India/US Competition Laws Cartel Enforcement Competition Commission of India Cartel Training...

India/US Competition Laws Cartel Enforcement

Competition Commission of IndiaCartel Training

Washington, D.C. October 25-29, 2010

TUESDAYJames Griffin – King & SpaldingTerry Calvani – Freshfields, Bruckhaus, DeringerDavid Sharp – Nathan Associates

Cartels & AgreementsAgenda For Today

• A Comparative Primer • Relevant Statutes• Definition of Agreement• Treatment of Cartels v. Other Agreements• Treatment of Agreements Among Competitors &

Among Undertakings at Different Levels of an Industry

• Rule of Reason v. Exemptions• Investigation of Cartel Conduct

Key Statutes, Enforcement Authority, Hearing/Trade

The Competition Act, 2002 (12 of 2003)as amended by

The Competition (Amendment) Act,

2007 (39 of 2007)PREDECESSOR STATUTEMonopolies & Restrictive Trade Practices Act, 1973

The Sherman Act (1890)(15 USC

The Clayton Act (1914)(15 U.S.C.

Foreign Trade Antitrust Improvement Act (1981)

Competition Commission of India Dhanedra Kumar, Chairperson A. K. Chauhan, Director General

Antitrust Division, U.S. Department of Justice Christine Varney, Assistant Attorney General

Hearings before the CommissionCompetition Appellate TribunalSupreme Court of India

Trials in U.S. District CourtAppeals to Circuit CourtsU.S. Supreme Court

Statutory Prohibitions

Agreement in respect of production, supply, distribution…which causes or is likely to cause an appreciable adverse effect on competition in India

Competition Act §3 (1)

Contract, combination or conspiracy “in restraint of trade”

Sherman Act 15 U.S.C. § 1

Direct, substantial, reasonably foreseeable effect on US commerce

Foreign Trade Antitrust Improvements Act, 15 U.S.C.§6a

Any agreement directly/indirectly:(a) determing prices; (b) limiting or controlling production, supply,

markets…or services;(c) sharing market through allocation;(d) resulting in bid rigging or collusive bidding

presumed to have an appreciable adverse effect

Competition Act §3(3)

Illegal “per se”: price fixing, geographic, product market or

customer allocation agreement on terms/conditions of sale when among horizontal competitors

Case Law Interpretation

Does not apply to joint venture agreements if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provisions of services


Joint Ventures analyzed under a “rule of reason” weighing impact of restraints against efficiencies and net competitive benefits

Case Law Interpretation

Penalties/Exposure10% of average turnover for 3 preceeding years

or for a cartel[1]:

3 times profit or 10% of turnover for each year of continuation, whichever is higherCompetition Act §27

Fines up to $100 million on each count

15 U.S.C. §1. (Under U.S. sentencing guidelines a base fine 20 of volume of commerce, adjusted by culpability score considering various factors)

or twice the gain realized or the loss suffered by victims 18 U.S.C.§3571(d)

Fines on individuals by the Commission: rupees one lakh/day for each day of non-compliance, up to maximum of rupees ten crorePenalties by New Delhi Magistrate: up to 3 years in prison, fines up to reupees 25 crore, or both, for failure to comply with orders, upon complaint by the CommissionCompetition Act §42

Individuals fined up to $1 millionUp to 10 years imprisonment on each count15 USC. § 1

[1] Section 2 (c) defines Cartel to include an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or , trade in goods or provisions of services.

Investigation Procedure

Commission can initiate inquiry on its own motion, upon receipt of a complaint,or upon a referral from central government

Competition Act §19

If Commission is of the view that there exists a prima facie case, it shall direct the Director General to investigate and issue a report


Director General for the purpose of inquiries is vested with the powers of civil court (including interviews, examinations) besides powers to conduct

‘search and seizure’Competition Act §§ 41, 36

Antitrust Division generally empowered to enforce both criminal and civil penalties

Antitrust Division can issue “civil investigative demands” to collect evidence (not used in criminal investigations) and/or can petition a US Court to convene a grand jury

FBI assistance, court-approved search warrants and wiretaps available

Grand jury issues document subpoenas executed by Justice Department, and can hear testimony; a variety of interview and immunity techniques are available

