The U.S. Department of Justice's Antitrust Division has continued to successfully prosecute corporations and individuals for criminal violations of the U.S. antitrust laws, i.e., cartel violations. Both companies and individuals located in Europe, Asia, Latin America and other jurisdictions may be subject to U.S. investigations and prosecution, if their conduct overseas impacts U.S. consumers. For the third year in a row, total cartel fines paid by companies and individuals to the U.S. Department of Justice exceeded $1 billion.
During the past year, the Antitrust Division, working closely with other Department of Justice enforcement divisions, FBI, and enforcers from the United States and across the world, levied significant penalties in the ongoing LIBOR investigation and criminal pleas in the ongoing Foreign Exchange investigation.2 The level of U.S. criminal fines, the broad reach of U.S. antitrust laws, and the coordination among global enforcement agencies, have made cartel issues a significant compliance topic in recent years.
Companies now understand that cartel investigations can present significant exposure and risk to their businesses, just as other major government criminal investigations do (e.g., corruption, money laundering, and other allegations of business crime).
|Source: U.S. DoJ, Antitrust Division, Criminal Enforcement Update|
Although U.S. enforcers have been at the forefront in criminal prosecutions of companies and individuals in global cartel investigations, there are several other competition agencies around the world with antitrust/cartel enforcement authority. Major jurisdictions include the European Commission (EC), individual EC member states, Canada, Japan, Korea, China, Brazil, and Australia. There are more than 300 global competition agencies worldwide.
What are the best ways to prepare and respond to these investigations? We provide below an overview of U.S. enforcement, and some practical tips for responding to search warrants.
Cartel Conduct – Price-Fixing, Bid Rigging or Market Allocation
There are several common aspects to the recent cases. Government investigations concluded that there was a business culture among competitors in which communication about pricing and customers was common.
In fact, many of these cases involved allegations of a long history of dealings and agreements reached between the competitors not to engage in price wars. These agreements were evidenced by phone calls, e-mails, and in-person meetings. In addition, government enforcers viewed there to be little to no attention to compliance with antitrust laws, even though most major jurisdictions in North America, Europe, and Asia actively enforce these laws, and the U.S. prosecutes companies and individuals criminally.
Most U.S. criminal antitrust prosecutions involve price fixing, bid rigging, or market division or allocation schemes. Each of these forms of collusion may be prosecuted criminally if they occurred, at least in part, within the past five years.
1. Price fixing: Agreeing with competitors to raise, fix, or otherwise maintain prices or discounts.
2. Bid rigging: Agreeing with competitors to at certain levels, refrain from bidding, or withdraw a bid so that a competitor's bid will be accepted.
3. Market allocation: Agreeing with competitors to divide up markets or regions, or allocate specific customers.
Proving such a crime does not require that conspirators entered into a formal written agreement. Agreements can be proven by witnesses (often employees of competing companies), suspicious bid patterns, travel and expense reports, telephone records, and business diary entries. Collusion among competitors is a "per se" violation: once established, it cannot be justified under the law by arguments that the agreed-upon prices were reasonable, the agreement was necessary to prevent price cutting, or other business justifications.
One of the most unique aspects of U.S. cartel enforcement is the Antitrust Division's Corporate Leniency Program. Under this program, the first company to report its participation in a cartel and meet cooperation requirements may avoid criminal prosecution and fines completely. There is only one company that can earn this status, and if successful, current employees who cooperate will also avoid criminal prosecution. This "first in the door" policy makes effective antitrust compliance programs more critical for companies that operate in industries in which collusion could occur.
Prosecution and Extradition of Foreign Nationals
The Antitrust Division has criminally charged numerous executives who reside outside of the U.S. The Division continues to utilize Interpol red notices to arrest indicted foreign nationals who fail to submit to U.S. jurisdiction while they are traveling abroad. As a result of this reach of U.S. enforcement and the burden of defending criminal charges, a significant number of individuals have submitted to U.S. authorities to plead guilty. Their business and personal lives are impaired when they are not able to travel to the U.S. or Europe while charges are pending, and in accepting responsibility, they may seek a reduction of jail times and criminal fines.
Prosecution of individuals is a priority in the United States. It is common for the Antitrust Division to prosecute individual executives even after the guilty plea of the company. Under U.S. laws, the maximum jail time for a cartel offense is 10 years, but the average jail sentence in past years has been approximately 25 months. The highest jail sentence in this time period has been approximately 5 years.
|Source: U.S. DoJ, Antitrust Division, Criminal Enforcement Update|
The Antitrust Division has the ability to extradite individuals from certain countries. Since 2014, the Antitrust Division secured its first ever extraditions of individual defendants from other countries on antitrust charges.
"Follow On" Civil Class Actions in the U.S., Canada, and Europe
In the U.S., once it becomes public that the Antitrust Division is investigating a cartel, it is common for private civil class actions to be filed alleging damage claims against the companies under investigation.
Plaintiffs in these actions (often individual U.S. consumers or companies) can seek trebled damages based on an alleged market overcharge or loss. The damages in these cases are in addition to any criminal fine that is levied in a government investigation. In the past, the U.S. was the primary jurisdiction in which private civil antitrust litigation would be filed, but actions are now often filed in Canada and in EC member states. New class action legislation in the UK has also made "U.S.-style" litigation possible. It is common for these damage actions to last several years.
Practical Tips for Responding to a Search Warrant in Cartel Investigations
The Department of Justice and other competition authorities may investigate cartel conduct without notice by issuing search warrants to search companies or conducting dawn raids. These "dawn raids" often include searching the U.S. offices of foreign companies or their domestic subsidiaries.
A prompt and effective response to a search warrant may make a significant difference in the company's defense in the cartel investigation. We recommend the following:
- Notify counsel immediately.
- Do not resist the search. Forcible resistance or interference with a search is a criminal offense.
- Establish a respectful and constructive relationship with the lead agent. It should be clear, however, that the company is not giving consent or waiving the ability to contest scope or execution of the warrant later.
- Obtain a copy of the search warrant and a list of all materials seized pursuant to the search.
- Request that counsel and relevant company representatives are present during the search
- Agents may seek to interview employees. It is an employee's right to consent to an interview (and have counsel present) or refuse to be interviewed. If employees are interviewed, they should provide truthful statements.
Should you be interested in further discussion of any of these topics, our K&S Antitrust attorneys are available to consult.
- About the Authors: Wendy Huang Waszmer (Partner) and Emily Chen (Associate) are members of the firm's Litigation and Antitrust Practice Group. Ms. Waszmer formerly served in various leadership and trial counsel positions in the Antitrust Division. King & Spalding's antitrust lawyers have been involved in virtually all the significant cartel cases over the past decade, including most of the major U.S. criminal cartel cases.
While these are highly confidential matters, our antitrust lawyers currently represent multinational corporations and individuals involved in cartel investigations and related civil proceedings, including representing senior executives in financial institutions and other industries.
- See U.S. Department of Justice, Spring Meeting Update, Criminal Enforcement: Milestones in Financial Industry Clean-up, available at https://www.justice.gov/atr/division-operations/division-update-2016/milestones-financial-industry-cleanup