, FBI, SEC, CFTC, state AG office, as well as with many foreign jurisdictions.  It is rumored that meetings were held in the Great Hall at the Department of Justice since no conference room could hold the throngs of participating enforcers.

Coordination by the Antitrust Division with enforcers from other federal, state and international enforcers is not new, but there is a continual debate about whether such coordination prevents “piling on.”  Of course, what a defense attorney may call piling on, the prosecutors may deem to be a hard but fair hit.  There is no referee or instant replay.  The question of piling on or double counting is a subject of continuing debate in antitrust circles.  It’s a tough question as foreign jurisdictions are injured by international cartels and they have stakeholders that want a significant penalty.  Sorting out proportional penalties among sovereign nations is a particularly tough ongoing challenge. This new policy document is not going to end that debate but a written policy document (while creating no new rights) could enhance defendants’ power of persuasion with the Department of Justice if they have some credible numbers to back up a “piling on” argument.

Thanks for reading.

PS.  Several publications have reported that Richard Powers will become the next Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division.  The Antitrust Division has made no announcement yet.  One of the many qualifications Mr. Powers will bring to the position, if he is named as the Criminal Deputy, is his experience in multi-agency, international prosecutions. He worked on both Libor and Forex while a member of the Antitrust Division’s New York Field Office.

CCC’s: Farewell Remarks by John Pecman, Commissioner of Competition (Canada)

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Yesterday John Pecman gave his last public talk as Commissioner of Competition for the Canadian Competition Bureau.  The remarks were made at the Canadian Bar Association’s Spring Conference in Toronto.  Mr. Pecman became acting Commissioner in 2012 and was subsequently named Commissioner.  In his final remarks (here), Mr. Pecman discussed the four goals he had as Commissioner and the successes the agency achieved in realizing those goals:

“Looking at this job, I saw four must-do things to make the transition work:

  • Adopt a shared compliance approach;
  • Increase our guidance;
  • Enhance our domestic and international partnerships; and
  • Restructure the organization through an internal realignment.”

As always, Mr. Pecman was candid in describing areas where improvement was needed.  For example:

“Simply put, the Bureau’s current cartel model is inefficient.

It ties up Bureau resources and leads to poor outcomes. It needs to be examined and repaired, in keeping with the approach adopted by a number of our international counterparts, like the ACCC, who have employed “dual track” approaches to proceeding against hard-core cartels.”

Lastly, I was happy to see that Mr. Pecman and I share a strong support of “whistleblower” programs to prevent, destabilize and prosecute cartels.  Mr. Pecman stated:

Finally, I firmly support establishing a stand-alone “whistleblower” program, similar to the model employed by the Ontario Securities Commission and some of our international counterparts, which would provide financial rewards to whistleblowers who provide information and meet certain eligibility requirements. This would be an extremely effective enforcement tool for addressing the most egregious and most challenging anti-competitive behaviour to detect.

The full text of Mr. Pecman’s remarks is here.

I have written numerous posts on Cartel Capers in support of whistleblower legislation (here) (here).  They are summarized in an article I coauthored with a former Antitrust Division colleague, Kimberly Justice.  The article, “It’s a Crime There Isn’t A Criminal Antitrust Whistleblower Statute” can be found here.

Thanks for reading.  And many thanks to John Pecman for his long service on behalf of consumers and competition law enforcement.  Congratulations John on your successful stewardship!

CCC’s: Guest Post on Competition Commission of India (CCI) Leniency Decision

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In a recent Cartel Capers post, I wrote about the first instance where the Competition Commission of India granted 100% immunity from a fine under the CCI’s leniency provisions (here).  Below is some additional important information on the case provided by the New Delhi, India Iaw firm of Luthra & Luthra.

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Luthra & Luthra Guest Post:  CCI on leniency[1]

In its second decision based on a leniency application, the CCI held Eveready Industries, Indo National, and Panasonic Energy India Co. guilty of cartelizing in the market for dry cell batteries along with the Association, which was found to facilitate the cartel. Complete immunity from the fine was granted to Panasonic (and the six employees found to be involved), being the first leniency applicant,[2] and based on which the investigation was opened. The office of the Director General of Investigation carried out raids on the premises of all three companies. Following the raids, Eveready and Indo National also decided to file leniency applications, in that order, shortly after the raid. The Association, for some odd reason, decided to contest the charges.