Leniency Programs

Commission may impose a “lesser penalty” on someone who makes disclosure before DG issues his report


Cooperation must be complete, information must be “vital,” with consideration to be given to “stage” at which person comes forward, quality of information, and facts and circumstances

First applicant reduction up to 100%; second and third applicants providing “significant added value” may get reductions of up to 50% and 30%

Reg. No. 4 of 2009

Full leniency for first to come forward, and its employees if an investigation has not yet begun (unless corporation coerced others or was the originator), or if Division does not at the time have evidence likely to result in sustainable conviction and not unfair to others

and report is a corporate act, is with candor and complete, unlawful acts were promptly terminated when discovered, cooperation is complete, restitution is made [remain exposed to single damages, no trebling]

No leniency (amnesty) for later applicants

Corporate Leniency Policy, August 1993

Relevant Statutes

• Sherman Act Section 1

• Competition Act (Amendment) Of 2007

Sherman Act

• Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, …

Competition Act Prohibits Any - Agreement in respect of production, supply,

distribution…which causes or is likely to cause an appreciable adverse effect on competition in India

Competition Act §3 (1)

Any agreement directly/indirectly:(a) determing prices; (b) limiting or controlling production, supply, markets…or services;(c) sharing market through allocation;(d) resulting in bid rigging or collusive bidding

is presumed to have an appreciable adverse effectCompetition Act §3(3)

Does not apply to joint venture agreements if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provisions of services


Agreements

• Distinguishing agreements from unilateral conduct

• Identifying agreements among competitors

• Identifying vertical agreements

Agreements v. Unilateral Conduct

• Sherman Act § 1 Applies Only To Concerted Action - Not To Unilateral Conduct

• Agreement Must Be Between Two or More Independent Entities– Intra-enterprise conspiracies

• Agreement May Be Reached Under Pressure

Agreements v. Unilateral Conduct

• No written agreement/verbal communication needed to find an agreement– “evidence that tends to exclude the possibility of independent

action…direct or circumstantial evidence that reasonably tends to prove…a conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 768 (1984).

– “conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy.” Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).

– Consider if (1) “any rational motive” to join a conspiracy and (2) conduct “consistent with…independent interest.” Matsushita, 475 U.S. at 587.

Horizontal Agreements• Among competitors as competitors

• More than conscious parallel action– In self-interest only if others act similarly; contrary to

self-interest if act alone

– Legitimate business reasons to act independently

– Motive to conspire

– Lawsuits alleging an antitrust conspiracy must state facts suggesting that the conspiracy is “plausible,” not merely “conceivable” Bell Atlantic v. Twombly, 550 U.S. 544 (2007)

• Actions by trade associations

Vertical Agreements

• Among undertakings at different levels of an industry

• More needed to prove agreement than termination of wholesaler/dealer by manufacturer in response to complaints by other wholesalers/dealers

• Hub & spokes, to benefit the hub and/or spokes– U.S. v. General Motors Corp., 384 U.S. 127 (1966)– Toys “R” Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000)

Treatment of Cartels v. Other Agreements

• Neither Sherman Act nor Competition Act distinguishes between cartels and other agreements

• Sherman Act provides that all violations are criminal offenses

• Distinction in U.S. established by Supreme Court decisions since 1911– Section 1 prohibits only unreasonable restraints of trade– Unreasonable =

raises market prices

lowers total market output/quality/choice

creates/maintains/increases market power

– Only cartels subject to criminal sanctions

Treatment of Cartels v. Other Agreements cont’d

• Some types of agreements presumed to be unreasonable, based on judicial experience– Price fixing, bidrigging by competitors– Market allocations by competitors - territories, customers, market

shares, sales volumes

• Conduct per se illegal “only after considerable experience” with that type of conduct

