Tag Archives: Antitrust

Five School Bus Owners Indicted for Bid-Rigging and Fraud Conspiracies at Puerto Rico Public School Bus Auction

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A federal grand jury in San Juan, Puerto Rico, returned an indictment against five individuals for participating in bid rigging and fraud conspiracies at an auction for public school bus transportation contracts in Puerto Rico’s Caguas municipality, the Department of Justice announced today.

A seven-count felony indictment was filed yesterday in U.S. District Court of the District of Puerto Rico in San Juan against five bus transportation company owners: Gavino Rivera-Herrera, Luciano Vega-Martínez, Alfonso Gonzales-Nevarez, José L. Arroyo-Quiñones and René Garay-Rodríguez.

Count one charges the bus owners with participating in a conspiracy to rig bids and allocate the market for public school bus transportation services in the Caguas municipality.  The second count charges the bus owners with conspiracy to commit mail fraud and counts three through seven charge the bus owners with committing mail fraud.  According to the indictment, the defendants and others defrauded, and conspired to defraud, the Puerto Rico Department of Education and the Caguas municipality, among others, in order to fraudulently obtain contracts for school bus transportation services.

These charges relate to a 2013 Caguas municipality auction, at which four-year contracts for public school bus transportation were awarded.  The indictment alleges that the defendants participated in the charged offenses from around August 2013 until at least May 2015.

“The defendants are charged with depriving taxpayers, the Municipality of Caguas and the Puerto Rico Department of Education of the benefits of a competitive bidding process for school bus contracts,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “This is unacceptable.  The Division will continue its efforts to protect U.S. citizens across the country and hold accountable those who subvert competition.”

“Today’s case is the latest in our ongoing efforts to investigate and prosecute financial crimes, one of the priorities of the Department of Justice,” said U.S. Attorney Rosa Emilia Rodríguez-Vélez of the District of Puerto Rico.  “These arrests serve as a reminder that federal law enforcement agencies intend to vigorously prosecute those who manipulate the economic system to enrich themselves at the expense of the government.”

“Price fixing victimizes the consumer which in this case are the honest, hardworking and tax paying citizens living in Puerto Rico,” said Special Agent in Charge Carlos Cases of the FBI’s San Juan Division.  “Let there be no doubt, the FBI, along with law enforcement partners, will continue to investigate, charge and prosecute any individuals involved in these type of acts.”

The bus owners are charged with bid rigging and market allocation in violation of the Sherman Act, which carries a maximum sentence of 10 years in prison and a $1 million criminal fine for individuals.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than $1 million.  Each count of mail fraud, and conspiracy to commit mail fraud, carries a maximum sentence of 20 years in prison and a $250,000 fine.

This is the first case resulting from an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in Puerto Rico’s school bus transportation services industry.  This investigation is being conducted by the Antitrust Division’s Washington Criminal I Section, the U.S. Attorney’s Office of the District of Puerto Rico, the FBI’s Puerto Rico Field Office and the U.S. Department of Education Office of Inspector General.  Anyone with information in connection with this investigation is urged to call the Antitrust Division’s Washington Criminal I Section at 202-307-6694, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Puerto Rico Field Office at 787-754-6000.

Current and Former Executives of an Automotive Parts Manufacturer Indicted for Roles in Conspiracy to Fix Prices – Investigation Has Resulted in Charges Against 90 Individuals and Corporations

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A Detroit federal grand jury returned a one-count indictment against two executives of a Japanese automotive parts manufacturer for their participation in a conspiracy to fix prices and rig bids of automotive parts, the Department of Justice announced today.

The indictment, filed today in the U.S. District Court for the Eastern District of Michigan, charges Norio Teranishi, formerly of NGK Spark Plug Co. Ltd., and Hisashi Nakanishi of NGK Spark Plug, with conspiring to fix the prices of spark plugs, standard oxygen sensors, and air fuel ratio sensors, sold to DaimlerChrysler AG, Ford Motor Company, Fuji Heavy Industries (Subaru), General Motors Company, Honda Motor Company Ltd., Nissan Motor Co. Ltd., Toyota Motor Corporation, and certain of their U.S. subsidiaries.

Teranishi is the former General Manager of Sales and Vice-Head of the Automotive Component Group at NGK Spark Plug.  During the alleged conspiracy, Nakanishi served as the Managing Director of NGK Spark Plug Europe.

