By Steve Thorpe
Legal News
The threat of punishment is perhaps the most useful tool for a prosecutor. But the possibility of leniency can also be a potent incentive for wrongdoers to cooperate.
A huge ongoing federal antitrust effort involving auto parts employs both.
The Antitrust, Franchising & Trade Regulation Section of the State Bar of Michigan and the Corporate Counseling Committee of the ABA Antitrust Section presented “Auto Parts and Antitrust: The Department of Justice’s Criminal Cartel Program, Investigative Techniques Employed, and Recent Developments in the Auto Parts Investigation” recently at the Detroit Athletic Club.
Deputy Assistant Attorney General Scott Hammond talked about successful cartel enforcement efforts by the Department of Justice, investigative tools and techniques employed to deter and detect cartel activity, and recent developments concerning the DOJ’s ongoing auto parts investigation.
The auto parts investigation has become the largest criminal enforcement effort ever mounted by the Antitrust Division.
“It’s the biggest in terms of the impact on U.S. consumers and in the number of companies and executives who are subjects of the investigation,” Hammond said.
Prosecutions to date have produced 12 individuals who have pled guilty and are cooperating, several who have been sentenced to jail time of up to two years. Nine companies have paid $809 million in fines, with Yazaki alone being fined $470 million.
The way the price fixing usually worked was that the automaker would issue a Request for Quote (RFQ), the conspirators would submit rigged bids with fixed prices and the contract would be awarded to one of the conspirators at collusive prices.
The DOJ got new tools over the last 15 years that included expanded search powers, new wiretap authority and additional powers for interrogating witnesses.
Congress raised the statutory maximum penalties to 10 years in jail and a $100 million fine. The department also emphasized individual accountability by asking for maximum jail sentences for responsible executives.
From 1990-99 the average sentence was eight months and from 2010-12 it was 25 months. In the same period, the department’s batting average on getting prison sentences for defendants soared from 37 percent to 71 percent.
In addition to stiffer jail sentences, fines on companies went from $107 million in 2003 to $1.1 billion in 2012.
But the most powerful tool in the investigator’s toolbox is the “leniency program.”
Under the department’s leniency program, the first company or executive to come forward with evidence of an antitrust conspiracy gets special treatment.
No charges will be filed against the company or cooperating employees and no fines or jail time will be levied. They’re also eligible for reduced exposure to civil liability.
The “winner take all” approach tends to sow fear and mistrust among the conspirators and creates a potential race between the company and its own employees to gain protection.
“The ‘race’ that has been created has really destabilized cartels,” Hammond said. “They have to ask themselves whether they can trust their competitors. I’ve heard stories about cartel meetings where, when they all arrive, there’s an empty chair. They wonder whether he’s just missed his flight, or whether he’s over at the Department of Justice.”
Once the initial evidence is gathered, Hammond said that additional wrongdoing is often uncovered creating what the investigators call “cartel trees” with common roots or intertwined branches.
Speaking of branches, the department offers an olive branch of sorts to companies that are worried that there may be wrongdoing in their internal operations or supply chain. It provides tools and incentives to companies to help conduct effective internal probes.
The success of the U.S. efforts has not gone unnoticed by other nations battling the same antitrust problems.
The International Competition Network (ICN) says that 43 countries have increased their penalties for antitrust activities and are being more aggressive in their investigations. Many have created their own leniency programs.
“Forty six nations were asked, ‘Did you change your competition laws in the last 10 years and, if so, how?’ “ Hammond said. “Forty three of the 46 jurisdictions that responded changed their laws to increase the penalties for antitrust offenses.”
So how does the DOJ know that the program is deterring antitrust violations on U.S. soil? Hammond described several joint investigations with other nations in recent years that monitored cartel activity both inside and outside the U.S. border.
“Many of the cartels were still fixing prices outside the United States, but the activity stopped at our borders,” Hammond said.
Although the leniency program has been extremely effective in encouraging wrongdoers to step forward, Hammond stressed that there was plenty of traditional police work, especially with the FBI, that helped rack up the impressive numbers.
Surveillance, wiretapping and good old-fashioned legwork all played a role. “In a videotape we created, you can see the brazenness of some of the cartel participants. There’s a knock at the door (of the meeting room) and there were people joking, ‘It’s the FBI!’ and, in fact, the waiter who enters the room actually is an FBI agent.”
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