• Other conduct considered case-by-case, under standard of reasonableness– Whether conduct’s anticompetitive effect substantially outweighs

pro-competitive effect that reasonably requires conduct to be achieved

– No consideration of social or other factors

Joint Ventures

• DOJ/FTC Antitrust Guidelines for Collaborations among Competitors

• Joint venture agreements among competitors are often pro-competitive– New products or services created– More efficient utilization of resources– Significant cost savings– Joint ventures are presumptively reviewed under the rule of reason– The “pricing decisions of a legitimate joint venture do not fall within the narrow

category of activity that is per se unlawful.” Texaco Inc. v. Dagher, 547 U.S. 1, 8 (2006)

• Competitive concerns may arise if the JV– Creates or enhances the market power of the participants– Imposes competitive restraints on the parties beyond the scope of the JV

Treatment of Horizontal v. Vertical Agreements

• Competitive Impact of Horizontal v. Vertical Agreements– Interbrand v. Intrabrand Competition

• Established by judicial precedents

Treatment of Vertical Agreements

• Unilateral v. coordinated action in vertical contexts– Refusals to deal– Discriminatory pricing

• Market power in vertical contexts

• Analysis of vertical price v. non-price agreements– Restrictions on sales/purchases

• Dual distribution arrangements– Wholesale-retail price squeezes

• Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. ___ (2009)

Rule of Reason in U.S. v. Exemptions

• U.S. rule of reason considers impact on competition

• Exemptions reflect concerns about non-competition factors and may ignore negative impact on competition

Impact on Competition• Proof of actual anticompetitive effect

– Reduction of output– Less price competition

• Market analysis– Relevant market– Market power = ability to raise/lower prices beyond that

possible with competition• Market share• Market entry barriers

– Impact of conduct on market power, competition, not on individual competitors

• Intent may indicate likely impact

Impact on Competition cont’d

• Proof of pro-competitive effects– Efficiencies– Avoidance of free-riding– Increasing output/quality/choices– Introducing new products/services– Conduct reasonably necessary to achieve procompetitive effects

or procompetitive effects outweigh anticompetitive effects

• Factors unrelated to competitive effect are irrelevant– “Under the Sherman Act the criterion to be used in judging the

validity of a restraint is its impact on competition.” NCAA v. Board of Regents, 468 U.S. 85, 104 (1984)

U. S. Exemptions

• U.S. Exemptions– Statutory– Judicial– Application

U.S. Exemptions• Statutory

– Regulated sectors• Agriculture, communications, transportation, energy, financial markets,

healthcare, insurance, sports, organized labor

– Types of conduct• R&D, production joint ventures, standards setting organizations, export

trading companies, medical training, higher education financial aid

• Judicial– Constitutional

• State action doctrine v. dormant commerce clause• Noerr-Pennington doctrine

– Implied from regulations of sectors• Filed rate/Keogh doctrine

U.S. Exemptions cont’d

• Narrowly construed

• Trend toward exemptions– Only from per se rule and treble damages

• Conduct may be found unreasonable and subject to single damages

– That are specific and narrow

Fundamental Goal of US Antitrust Law

• Protect the free market system– Protect competition– Multiple, independent buyers and sellers

• Major Concern In US - Cartel Agreements Between Competitors – Cartel Agreements are "the supreme evil of antitrust."

Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004).

Sherman Act Section 1

• “Every contract, combination… or conspiracy in restraint of trade or commerce… is declared to be illegal”

– Formal agreement not required

– Written agreement not required

– Implied Agreements

– Common Purpose or Understanding

Per Se Illegal Agreements Prosecuted As Criminal Violations In The US

• Price-Fixing Agreements Among Competitors• Bid-Rigging Among Competitors• Customer or Territorial Allocation Agreements

Among Competitors• Market Allocation/Output Restriction/Sales

Volume Agreements Among Competitors

Why Is This Important?

• Criminal Exposure

• Follow on Civil Action Exposure

Economic Analysis

32

General Types of Antitrust Analyses

• Economic antitrust analysis can be broken into two broad categories– Exclusion - firms attempt to raise prices by excluding rivals

– Exclusive dealing– Tying contracts

– Collusion (broadly defined) – firms attempt to raise prices through collaboration with rivals

– Horizontal mergers– Price fixing

33

Price Fixing

• Agreements between business rivals to sell (or buy) the same product or service at the same artificially elevated (or depressed) price

• Considered by many to be the most central element of competition economics

• Regarded with approval even by those generally skeptical of government competition policy*

• Price fixing is perhaps the most common form of collusion

* Whinston, M.D. (2006). Lectures on Antitrust Economics, p. 15.