The indictment alleges, among other things, that beginning at least as early as January 2000 and continuing until at least July 2011, Teranishi and Nakanishi, and their co-conspirators participated in, and directed, authorized or consented to the participation of subordinate employees in, meetings with co-conspirators and reached collusive agreements to rig bids, allocate the supply, and fix the price of spark plugs, standard oxygen sensors, and air fuel ratio sensors sold to certain automobile manufacturers, in the United States and elsewhere.

“As a result of Antitrust Division’s automotive parts investigation, more than 50 individuals have been held accountable for corrupting the competitive process in this important global market,” said Deputy Assistant Attorney General Brent Snyder of the Antitrust Division’s Criminal Enforcement Program.  “The Antitrust Division will continue to vigorously prosecute those individuals who engaged in criminal antitrust violations in this vital market.”

“The criminal manipulation of the global automotive parts market through price fixing and bid rigging is a serious offense,” stated Special Agent in Charge Paul M. Abbate of the FBI’s Detroit Field Office.  “The FBI, together with the Department of Justice Antitrust Division, will continue to aggressively pursue those who seek to commit criminal antitrust violations in order to gain a competitive advantage through corruption of the global marketplace.”

NGK Spark Plug is a corporation organized and existing under the laws of Japan with its principal place of business in Nagoya, Japan.  On Oct. 8, 2014, NGK Spark Plug pleaded guilty and agreed to pay a $52.1 million criminal fine for its role in the conspiracy.

Including Teranishi and Nakanishi, 55 individuals have been charged in the government’s ongoing investigation into market allocation, price fixing and bid rigging in the automotive parts industry.  Additionally, 35 companies have pleaded guilty or agreed to plead guilty and have agreed to pay a total of more than $2.5 billion in criminal fines.

Teranishi and Nakanishi are charged with price fixing and bid rigging in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.  The maximum fine for an individual may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s indictment is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by the Antitrust Division’s criminal enforcement sections and the FBI.  Today’s charge was brought by the Antitrust Division’s Washington Criminal I Section and the FBI’s Detroit Field Office, with the assistance of the FBI headquarters’ International Corruption Unit.  Anyone with information on price fixing, bid rigging and other anticompetitive conduct related to other products in the automotive parts industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, visitwww.justice.gov/atr/contact/newcase.html or call the FBI’s Detroit Field Office at 313-965-2323.

CCC’s: My Antitrust Spring Meeting Interview with Capitol Forum

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During the ABA Antitrust Spring Meeting, I had the good fortune to be interviewed by David Blotner, Senior Editor of the Capitol Forum. The Capitol Forum is an in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition. The Capitol Forum provides in-depth coverage of major antitrust matters such as the now abandoned Comcast-Time Warner merger. I was delighted to be asked to speak about cartel issues. David and I have known each other for years. He also was a career Antitrust Division prosecutor. And while I’m no Nostradamus, we did discuss the Forex investigation which just had big news yesterday. If you have a few minutes (around 27) here is a link to the video. And check out the Capitol Forum website, as well as their blog, for the complete coverage they offer.

Thanks for reading (or watching if you have the time).

REAL ESTATE INVESTOR PLEADS GUILTY TO BID RIGGING

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WASHINGTON — A Georgia real estate investor pleaded guilty today for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Georgia, the Department of Justice announced.

Felony charges against Eric Hulsman were filed on March 27, 2015, in the U.S. District Court of the Northern District of Georgia in Atlanta.  According to court documents, from at least as early March 6, 2007, and continuing at least until Dec. 6, 2011, in Fulton County, Georgia, and from at least as early as Jan. 2, 2007, and continuing at least until Jan. 1, 2008, in DeKalb County, Georgia, Hulsman conspired with others not to bid against one another, but instead designated a winning bidder to obtain selected properties at public real estate foreclosure auctions.  Hulsman was also charged with a conspiracy to use the mail to carry out a scheme to fraudulently acquire title to selected Fulton and DeKalb properties sold at public auctions, to make and receive payoffs and to divert money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy.  The selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions.

“Homeowners and lenders in Fulton and DeKalb counties deserved free and fair public real estate foreclosure auctions,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “The defendant conspired with others to keep for themselves money that should have gone to those homeowners and lenders.  The division remains committed to rooting out this kind of anticompetitive conduct at foreclosure auctions.”

The primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at Fulton and DeKalb county public foreclosure auctions at non-competitive prices.  When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.  According to court documents, these conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and in some cases, the defaulting homeowner.

“Today’s guilty plea of another real estate investor engaged in unfair bidding practices is further evidence of the FBI’s support for the U.S. Department of Justice’s Antitrust Division in ensuring that public foreclosure auctions remain a level playing field for all,” said Special Agent in Charge J. Britt Johnson of the FBI’s Atlanta Field Office.  “Anyone with information regarding such criminal activities as seen in this case should promptly call their nearest FBI field office.”

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  The maximum fine for a Sherman Act charge may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine.  A count of conspiracy to commit mail fraud carries a maximum penalty of 20 years in prison and a fine in an amount equal to the greatest of $250,000, twice the gross gain the conspirators derived from the crime or twice the gross loss caused to the victims of the crime by the conspirators.

Including Hulsman, eight cases have been filed as a result of the ongoing investigation being conducted by Antitrust Division’s Washington Criminal II Section and the FBI’s Atlanta Division, and the U.S. Attorney’s Office of the Northern District of Georgia.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions in Georgia should contact Washington Criminal II Section of the Antitrust Division at 202-598-4000, call the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258 or visit www.justice.gov/atr/contact/newcase.htm.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

ANTITRUST GUIDANCE IN BRAZIL

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ANTITRUST GUIDANCE IN BRAZIL

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Today we have an update from Brazil by Mauro Grinberg, a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

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A Resolution issued by Conselho Administrativo de Defesa Econômica (CADE), dated March 11, 2015, made a comeback of the procedure for antitrust guidance to be requested to CADE. This request for guidance can be used in all competition cases, including cartels.

The first article of such Resolution says that any interested party can forward a request for guidance to CADE, related to specific situations, which may be real or potential. Interested parties can also be trade associations which have, as their goals, representation of the involved sector and can demonstrate that at least one of the represented companies is legitimately interested in such guidance.

There are some requirements for such request for guidance and, although it is pointless, for the purpose of this note, to go through all of them, it is interesting to mention that the party must declare all CADE´s precedents related to the object. So, no request for guidance can be asked before a thorough research through CADE´s jurisprudence. However, any research may have its problems and it is not clear what will happen if a certain research does not present a decision that CADE may understand as fundamental.

Another point that must be reported says that the request for guidance cannot refer to a purely hypothetical issue. This may be a somewhat tricky question because CADE may understand that a question that is not under practice is hypothetical (which, in a way, it may be). It is not clear what can happen if, e.g., a party asks whether it is legitimate to have certain contacts with competitors and, if the conduct is approved by CADE and the party does not perform it due to a further strategic and/or commercial decision, could the party can be punished for having submitted a request for guidance that CADE may consider hypothetical?.

The answer to the request for guidance is binding for CADE and the parties for five years, although the Resolution states that CADE can reconsider its decision, if based on new facts. So, in practice, the Resolution is really binding only for the parties submitting the request for guidance.

A last problematic article states that, if CADE understands that an already existing conduct, which is the object of the request for guidance, has the possibility of being illegal, an administrative file will be opened in order to prosecute the interested party. If the conduct is a possible cartel, a criminal file may also be opened. So, it is fundamental that, in case a party wants to make such request related to a conduct that is under way, it is advisable to stop such conduct before requesting the guidance.

Consequently, a request for guidance, in order to be in the safe side, must be related to conducts that are not being performed but are to be performed and depend on the guidance, with the additional task of demonstrating to the authorities that the request for guidance is not hypothetical.

Mauro Grinberg is a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

Connolly’s Cartel Capers: Reform the Antitrust Sentencing Guidelines for Individuals

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The Need to Reform the Antitrust Sentencing Guidelines for Individuals (continued)

by Robert Connolly

In an earlier post, I explained why I think the antitrust sentencing guidelines for individuals are in need of serious reform (here). The main defect in the current guidelines is that the primary driver of an individuals’ sentence is the volume of commerce of the conspiracy. As discussed in the previous post, under this formulation, the President of a successful bid-rigging scheme is likely to be found less culpable than a salesperson in an international company who is directed by his boss to attend cartel meetings and report back.  Also, there is very little difference in culpability under the guidelines between the CEO who initiates and commits his company to a cartel and one of his employees who he directs to go to meetings or talk to a competitor. Both are tagged with the same volume of commerce (if their temporal participation in the cartel was the same).

