Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel – 1st Quarter 2021
Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel – 1st Quarter 2021
A new year, a new administration in the United States, and new cartel enforcement leadership in the United Kingdom have begun. In the United States, first-of-their-kind criminal charges have been brought involving labor and wages in an industry that had previously been largely untouched by cartel prosecutors. Federal legislation will now protect whistleblower employees, thereby encouraging them to report on their company’s anticompetitive conduct. A lot has happened since we last caught up on developments in cartel enforcement. Big changes are expected. Trillions of dollars are proposed to be spent by the federal government in the name of pandemic relief, just as the U.S. Department of Justice (DOJ) has begun bringing criminal charges through its Procurement Collusion Strike Force. Let’s catch up.
Although the coronavirus (COVID-19) pandemic continued to affect much of the world at the end of 2020, the work of antitrust enforcers during the wind-down of the Trump administration, and around the globe, continued unabated. Indeed, the circumstances seemed to bring significant new scrutiny to the healthcare industry – one that had been largely untouched by cartel enforcers in the past – with three major cases announced in the past few months. In the United States, the DOJ’s Antitrust Division announced its first-ever criminal charges for wage-fixing, making good on its 2016 warning that it would treat such agreements as criminal violations and signaling more charges in the future. Swiftly thereafter, the DOJ filed criminal charges in a case involving so-called “no poach” agreements on the hiring of employees. The outgoing DOJ antitrust leaders, often criticized for low enforcement statistics over the past several years, announced that they had over $500 million in criminal penalties in 2020, a significant uptick from recent years. As the Biden administration takes office and antitrust reform takes center stage on Capitol Hill, we can expect an even greater increase in enforcement resources available to DOJ and in the number of cases and industries that will be aggressively pursued. (During the Obama administration, the DOJ filed an average of 50 cartel cases per year, while the Trump-era Antitrust Division averaged just over 20 per year.)
Below we summarize significant cartel enforcement and policy developments in recent months, including new protections for cartel whistleblowers, additional indictments in the Division’s investigations into the ready-mix concrete and commercial flooring industries, the first indictment credited to the Procurement Collusion Strike Force, charges from the European Commission in the gaming industry, and new cooperation agreements both in the United States and internationally. These updates and more are in this latest edition of the Quarterly Cartel Catch-Up.
Key Point: The new law encourages and shields private sector employees who report potential criminal antitrust violations.
On December 23, 2020, President Donald Trump signed into law the Criminal Antitrust Anti-Retaliation Act, which protects private sector employees who report criminal antitrust violations to enforcers from retaliation by their employers. The Act allows employees who believe they may be a victim of retaliation to file a complaint describing the alleged retaliation with the Secretary of Labor. If the Secretary finds in favor of the employee, the employee is then reinstated to his or her former status with back pay and interest, and also may receive compensation for any special damages sustained.
The Act supplements a series of initiatives aimed at supporting the detection, investigation, and prosecution of criminal antitrust violations. These initiatives include the launch of the Procurement Collusion Strike Force, the reauthorization of the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA) to further incentivize participation in the leniency program, and the announcement of the Division’s new corporate compliance policies. The passage of the Act also means that companies should evaluate whether their internal whistleblower policies include well-defined procedures that enable employees to report potential antitrust violations and protect employees from retaliation.
Key Point: The Division’s investigation into the Savannah, Georgia ready-mix concrete market continues with its first corporate charges. A deferred prosecution agreement (DPA) in an industry not considered to be government-regulated may signal a policy shift to allow this uncommon resolution of cartel allegations.
On January 4, 2021, the Division announced its first corporate resolution in its investigation of price-fixing and bid-rigging in the Savannah, Georgia ready-mix concrete market. The U.S. subsidiary of an international cement company was charged with one count of conspiring to fix prices, rig bids, and allocate the market for ready-mix concrete used in residential, commercial, and public projects between 2010 and 2016. To resolve the charges, the company entered into a DPA with the Division, in which it admitted its conduct, agreed to pay a $20 million penalty, and committed to cooperating with the Division’s ongoing investigation. Notably, the DPA specifically disclaimed any involvement by employees outside the Savannah market, and the Division acknowledged that the company’s senior leadership was unaware of the criminal conduct.
This corporate resolution follows the initial indictments announced in September 2020.
Key Point: In its second year of existence, the Procurement Collusion Strike Force is set to take on a larger role in the Division’s expanding efforts to prosecute government procurement-related antitrust crimes.