34

Theory of Collusion - Competitive Market

P

Q

D

MC = ATC

QCOMP

PCOMP

CONSUMER SURPLUS

35

Theory of Collusion - Collusive Market

P

Q

D

MC = ATC

QCOMP

PCOMP

PCOLL

QCOLL

CONSUMER SURPLUS

CARTEL PROFITS

DEADWEIGHT LOSS

36

Theory of Collusion

• The basic theory reveals a strong incentive (i.e., profits) for firms to jointly reduce output and increase price

• But basic theory also shows a strong incentive for individual firms to cheat on the cartel

• Cheater produces extra output or lowers its price• Common “real world” defense in antitrust litigation that

actually reconciles with theory• Incentive to cheat best illustrated with a “Prisoners’

Dilemma” (duopoly) example

37

Prisoners Dilemma: Airlines Example

• American Airlines and United Airlines*

• The two compete for customers on flights between Chicago and Los Angeles

* From Perloff, J.M. (2004). Microeconomics, 3rd Edition, p, 427

38

Prisoners Dilemma: Airlines Example

Nash Equilibrium

Cartel Equilibrium

39

Classic Conditions for Cartel Success

• Concentrated industry (few firms)

• High barriers to entry

• Homogeneous product

• Inelastic demand

• No monopsony power (many small buyers)

• Mechanism to monitor cartel• Industry organization

» Gives pretext for meetings» Detects cheating

40

Duration of Cartels

• Many cartel scholars use duration to measure cartel success, but recognize it is a highly imperfect measure

• Results from the literature are mixed, due to different samples (i.e., types of cartels and time periods) observed

• But two relatively recent studies calculate the average duration at 5.4 years

• Gallo, J.C., Craycraft, J.L., Dau-Schmidt, K. and Parker, C.A. (2000). Department of Justice Antitrust Enforcement, 1955-1997: An Empirical Study. Review of Industrial Organization, 17(1).

• Levenstein, M.C. and Suslow, V.Y. (2004). International Cartels: Then and Now. Working Paper presented to the NBER Development of the American Economy Summer Institute.

41

Duration of Cartels

Distribution of Duration for Contemporary International Cartels

0

1

2

3

4

5

6

7

8

9

10

1 2 3 4 5 6 7 8 9 11 13 17 20 23

Years Duration

Numb

er of

Car

tels

Mean = 5.4

From Levenstein, M.C. and Suslow, V.Y. (2004). International Cartels: Then and Now. Working Paper presented to the NBER Development of the American Economy Summer Institute.

42

What Else Does the Literature Say?

• Cartels are more likely to form in industries where prices have been falling

• Stigler (1964)* argued that cartels are fundamentally unstable: firms agree to restrict output, then engage in secret cheating that erupts in price wars

• Modern studies indicate that cartels break up occasionally because of cheating, but biggest challenges are entry and responding to changing economic conditions**

* Stigler, G. (1964). A Theory of Oligopoly. Journal of Political Economy, 72(1).** Levenstein, M.C. and Suslow, V.Y. (2006). What Determines Cartel Success? Journal of Economic Literature, 44.

U. S. Strategies For Investigation Of Cartel Conduct

• Dedicated Resources - Top Enforcement Priority – Dedicated Cartel Units - Eight Offices Dedicated To Anti-

Cartel Enforcement

– Trained Investigators - Assigned FBI Agents

– Proactive Outreach To Assist In Detection (Public and Private Sectors)

• Treat Cartels As Crimes & Members As Criminals– Holding Individuals Responsible - Greatest Deterrent

– Some Avoid Extending Conduct To US

– Cartels Thrive When They Are Under Punished

U. S. Strategies For Investigation Of Cartel Conduct (Continued)

• Reward Cooperation - Penalize Failure To Take Responsibility– Secret Nature Of Cartels = Need For Cooperation From Participants

Trained Investigators - Assigned FBI Agents– Inducing Cooperation By Effective Leniency Policy– Significant Rewards For Second In– Significant Punishment For Those Who Do Not Accept Responsibility