Besides being unfair, or rather because of this, the individual sentencing guidelines are routinely ignored by the Courts. The guidelines have been advisory since the decision in United States v.Booker.   To date, in antitrust cases, courts sentencing a defendant under the current guidelines have (I believe) always departed downward from the government’s sentencing guidelines recommendations—at least after conviction at trial.   Courts have rejected the guidelines and instead focused on the factors set forth in 18 U.S.C. Section 3553 (Imposition of Sentence)(Factors to be Considered in Sentencing.) This statute directs the court to impose a “sentence sufficient, but not greater than necessary.” In determining the sentence, the court is directed to consider various factors including “the nature and circumstances of the offense and the history and characteristics of the defendant.” The sentence should “reflect the seriousness of the offense,” and “afford adequate deterrence.” Applying these factors, courts have found departure from the antitrust sentencing guidelines warranted.

[Continued Read More…]

Connolly’s Cartel Capers: Seventh Circuit Panel to Rehear Motorola Mobility v. AU Optronics

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Seventh Circuit Panel to Rehear Motorola Mobility v. AU Optronics: A Preview of Some of the FTAIA Issues in Component International Price Fixing Cases

 by Robert Connolly 

The Seventh Circuit has decided to rehear the appeal from a judgment dismissing nearly Motorola’s entire $3.5 billion antitrust claim against foreign manufacturers of LCD panels. The Court has not yet set a schedule for the filing of supplemental briefs.

In Motorola Mobility v. AU Optronics Corp, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014)(vacated), the Seventh Circuit (J. Posner) upheld a lower court ruling dismissing most of Motorola’s damage claims from price fixing of LCD panels. The commerce at issue was LCD panels sold by defendants to Motorola’s foreign subsidiaries and incorporated into products such as cell phones. The finished product was imported into the U.S. The Court found that a damage claim based on the purchases by Motorola’s foreign subsidiaries was barred by the FTAIA. The Court held that because the price-fixed panels were sold to customers overseas, the effect on U.S. commerce was indirect, even though the price of the finished product later imported into the U.S. may have been inflated by the component price fixing.

The Motorola Mobility Court rejected the view that the component price fixing had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce. The Court noted “nothing is more common nowadays than for products imported into the United States to include components that the producers had bought from foreign manufacturers.” From this the Court concluded: “The position for which Motorola [and the U.S.] contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the world’s competition police officer,’ a primary concern motivating the foreign trade act.” The DOJ joined in the request for en banc review. Motorola Mobility involves the same LCD panel cartel that the Antitrust Division successfully prosecuted, sending many foreign defendants to prison.

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Connolly’s Cartel Capers: Plea Agreements in a Criminal Antitrust Trial

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The Proper Use of Plea Agreements in a Criminal Antitrust Trial

by Robert E. Connolly

Criminal antitrust trials occur relatively infrequently these days, so an occasional review of some of the issues that arise at trial can be useful as a refresher. Many government witnesses at a criminal antitrust trial are testifying pursuant to some type of agreement with the government. Such agreements include amnesty, immunity, non-prosecution/cooperation agreements and plea agreements. The essence of the agreement is that the witness will receive some type of benefit in the form of a reduced punishment (or immunity). In return, the witness agrees to cooperate with the government and testify at trial. If the witness does not give truthful testimony, he/she is theoretically subject to prosecution for perjury, and may also lose the benefits conferred by the agreement

A recent Second Circuit decision, U.S. v. Certified Environmental Services, Inc., No. 11-4872 (2d Cir. May 28, 2014), provides a chance to review the proper use of plea agreements at trial.   The court reversed convictions on several counts related to a scheme by defendants to violate various state and federal environmental regulations. The convictions were reversed based, in part, on the government having improperly bolstered the witness’s credibility by referring to the cooperation agreement requirement that the witness tell the truth.