Since all the manufacturers applied for leniency, the tussle was mainly for securing the maximum reduction in penalty possible based on the nature of their respective disclosures and the vitality of the evidence presented. With respect to Eveready and Indo Nat, the Commission observed that the evidence seized by the DG during the dawn raid was independently sufficient to establish the cartel and the additional evidence submitted by them post the raid did not result in ‘significant value addition.’  However, considering they had provided genuine, full, continuous and expeditious cooperation during the course of investigation, the CCI granted Eveready (and their office bearers) a reduction of 30 per cent and Indo National (and their office bearers) a reduction of 20 per cent in the total leviable penalty. The Association of course received no such reduction.

The big negative – the CCI discloses a disturbing amount of detail in its order, including the names of the certain customers; description of specific pieces of evidence such as emails, their senders and recipients, dates and contents; and the extent of overcharge.

Confidentiality is of extreme importance to leniency applicants who run the risk of follow-on civil damages claims and reputational loss. Without broad and robust confidentiality protection, potential leniency applicants may be deterred from coming forward to report cartel activity. Publishing details as the CCI has done could potentially attract numerous claims, which in-turn would act as a huge disincentive for future applicants seeking leniency. This is more so for global cartel participants, who may face claims not only in India but in other jurisdictions.

Third party access to leniency documents is another sensitive topic and it remains to be seen whether, and to what extent, the CCI will allow access to potential claimants.

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[1] This post does not constitute legal advice.  Should you require any assistance or clarifications, please feel free to contact the Competition Law Team at [email protected] or any of the contacts listed alongside. CONTACTS: Gurdev Raj Bhatia, Partner – Head Competition Law; Abdullah Hussain Partner; Kanika Chaudhary Nayar, Partner.

[2]  Under Section 46 of the Act and the CCI’s Lesser Penalties Regulations, 2009.

CCC’s: What do we know about algorithmic collusion? (Guest Post by Ai Deng PhD)

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Dr. Ai Deng of Bates White Economic Consulting has been a long time and frequent contributor to Cartel Capers.  He is a leading voice in the area of artificial intelligence and algorithmic collusion.  You can follow him on LinkedIn (here).  HIs most recent post is below:

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I had the pleasure of speaking about artificial intelligence and algorithmic collusion at the American Bar Association Section of Antitrust Law Spring Meeting 2018 last month. The star war-themed session seemed to have gone very well. I want to thank again Paul Saint-Antoine, Lesli Esposito, Professors Maurice Stucke and Joshua Gans for putting together the panel with me.

I have just posted another article on algorithmic collusion on SSRN. The paper is partially based on my remarks at the Spring Meeting but expands on several fronts. Below is the abstract. You can download the full working paper at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3171315

Abstract

The past few years have seen many legal scholars and antitrust agencies expressing interest in and concerns with algorithmic collusion. In this paper, I survey and draw lessons from the literature on Artificial Intelligence and on the economics of algorithmic tacit collusion. I show that a good understanding of this literature is a crucial first step to better understand the antitrust risks of algorithmic pricing and devise antitrust policies to combat such risks.

Keywords: algorithmic pricing, algorithmic collusion, artificial intelligence, antitrust

This is one of a series of papers I have written in the past year about the general topic of machine learning and artificial intelligence, and their implications on antitrust issues.

As always, I appreciate your thoughts and comments. You can reach me at [email protected] or connect with me on LinkedIn [here]

Ai Deng, PhD

Principal at Bates White Economic Consulting

Lecturer at Advanced Academic Program, Johns Hopkins University

direct: 2022161802 | fax: 2024087838

1300 Eye Street NW, Suite 600, Washington, DC 20005

CCC’s: European Commission Sets EU-wide Whistleblower Protection Rules

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The European Union just announced proposed rules designed to guarantee protection to whistleblowers who report infringements of EU law.  The proposal requires approval from EU countries and the European Parliament before it can become law. Currently only 10 EU countries offer full protection to whistleblowers.

From the EU Press Release

Brussels, 23 April 2018

Recent scandals such as Dieselgate, Luxleaks, the Panama Papers or the ongoing Cambridge Analytica revelations show that whistleblowers can play an important role in uncovering unlawful activities that damage the public interest and the welfare of our citizens and society.

Today’s proposal will guarantee a high level of protection for whistleblowers who report breaches of EU law by setting new, EU-wide standards. The new law will establish safe channels for reporting both within an organisation and to public authorities. It will also protect whistleblowers against dismissal, demotion and other forms of retaliation and require national authorities to inform citizens and provide training for public authorities on how to deal with whistleblowers.