• Maximize Transparency & Predictability– Cooperation Results From Predictability & Certainty– Undertakings Need To Know Standards For:

• Opening Hard Core Cartel Investigations• Bringing Charges• Calculating And Imposing Penalties

• Protect Integrity Of Investigations – Vigorous Prosecution of Obstruction


• Reward Cooperation - Penalize Failure To Take Responsibility– Secret Nature Of Cartels = Need For Cooperation From Participants

Trained Investigators - Assigned FBI Agents– Inducing Cooperation By Effective Leniency Policy– Significant Rewards For Second In– Significant Punishment For Those Who Do Not Accept Responsibility

• Maximize Transparency & Predictability– Cooperation Results From Predictability & Certainty– Undertakings Need To Know Standards For:

• Opening Hard Core Cartel Investigations• Bringing Charges• Calculating And Imposing Penalties

• Protect Integrity Of Investigation Through Prosecution of Obstruction


• Cooperative Relationships With Other Law Enforcement Agencies– Public Prosecutor - Even If Cartel Violation Is Civil/Administrative– Domestic Investigative Agencies - Police– Government Procurement Officials– Foreign Competition Authorities

• Investigate Related Offenses As Well As Cartel Offense– Source of Leads & Inducements To Cooperate– Examples - Kickbacks/Bribery To Public Or Private Procurement

Officials; Tax Offenses For Failure To Report Bribery Income• Engage In Public Advocacy

– Proactive Steps To Change Public & Corporate Perception of Hardcore Cartels

– Advocate Strong Anti-cartel Deterrent Message Media, Business Groups, Consumer Groups, Government Agencies, & Defense Bar

– Outreach To Help Others Identity & Report Hardcore Cartel Conduct

Cartel Detection/Case Initiation Investigative Strategy

Electronic & Digital Evidence Interview Techniques

48

Detection & Case Initiation

49

Cartel Detection – Reactive Methods

• Customer Complaints

• Whistleblowers

• Informants

• Disgruntled Employees

• Leniency Applicants

50

Cartel Detection – Pro-Active Methods

• Education & Outreach

• Internal Agency Education

• Procurement Agencies

• Financing Agencies (e.g., A.I.D.)

• Liaison with other Competition Agencies

51

Monitoring

Trade Press/Internet– Allegations of Bid Rigging or Market Allocation– Statements about market trends, industry

leadership, rationalization– Publicized statements of cooperation– Speculation about trends, capacity

shutdowns, pricing, etc.

Conventions– Materials & Speeches– Anonymous Attendance

52

Economic and Source Analysis

• Review of Economic Literature

• Investment Bank Reports

• Internet Reports

• Government Reports

• Procurement Analysis

• Merger filings

53

Factors that Increase Cartel Potential

Industry Characteristics– Few firms, high entry barriers, similar costs, active trade

associations– geographic proximity, over capacity

Product Characteristics– complex or homogenous? Commodity?

Market Factors– stable or declining demand, market transparency, mature or low

growth– inelastic demand

54

“Red Flags”

• Prices, discounts, rebates are similar or identical

• Duplicative complex structures

• Unexpected or unjustified increases, different suppliers raising prices at same time, price changes out of step with cost inputs or complementary products

• Price changes suggesting leader/follower activity

• Range of quotes suddenly narrows or discount structures change suddenly

• Structural changes in marketing, changes in distribution patterns

55

“Red Flags” – Bidding Situations

• Bidders wait until last minute

• Bidders meetings on or close to due date

• Bids higher than expected; similar structure or calculations

• Expected bidder fails to bid without explanation

• Successful bidder subcontracts out to losing bidders

• Successful bidders appear to rotate

• Presence of a “maverick”; bid structure changes or drops when new bidder bids

56

Handling of ComplaintsCourtesy & Respect, Prompt Response, Confidentiality

Assesment– Credibility, accuracy, level of detail

– Nature of complainant, “axe to grind”?