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Robert E. Connolly’s Cartel Capers: Second Circuit on FTAIA to Extraterritorial Anticompetitive Conduct

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The Second Circuit Adds Its Voice to the Debate Over the Application of the FTAIA to Extraterritorial Anticompetitive Conduct

 by Robert Connolly

One of the hottest topics in cartel enforcement today is the question of how the Foreign Trade Antitrust Improvements Act of 1982 (“FTAIA”) limits the extraterritorial reach of the Sherman Act. The FTAIA applies to both governmental and private actions. On June 4, 2014 the Second Circuit offered its views on the subject in Lotes Co., v. Hon Hai Precision Industry, No. 13-2280, slip op. (2d Cir. June 4, 2014).

The Foreign Trade Antitrust Improvements Act of 1982 (“FTAIA”), 15 U.S.C. Section 6a, limits the extraterritorial reach of the Sherman Act. The Supreme Court has explained that the FTAIA initially lays down a general rule placing all (nonimport) activity involving foreign commerce outside the Sherman Act’s reach. The FTAIA then brings such conduct back within the Sherman Act’s reach provided that the conduct both (1) sufficiently affects American commerce, i.e., has a “direct, substantial, and reasonably foreseeable effect” on American domestic, import, or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful,i.e., the “effect” must “giv[e] rise to a [Sherman Act] claim.” F. Hoffmann‐La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 162 (2004) (quoting 15 U.S.C. § 6a(1), (2)).  

In Lotes, a manufacturer of UBS connectors (Lotes), alleged monopolization by the defendants of the market for UBS 3.0 connectors. Lotes alleged that the defendants breached their obligation to provide RAND‐Zero licenses to adopters of the USB 3.0 standard, which included Lotes. This, Lotes claimed, gave the defendants unlawful monopoly power over the manufacture of USB 3.0 connectors in China. While the anticompetitive conduct took place in China, Lotes’s theory was that monopoly driven price increases in USB 3.0 connectors would “inevitably” be passed on to consumers in the United States. Lotes alleged, therefore, that the monopolization conduct in China would have a “direct, substantial, and reasonably foreseeable effect on U.S. commerce.”

The Second Circuit upheld the dismissal of the complaint because Lotes did not satisfy the second requirement under the FTAIA that “such effect gives rise to a claim under the provisions of this Act.” The effect in the United States from the defendants’ alleged conduct was claimed to be higher consumer prices. But, Lotes’s injury, as a competitor of the defendants, was that it was allegedly wrongly denied a license to manufacture the connectors.  Higher U.S. consumer prices did not give rise to Lotes’s antitrust injury. In fact, Lotes’s injury predated the higher prices. Lotes’s complaint therefore was dismissed because any domestic effect caused by the defendants’ foreign anticompetitive conduct did not “give[] rise to” Lotes’s claims. 15 U.S.C. § 6a(2). Lotes at 47.

There are several other important aspects to the Lotes decision:

1) The Second Circuit joined the Third and Seventh Circuit in holding that the requirements of the FTAIA were not jurisdictional, but were substantive elements of a Sherman Act offense. The importance of this holding is obvious. Motions to dismiss under Fed. R. Civ. P. 12(b)(1) based on lack of subject-matter jurisdiction place the burden on the plaintiff to establish jurisdiction.  The plaintiff must meet its burden before discovery takes place.  Instead, because satisfying FTAIA requirements is now considered an element of the Sherman Act violation, defendants must file a motion to dismiss under Rule 12(b)(6) and all reasonable inferences will be drawn in favor of the plaintiff.

2) The Second Circuit did not reach the issue of whether the defendants’ conduct met the FTAIA “direct, substantial and reasonably foreseeable effect” requirement, but did rule that the district court used the wrong test to answer this question.The district court construed the FTAIA’s “direct effect” element to require the effect to follow “as an immediate consequence of the defendant’s activity.”   This is the rule in the Ninth Circuit. The Second Circuit, however, rejected this test. The Court adopted an alternative approach advocated by the Department of Justice and the FTC in amicus briefs. Under this more relaxed approach“the term ‘direct’ means only ‘a reasonably proximate causal nexus.’” Lotes at 35-36. The Seventh Circuit has also adopted the “reasonably proximate causal nexus” test. See Minn-Chen v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012).