First Vice-President Frans Timmermans said: “Many recent scandals may never have come to light if insiders hadn’t had the courage to speak out. But those who did took enormous risks. So, if we better protect whistleblowers, we can better detect and prevent harm to the public interest such as fraud, corruption, corporate tax avoidance or damage to people’s health and the environment. There should be no punishment for doing the right thing. In addition, today’s proposals also protect those who act as sources for investigative journalists, helping to ensure that freedom of expression and freedom of the media are defended in Europe.”

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality added: “The new whistleblowers’ protection rules will be a game changer. In the globalised world where the temptation to maximise profit sometimes at the expense of the law is real we need to support people who are ready to take the risk to uncover serious violations of EU law. We owe it to the honest people of Europe.

The European Commission also issued a press release on Whistleblower Protection: Frequently Asked Questions

My former Antitrust Division colleague, Kimberly Justice and I have been advocating strongly for a criminal antitrust whistleblower statute; one that would not only give retaliation protection to whistleblowers but would provide a financial incentive for information that leads to exposure and prosecution of a cartel.  See It’s a Crime There Isn’t an Criminal Antitrust Whistleblower Statute.

One objection I’ve heard to a criminal antitrust whistleblower statute is that a whistleblower statute would undermine the Corporate Leniency program.  I think the truth would be quite the opposite.  Once a whistleblower helps initiate a cartel investigation, the race would be on to be the first company to qualify for leniency.  Also, the fact that a whistleblower could come forward may also increase Type A Corporate Leniency—leniency for a company that self-reports before there is even an investigation. And, in the ideal world (except for those of us who make a living from cartel investigations), the threat of a whistleblower would prevent a cartel from forming in the first place.  This notion was expressed in a Reuters article about the proposed EU legislation (here):

The Association of Chartered Certified Accountants (ACCA) said increasing whistleblower protection will help businesses.

“Companies have to see speak-up as something that would help them manage risks and avoid more serious issues such as violation of law, inappropriate conduct, crime or any type of harms,” ACCA head of corporate governance Jo Iwasaki said.

Thanks for reading.  Bob Connolly

CCC’s: It’s A Crime There Isn’t a Criminal Antitrust Whistleblower Statute

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Kimberly Justice and I are continuing to write about what we believe is a very important issue in cartel fighting–the passing of criminal antitrust whistleblower legislation.  Below are the opening paragraphs of our latest article on the subject.  The full article, kindly posted by Wolters Kluwer in their Antitrust Law Daily, can be found here.

“The SEC’s wildly successful whistleblower program has returned hundreds of millions of dollars to investors as a result of actionable whistleblower information over the past six years.  The IRS paid one whistleblower more than $100 million for information that helped the government uncover a massive tax evasion scheme and led to a $780 million settlement.  The CFTC predicts that the results of its whistleblower program this year will be “huge.”  The Antitrust Division has paid $0 to whistleblowers and received $0 from cartels exposed by whistleblowers.  Or, as Charlie Brown would say, the Antitrust Division “got a rock.”

There is no cartel whistleblower program and this should change now.  Price-fixing and bid-rigging conspiracies are felonies costing American consumers millions of dollars in the form of artificially high prices.  These fraudulent schemes are particularly suited to exposure by whistleblowers because senior corporate executives frequently use lower level employees (and potential whistleblowers) to carry out the illegal scheme.  The time is right for serious antitrust whistleblower legislation.”

 

Full article here

Thanks for reading.  If you have any reaction/comment you’d like to share please use the comment section or through LinkedIn (here).

CCC’s: Employee No-Poach Agreement Compliance Talk: Knock it Off! Now!!

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A hot topic at the ABA Antitrust Section Spring Meeting in DC that I recently attended, and in antitrust in general, is the treatment of employee “no-poach” agreements between companies.  Naked no-poach agreements are illegal schemes wherein companies agree to not solicit or hire each other’s employees.  These per se illegal agreements have, till now, been prosecuted as civil violations.  In October 2016, however, the Antitrust Division and FTC issued joint Guidance to Human Resource Professionals warning that certain no poach agreements may be prosecuted criminally.  Since that time the Antitrust Division has repeated the message that naked no-poach agreements that begin or continue after October 2016 will be treated as any other cartel behavior; meaning the investigation and prosecution will likely be as a criminal violation.  Very recently, the Antitrust Division reached a civil settlement with rail equipment suppliers Knorr-Bremse and Wabtec over allegations of a long-standing agreement to not compete for each other’s employees.  The DOJ press release (here) explained the case was brought civilly because the illegal agreements ended before October 2016. There is more background in prior Cartel Capers posts here and here.