– Corroboration, other witnesses

– Possible extent/seriousness of activity

– Previous or similar complaints

57

Internal Review: Making the “Business Case”

• Description of parties, factual background

• Nature of Violation

• Markets (product, geographic), volume of commerce

• Duration of conduct, prior violations

• Nexus between conduct and violation

• Parties Harmed, Extent of Commerce

58

Internal Review: Making the “Business Case”

(cont’d)• “Theory of the Case”; simple/complex; how will it play?

• What should investigation achieve? How should it be done?

• Design of Techniques; Leniency; Resources needed, Expenses

• Plan, milestones, objectives

• Deterrence, Recidivism

• Time Frame of Investigation & Prosecution

• Alternative means to address ?

59

Investigative Techniques

60

The Search – Introductory Basics

Premises to be searched– Location, surroundings, entry/exit, floor plans

Type of material to be seized

Information technology used

Profile of those present– Organizational roles (marketing, production, financial)– Criminal records, firearms, level of resistance

Timing and coordination with other searches

61

Determining Search Team Composition

Duration of offense, scope of documents

Number of custodians, size of premises

Language issues

IT expertise required

Perceived role in the cartel; degree of resistance anticipated

Need for a Team Leader– Supervision, communication, privilege claims, secure premises

62

Pre-Search Briefing: Preparing the Team

Team composition, leader, chain of command

Mechanics: Phone numbers, labels, boxes, etc. assembly spots

Overview of alleged conduct; nature of offense; nature of industry

Names of Individuals & Businesses involved– Positions, Roles in Conduct, Kinds of files they may have

Description & Layout of premises; Type of Evidence sought– Warrant → Crib sheet → Key words

63

Basic Information to ObtainHow prices are determine: price list, bids, discounts, sale-by-sale negotiation,

etc.

How are customers told about price changes

Which employees have responsibilities for setting prices/bids

Who are their secretaries or administrative assistants

Travel/Expense/Personnel Records/Calendars/Correspondence (including electronic) of individuals responsible for prices/bids

Files relating to pricing, bidding, etc.

Identity of major customers

64

Basic Information to Obtain (cont’d)

Identity of competitors and any competitors with which company also has a customer/supplier relationship

Documents and Information relating to:– all price changes - contemplated and/or adopted– all bid proposals - contemplated and/or submitted– customer complaints regarding pricing/bids/terms of sale– contacts with competitors– Trade Association membership; identity attending employees – Company strategic and/or annual plans

Company financial documents

65

The Importance of Notes

Time of entry, identification of search officers, authorization

Chain of custody

Locations searched, filing system description

Notes of discussions and interviews

Dealing with privilege and other claims

66

Best PracticesPreserve the element of surprise

Document your Authorization, furnish copy of search warrant

Courtesy & Professionalism

Address, but Minimize, Requests for Delay

Securing the premisesAccompanying individuals Limiting Entry/ExitLimiting Access Warnings about ObstructionUnplugging shredders, computers Briefcases, purses, wastebaskets

67

Coding & Document Identification

Alpha-numeric identifiers

Use of Indices

Affidavits and authentication

Continuity of Possession

Security of Possession

Receipts

68

Electronic & Digital Evidence

69

Importance of Electronic Evidence

Some information has not existed, nor will it ever exist on paper– E-mails, Spreadsheets

Some information in hard copy destroyed

Hard Copy information is limited to the content– Prior drafts– Meta data

70

Capacity Building: Training & Development

Need for Specialist Staff and/or Reputable Outsourcing

Basic training for all staff

Certified Computer Examiner Training

Common Protocol & Shared Training with Other Agencies– ENFI: European Network of Forensic Science

Institutes– DG Comp Training Programmes

71

General Principles of Electronic Discovery

Collect within the law (privacy, legality)

All involved officers must know procedures

Security & Integrity: proper collection/storage

Authentication (chain of custody)