While the Second Circuit did not reach the question of whether Lotes’s allegations of monopoly conduct in China met the “reasonably proximate causal nexus” the Court did note that, “This kind of complex manufacturing process is increasingly common in our modern global economy, and antitrust law has long recognized that anticompetitive injuries can be transmitted through multi‐layered supply chains.” Lotes at 43. The Court also observed that the “Supreme Court has held that claims by indirect purchasers are ‘consistent with the broad purposes of the federal antitrust laws: deterring anticompetitive conduct and ensuring the compensation of victims of that conduct.’” Lotes at 43, citing California v. ARC Am. Corp., 490 U.S. 93, 102 (1989).

3) It may be significant that the Second Circuit adopted the approach advocated by the DOJ and FTC that the “the term ‘direct’ means only ‘a reasonably proximate causal nexus’” and noted that this test may still be met even where the fixed-price product is manufactured overseas and becomes a component of a finished product that is later imported into the United States. By contrast, the Seventh Circuit recently found in Motorola Mobility v. AU Optronics, Case No. 14-8003, slip op. (7th Cir. Mar. 27, 2014) that the FTAIA’s requirements were not met where prices were fixed on LCD screens that were sold to Motorola’s overseas subsidiaries and then incorporated overseas into cell phones that were then imported into the United States. TheMotorola Court held that the fact that the purchasers of the price-fixed products were located overseas meant that the effect was not “direct.” The court, per Judge Posner, stated:

The effect on component price fixing on the price of the product of which it is a component is indirect, compared to the situation in Minn-Chem where “foreign sellers allegedly created a cartel, took steps outside the United States to drive the price up of a product that is wanted in the United States, and then (after succeeding in doing so) sold that product to U.S. customers.”

Continued at Robert E. Connolly’s Cartel Capers Blog

Connolly’s Cartel Capers “Auto Part Investigation Shifts Gears”

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Auto Part Investigation Shifts Gears

 by  CartelCapers

In the last several months, the Antitrust Division has obtained indictments of a number of Japanese executives in the auto parts investigation. This is the hallmark of an investigation that is shifting gears. For the most part, but not entirely, the Division has picked the low hanging fruit with amnesty and non-prosecution agreements. It has shaken a few trees and obtained plea agreements with individuals who received substantially reduced 5K sentences in return for the plea and cooperation. Now enters the phase where individuals are indicted, either because the Division believed they were too senior to offer 5K discounts, the Division no longer needed cooperation, or because the individual declined the invitation to come to the United States and submit to US jurisdiction. Now, the investigation enters what could be likened to the “100 Years War,” depending upon the longevity of the fugitive defendant. The hostile parties keep their respective difference, with an occasional battle fought if there is an extradition or voluntary surrender.  

Yesterday Gikou Nakajima, the highest-ranking global sales executive at Takata Corp. was indicted and charged with rigging bids for seat belts sold to various car companies.http://www.justice.gov/atr/public/press_releases/2014/306344.htm  Two weeks earlier, A Japanese executive was indicted on one count of bid rigging and also for obstruction of justice in a second count. http://www.justice.gov/atr/public/press_releases/2014/306153.htm. In April, an indictment was returned against one current executive and two former executives of Bridgestone Corp. for their roles in an international conspiracy to fix prices of automotive anti-vibration rubber parts sold in the United States and elsewhere.http://www.justice.gov/atr/public/press_releases/2014/305205.htm.  The return of indictments signals that the Division has secured sufficient cooperation from witnesses and reviewed enough documents to be confident enough in their facts to seek indictments.  The auto parts investigation has had many facets involving over many different parts. See USDOJ Chart, Auto Parts Targeted by Conspirators:http://www.justice.gov/atr/public/press_releases/2013/300969a.pdf.  As each phase of this investigation wraps up, additional indictments should be forthcoming.

What Happens Next?

Usually, nothing. The Division has foreign fugitives in most of its international cartel cases dating back to ADM. In most cases the indictments, and the defendants’ identity, are public. But, in some cases the indictment of a foreign national may be under seal. (In the 1980’s, the Philadelphia office indicted an Israeli citizen under seal and he was arrested entering the US. That saga of that case is another story.) But, typically, the Division will have a foreign fugitive placed on an Interpol “Red Notice” making travel precarious for that executive for the rest of his life. In most cases, the executives preserved by the Division for indictment are the most senior members of the company involved in the conspiracy. Foreign fugitive defendants will likely retire, fire their travel agent and stay in the home country. The Division will maintain the documents and other evidence needed to try the case should Interpol actually pick up the fugitive. (One Japanese executive was arrested in India and spent some time in an Indian prison before the India authorities decided they would not extradite him on “dual criminality” grounds.). From time to time, Division attorneys may even get false alarms—foreigners with the same or similar name as a fugitive being picked up and held for questioning. The Division will maintain the file on its foreign fugitives indefinitely because unless it is notified, it has no way of knowing if the fugitive is dead or alive.