I applaud the Division’s commitment to treat naked no-poach agreement as possible criminal violations. It has puzzled me why employee (input) allocation agreements were ever thought to warrant civil treatment.  To be sure, there are times when an agreement not to hire away another company’s employees may be ancillary to some legitimate integration such as joint research.  You don’t want the other guy to size up your good people and steal them.  But, a naked agreement—I won’t hire away your employees if you won’t hire away mine—is a naked restraint of trade; to my mind just as bad as any customer or supplier allocation scheme.

A glimpse of how this collusion works is explained in an excerpt of a talk by then Assistant Attorney General Bill Baer discussing some of the details of a no-poach agreement between eBay and Intuit as alleged in a 2013 civil case (here):

“The behavior was blatant and egregious.  And the agreements were fully documented in company electronic communications.  In one email, eBay’s senior vice president of HR wrote Meg Whitman complaining that while eBay was adhering to its agreement not to hire Intuit employees, “it is hard to do this when Intuit recruits our folks.”  Turns out that Intuit had sent a recruiting flyer to an eBay employee.  Whitman forwarded that email to Scott Cook asking him to “remind your folks not to send this stuff to eBay people.”  Cook quickly responded with “…Meg my apologies.  I’ll find out how this slip up occurred again….”

Assistant Attorney General Bill Baer Speaks at the Conference Call Regarding the Justice Department’s Settlement with eBay Inc. to End Anticompetitive “No Poach” Hiring Agreements, Thursday, May 1, 2014.

Another graphic example of an employee collusion case is reported in the The Verge, Steve Jobs personally asked Eric Schmidt to stop poaching employees, January 27, 2012 (here)

  • Steve Jobs personally emailed Eric Schmidt to ask Google to stop poaching an Apple engineer, and Google responded by arranging to immediately and publicly fire the employee who initiated the call.

  • “Mr. Jobs wrote: “I would be very pleased if your recruiting department would stop doing this.”

  • Schmidt forwarded Mr. Jobs’s email to undisclosed recipients, writing: “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.”

  • Geshuri [a Google executive] told Mr. Schmidt that the employee “who contacted this Apple employee should not have and will be terminated within the hour.” Mr. Geshuri further wrote: “Please extend my apologies as appropriate to Steve Jobs. This was an isolated incident and we will be very careful to make sure this does not happen again.”

  • Three days later, Shona Brown, Google’s Senior Vice President for Business Operations, replied to Mr. Geshuri, writing: “Appropriate response, thank you. Please make a public example of this termination with the group.”

This behavior is a particularly damaging form of collusion.  Imagine you are an employee at a high tech, or any firm.  You really don’t like your job.  Maybe it’s the boss you don’t get along with.  Maybe you get lousy assignments; no opportunity for advancement; you think you’re under appreciated, overworked and underpaid (maybe you work at a law firm?).  You’d like to get another job, but your application/resumes go unanswered.  You can’t seem to get any interest from the other big firm in town.  You not only are stuck at the same pay, same boss, same job, but your self-esteem takes a hit too.  (When I was in law school applying for jobs, my roommates and I jokingly made a ‘wall of shame” of all the rejection letters.  But, the disappointment was real).  No-poach agreements are restraints of trade that are very focused on individuals and have a significant impact on their lives.  The harm seems greater to me, and perhaps to a sentencing judge, than a price fixing scheme that inflates prices a small amount, though over perhaps thousands of customers.

Compliance guidance should not just explain the shift in DOJ policy towards naked no-poach agreements, but to explain how these agreements actually and very negatively can affect people’s lives and why they may be prosecuted criminally.  I rarely here the human side of the story emphasized or even mentioned in discussion about 15 U.S..C Section 1 (The Sherman Act); the per se rule versus rule of reason, etc.  Compliance guidance should also be clear about another potential human side to this story—some executive is going to be the first one facing a criminal charge with a possible sentence of up to 10 years in prison for an employee no-poach agreement.

PS.     Since no-poach agreements may be treated criminally by the Antitrust Division, it is important to remember that Corporate Leniency (that also covers cooperating individuals) may be available to the first organization that self-reports.

Thanks for reading.  Bob Connolly