Up to date forensic software, Auditing of Same

Log Every Action

Use Established Norms

72

Pre-Search Preparation - Information

All available information about– Companies’ computer systems & infra

structure– Companies’ Case-Related Employees, IT

Staff– Location of the Server, off site data storage

Anonymous web access

73

Physical Preparation

All collection media forensically wiped & formulated

All search software updated; all hardware validated & functioning properly

Search team fully up to date and proficient

IT contact person & trouble shooter on site or available

Key targets and locations identified

74

Procedures at the SearchSingle team leader command and control

Company reps should be present, but supervised

Gain cooperation of IT administrator

Operating manuals, service records

Do not turn on hardware

Look for presence of wipe software

Do not overlook fax software & copiers, offsite servers, archives

75

Processing & Analyzing

Pre-determined queries– Search key words, file attributes

Use information from informants and witnesses to formulate

Use information from the paper documents

76

Interview Techniques

77

Preparation for the Interview

As much information as possible (documents, reports, articles)

Know theory of the case, defined objectives of interview

Know your interviewee– Position, status in industry, education, criminal record?– Fact witness or potential target?– Incrimination/immunity issues?

Interview plan: outline, documents

78

Preparation for the Interview (cont’d)

Limit your numbers: “Two’s Company, Three’s an Inquisition”– Interviewer & note taker– Who interviews?

Experience, common background/.rapport, prior contact– Possibility that roles may switch

Where to interview?

When to interview? “Drop-in” interviews

Avoidance of third parties – esp. other possible witnesses

Rights to Counsel

79

Conducting the Interview

The Importance of First Impressions– The introduction and developing rapport

CPR: Courtesy, Professionalism, Respect

Always allow the witness to tell his or her story– Avoid interruption, avoid finishing sentences, etc.– Be prepared for a different perspective or story– Go where the interview takes you, but always return to the path– A procedure to follow even where witness is a target

80

Conducting the Interview (cont’d)

The importance of “active listening”– Summarization promotes understanding– Echoing promotes elaboration– Asking for explanations of words , phrases promotes education

Use of evidence– Documents: Authentication, explanation, elaboration, context– File memoranda; Statements

What did we miss?– The “different perspective”; the “omnibus question”

81

Conducting the Interview (cont’d)

Confrontation?– Usually best saved for the court– Is it required under procedures?

Post Interview– Transcribe/File Memo ASAP; Second Read;

Evaluate & Learn

82

The Golden Rules

CPR – Courtesy, Professionalism, Respect

“Always be Ethical”

“Be Not Afraid”

“There is no such thing as bad information”

Case Study

Case Study: Graphite Products*

• Graphite is an intermediate product used in diverse downstream industries

• Chemicals• Glass• Aerospace• Metallurgy• Semiconductors

84* While there were allegations of price fixing in various graphite product markets, the discussion below is entirely hypothetical for the purposes of this case study.


• Three U.S. suppliers of graphite products:• Company A• Company B• Company C

• Each company had 25% of the market

• Imports from China, India and other countries represented the other 25%



• Inputs to graphite production• Petroleum coke• Natural gas• Electricity• Labor


87

Graphite Case Study: Price Fixing Data

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Ap

r-93

Jul-9

3

Oct

-93

Jan-

94

Ap

r-94

Jul-9

4

Oct

-94

Jan-

95

Ap

r-95

Jul-9

5

Oct

-95

Jan-

96

Ap

r-96

Jul-9

6

Oct

-96

Jan-

97

Ap

r-97

Jul-9

7

Oct

-97

Jan-

98

Ap

r-98

Jul-9

8

Oct

-98

Jan-

99

Actual Price

Competitive Period Conspiracy Period

Cartel members claim this price increase is attributable to rising costs

Enforcement authority alleges rising costs were a pretext for additional conspiratorial price hikes

Let’s use econometrics to disentangle supply, demand, and cartel effects

88

Graphite Case Study: Binary Model Equation

• General form:price = (supply, demand, conspiracy)

• Linear form:price = α + β1(supply) + β2(demand) + β3(cartel)

Dependent Variable:The variable to be explained

Intercept:Reveals the value of the dependent variable when all explanatory variables take on a 0 value

Explanatory Variables:Aid in explaining the dependent variable

Coefficients:Measure the impact of the explanatory variables on the dependent variable

“Cartel” is a binary variable. It takes on a value of 1 during the cartel period and a value of 0 during the competitive period

89

Graphite Case Study:Ordinary Least Squares (OLS) Estimation

• Ordinary Least Squares (OLS) estimates values of α and the βs

• Not a new tool, going back in its origins to Carl Friedrich Gauss (1777-1855)