Sentencing Guidelines Are A Huge Factor

The primary measure of culpability under the US Sentencing Guidelines is volume of commerce.  Not surprisingly, international cartels tend to press the outer boundaries of the maximum ten year prison sentence under the Sherman Act.  A look at the possible Sentencing Guidelines for a fugitive like Mr. Nakajima shows why there is strong incentive for him to say put in Japan. While these figures may be off slightly, if he were convicted of the charged indictment, he would be facing a possible prison sentence under the United States Sentencing Guidelines of 87- 108 months in jail:

 

Base Offense 2R1.1                           +12

Offense involves Bid Rigging           +1

Volume of Commerce                       +12 (based on likely commerce of more than $500,00   but less than 1 billion

Role in the Offense                           +4

Total Offense Level                           29

Guideline Range                                87 – 108 months

If a foreign fugitive voluntarily submitted to US jurisdiction and plead guilty, he would be eligible for a 3-point reduction for acceptance of responsibility with a resulting guideline range of 63-78 months. (The court would likely depart from the sentencing guidelines over the Division’s objections and impose a lesser sentence. There is, however, no guarantee that this would occur.) The longest sentence one of Mr. Nakajima’s subordinates received was 19 months. It is not likely Mr. Nakajima will ever voluntarily submit to US jurisdiction.

Extradition

 Yesterday, at an event in New York, Brent Snyder, Antitrust Division DAAG for Criminal Enforcement noted “More jurisdictions are adopting criminal antitrust statutes and what that will do is that it will make extradition easier to obtain. There are going to be fewer and fewer safe havens.” Also, the Division recently obtained what it called the “first of its kind” extradition on an antitrust charge against Romano Pisciotti, an Italian national who was involved in the marine hose global conspiracy. http://www.justice.gov/atr/public/press_releases/2014/304888.htm.  Once in the U.S., Pisciotti quickly agreed to plead guilty will serve a total of two years in prison with credit for the nine months and 16 days he was held in the custody of the German government pending his extradition.  The Pisciotti extradition has been widely covered.http://www.forbes.com/sites/mergermarket/2014/04/23/doj-flexing-muscle-on-price-fixers-worldwide/. It has been noted that Germany would not have extradited Pisciotti if he were a German citizen. But there are three main takeaways from his extraction journey that are worth repeating:

 

  • Pisciotti was indicted under seal. Foreign executives involved in a cartel who do not have some kind of agreement with the Antitrust Division may never know whether they are a fugitive
  • Pisciotti spent nine and half months in a German prison awaiting word of whether Germany would extradite him. If Interpol picks up a foreign fugitive, even if not ultimately extradited, the process can be a significant penalty in itself.
  • The Division has used the Pisciotti extradition as a platform to express its intention to work with competition agencies worldwide to shrink safe harbors for fugitives from cartel indictments.
  • To the extent that the Division is able to secure the extradition of more foreign executives to face cartel charges, the significant reductions in sentence that cooperating foreign executives receive in 5K downward departures will likely tick upward.

A Look Ahead
The country that leads the league in most executives as fugitives from US antitrust indictments is Japan. This is true overall and in the auto parts investigation. The US has not extradited any Japanese citizens for an antitrust violation. Because Japan also makes price fixing and bid rigging a criminal offense, the issue of dual criminality may not be an obstacle (though there are certain differences in the statutes of the two countries). An extradition of an executive from Japan would be an enormous development. As noted above, a Japanese auto parts executive was recently indicted on both price-fixing and obstruction. Coincidently, the first successful extradition by the Antitrust Division involved an executive indicted on both Sherman Act and obstruction charges. When I was Chief of the Philadelphia office, we indicted a British executive, Ian Norris, on both a price fixing count and three counts of obstruction. Eventually, he was extradited only on the obstruction counts. Norris was convicted on one count and sentenced to 18 months in prison. Will the Division take a page out of the same playbook here? More developments await.