On October 23, 2020, the Division announced that a federal grand jury in North Carolina returned an indictment charging an Ohio-based engineering firm, Contech Engineered Solutions LLC, and its former executive, Brent Brewbaker, for their participation in a decade-long conspiracy to rig bids for aluminum structure projects funded by the United States and North Carolina Departments of Transportation. The six-count indictment, filed in the Eastern District of North Carolina, accused Contech and Brewbaker of falsely holding out Contech’s bids to be competitive and free of collusion, and of committing mail and wire fraud to carry out this scheme.
This is the first public indictment credited to the Procurement Collusion Strike Force (PCSF), which the Division formed in November 2019 to combat antitrust crimes and related fraudulent schemes that affect government procurement, grant, and program funding. Signaling that this indictment may be the first of many for the PCSF, then-Assistant Attorney General Makan Delrahim pledged that the Division will be “[redoubling its] efforts to detect and prosecute those who cheat and steal from taxpayers through collusion and fraud in government procurement.”
On November 12, 2020, the Division announced that the PCSF added 11 new national partners to the Strike Force, including nine U.S. Attorney’s Offices, the U.S. Air Force Office of Special Investigations, and the Office of the Inspector General of the Department of Homeland Security. The PCSF now includes 29 different federal partner agencies and offices investigating anticompetitive conduct in public procurement across the country. The expansion of the PCSF signals a commitment that is likely to continue under the Biden administration.
Key Point: Following the indictment of 10 industry executives, the plea agreement with Pilgrim’s Pride is the first public admission of guilt in the criminal investigation.
On February 23, 2021, the Division announced its first corporate plea agreement in its ongoing criminal investigation of the broiler chickens industry. Pilgrim’s Pride, one of the largest chicken producers in the United States, pleaded guilty to participating in a conspiracy from as early as 2012 through 2017 to fix prices and rig bids for broiler chickens sold to Kentucky Fried Chicken restaurants. As part of its plea agreement, Pilgrim’s Pride agreed to pay a criminal fine of just over $107 million. The plea agreement does not cover (carves out) four named executives who the Division previously indicted in June and October 2020. Notably, on a list filed under seal with the court, the plea agreement also carves out an unknown number of other company executives, which means that their criminal liability remains unresolved. Although Pilgrim’s Pride publicly announced a plea resolution immediately after the Division filed charges in October 2020, the plea did not become final until the parties executed the agreement on February 16, 2021, and the court accepted and formally imposed a sentence on February 23, 2021.
Key Point: The MOU underscores the Division’s commitment to cooperation and coordination with South Korea in antitrust enforcement.
On November 17, 2020, now former Assistant Attorney General Delrahim signed a Memorandum of Understanding (MOU) with the Korean Prosecution Service (KPS), represented by Prosecutor General Yoon Seok-Youl. The MOU is intended to promote cooperation and coordination in criminal antitrust enforcement and policy in both countries. This agreement, which closely resembles an earlier MOU signed by the Division and the Korea Fair Trade Commission in 2015, builds on existing partnerships between the countries’ competition authorities.
Specifically, the KPS MOU memorialized the countries’ agreement to participate in joint training initiatives, share experiences on enforcement of criminal cartel laws, share information, and give consideration to each country’s interests when conducting enforcement activities. Because information-sharing initiatives are a centerpiece of this agreement, the KPS is likely to enjoy increased access to information from leniency applications (when the leniency applicant consents) and a broadened mandate to investigate and prosecute cartels.
The significance of the KPS MOU is reflected in recent amendments to South Korea’s Monopoly Regulation and Fair Trade Act (MRFTA), which, among other changes, will allow for the regulation of information exchanges as part of cartel conduct and will double the upper limit of applicable fines. These changes are set to take effect in late 2021.
Key Point: Another executive cooperating with the Department in its ongoing investigation of bid rigging in the flooring industry suggests that there could be more enforcement actions in this industry.
On November 18, 2020, the Division announced another guilty plea in its investigation into the Chicago commercial flooring industry. Delmar E. Church Jr. pleaded guilty for conspiring to rig bids and fix prices for commercial flooring services and products in the United States. According to the plea agreement, between 2007 and 2017, Church agreed with other individuals and companies to submit complementary bids on flooring projects so that a pre-determined conspirator would win each bid. The Division alleged that, in some instances, co-conspirators directly solicited complementary bids from Church; in others, co-conspirators would make statements to each other about a need for additional bids, which was understood to be a tacit request for complementary bids. In both instances, Church or his subordinates would then submit collusive, non-competitive bids that raised the price of flooring.
The terms of Church’s plea agreement require his cooperation with the department’s ongoing investigation. His company, Vortex Commercial Flooring Inc., and co-owners/executives Robert A. Patrey Jr. and Kenneth R. Smith, have also pleaded guilty. Church, Patrey, and Smith have not yet been sentenced.
Key Point: The Division announced deferred prosecution agreements to resolve charges of fraud and anticompetitive conduct in the foreign-language services industry.
On January 19, 2021, the Division announced that Comprehensive Language Center, Inc. (CLCI), based in the Washington, D.C. area, and Berlitz Languages, Inc. (Berlitz), based in New Jersey, entered into DPAs. Under the DPAs, the companies admitted to participating in a conspiracy to defraud the United States and agreed to cooperate fully in any related criminal investigation. CLCI and Berlitz also agreed to pay a $140,000 penalty each and $56,984 jointly in victim compensation.
According to the charging documents, CLCI and Berlitz obstructed and defeated the competitive bidding for a multimillion dollar foreign-language training contract issued by the National Security Agency (NSA) in 2017. The companies facilitated the submission of false and misleading bid information to the NSA, thereby suppressing competition among legitimately qualified bidders for the contract. The charged conspiracy began as early as March 2017 and continued until as late as December 2017.
Key Point: The European Commission continued antitrust enforcement efforts in European e-commerce markets.
On January 20, 2021, the European Commission (EC) announced that it had fined Valve, owner of the online personal computer (PC) gaming platform Steam, and five publishers a total of €7.8 million for restricting cross-border sales of certain PC video games on the basis of geographical location of users within the European Economic Area (EEA). After cooperating with the EC, the five publishers received reduced fines that totaled over €6 million. Valve refused to cooperate and was fined over €1.6 million.
Beginning in 2007, game publishers asked Valve to establish geographical restrictions by requiring geo-blocked Steam activation keys for approximately 100 PC video games, which were incorporated into the sale and distribution of these games in the EEA. As a result, users located outside certain countries were prevented from activating a given PC video game with a Steam activation key. After opening formal antitrust proceedings into the bilateral agreements between Valve and the five publishers in February 2017, the EC sent Statement of Objections to Valve and the publishers on their geo-blocking of PC video games in April 2019. Following the EC’s investigation, the Commission found that the decision by Valve and the publishers to partition the EEA market violated EU antitrust rules, including Regulation (EU) 2018/302, also known as the “Geo-blocking Regulation.”
Key Point: The United Kingdom is devoting increased resources to investigating and prosecuting cartel crimes.
On October 21, 2020, the Serious Fraud Office (SFO) and Competition Markets Authority (CMA) announced an MOU to govern the investigation and prosecution of criminal cartel offenses in the UK. The new memorandum expands the agencies’ 2014 agreement and provides greater detail about how the agencies will share information, resources, and enforcement responsibilities.
The CMA will retain primary responsibility for all initial criminal cartel investigations. This includes the sole authority to grant leniency, such as criminal immunity to individuals (even though the SFO retains the authority to prosecute individuals for conduct that, although perhaps related to the cartel, is sufficient to constitute a separate offense). However, under the MOU, the CMA will now refer the more serious and complex cases to the SFO. Either agency may request assistance and secondary staff from the other. Regardless of the lead agency, there is a presumption of open-exchange and information sharing. Importantly, the MOU also allows for joint investigations and, in certain circumstances, the CMA and SFO may conduct independent investigations in parallel, with the CMA conducting a civil investigation and the SFO conducting a criminal one.
Key Point: New leadership to take over the United Kingdom’s cartel enforcement efforts.
On February 8, 2021, the United Kingdom’s Competition and Markets Authority (CMA) announced that Juliette Enser will become the new Senior Director of Cartels following the retirement of the current Senior Director, Howard Cartlidge. The Senior Director of Cartels oversees all of the CMA’s cartel enforcement activity.
Enser has worked for the CMA and its predecessor body, the Office of Fair Trading, since 2010. She most recently served as the Senior Director for Subsidy Control, and she previously served as the Director of Cartel Enforcement from 2014 to 2018.
Enser will become Director as the CMA has begun to shoulder a larger role in antitrust enforcement following the UK’s exit from the European Union. In keeping with these broader responsibilities, the CMA has recently attempted to expand its capabilities to conduct cartel investigations, which include its MOU with the SFO, discussed above. This shift has already led to probes into a variety of domestic industries, including residential estate services and construction materials.