• OLS also provides tests of statistical significance (T-stats, F-stat) and goodness of fit measures (Adjusted R2)

• OLS estimation can be done with a variety of software, such as SAS® and Stata® (and even Excel®)

90

Graphite Case StudyOLS Estimation of the Binary Model

SUMMARY OUTPUT

Regression StatisticsMultiple R 0.9755R Square 0.9515Adjusted R Square 0.9494Standard Error 0.6368Observations 72

ANOVAdf SS MS F Significance F

Regression 3 541.3121 180.4374 444.9284 0.0000Residual 68 27.5769 0.4055Total 71 568.8890

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept -56.0090 19.6984 -2.8433 0.0059 -95.3166 -16.7014 -95.3166 -16.7014Supply 1.7421 0.0884 19.6994 0.0000 1.5656 1.9185 1.5656 1.9185Demand 4.3440 1.5627 2.7799 0.0070 1.2258 7.4622 1.2258 7.4622Cartel 2.0354 0.3271 6.2232 0.0000 1.3828 2.6881 1.3828 2.6881

Adj R2: Approximately 95% of the variation in price is explained by the three explanatory variables

T stats: Easy rule of thumb… if > |2|, it is statistically significant

αβ1β2β3

price = -56.01 + 1.74(supply) + 4.34(demand) + 2.04(cartel)

91

Graphite Case Study OLS Predictions & Inference with the Binary Model

• Let’s see how well it predicts prices for, say, April 1993 (i.e., the beginning)

• In April 1993, supply (costs) = $5.53, demand (index) = 12.51, & cartel= 0 price = -56.01 + 1.74(supply) + 4.34(demand) + 2.04(cartel)price = -56.01 + 1.74(5.53) + 4.34(12.51) + 2.04(0)price = -56.01 + 9.62 + 54.29price = $7.90

• Actual April 1993 price = $7.94• Error = predicted – actual = -$0.04• Direct interpretation of the cartel’s impact, in isolation

• Average overcharge during the cartel period = $2.04 per unit• Damages = the quantity sold (Q) multiplied by the average

overcharge

92

A Variant: Forecast Model

• With the forecast method we estimate the coefficients using data during the competitive period only; there is no cartel binary variable

• Use the estimated coefficients above with values for the explanatory variables during the cartel period to predict what prices would have been, but for the cartel

93

Forecast Data

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Apr-93

Jul-93

Oct-93

Jan-9

4

Apr-94

Jul-94

Oct-94

Jan-9

5

Apr-95

Jul-95

Oct-95

Jan-9

6

Apr-96

Jul-96

Oct-96

Jan-9

7

Apr-97

Jul-97

Oct-97

Jan-9

8

Apr-98

Jul-98

Oct-98

Jan-9

9

Actual Price

Estimation Period Forecast Period

Estimate the equation using prices and explanatory variables during this period only

Use that equation to forecast price during this period (i.e., the cartel period)

94

Forecast: Predicted and Actual

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Apr-93

Jul-93

Oct-93

Jan-9

4

Apr-94

Jul-94

Oct-94

Jan-9

5

Apr-95

Jul-95

Oct-95

Jan-9

6

Apr-96

Jul-96

Oct-96

Jan-9

7

Apr-97

Jul-97

Oct-97

Jan-9

8

Apr-98

Jul-98

Oct-98

Jan-9

9

Actual Price Predicted Price

Estimation Period Forecast Period

The difference between actual and predicted is damages per unit

95

Binary Model

• Advantage:• Direct estimation of the average

overcharge across the cartel period

• Disadvantage: • No pretty picture; it does not provide a

clear graphical comparison of the actual and “but for” price

96

Forecast Model

• Advantage:• Provides a clear graphical comparison of the

actual and “but for” price

• Disadvantages:• Damages calculated month-by-month (no big

deal, really)• Literature suggests that forecast models tend

to produce large confidence intervals*

* Rubinfeld, D.L. (1985). Econometrics in the Courtroom. Columbia Law Review, 85(5), pp.

1048-1097.

97

Conclusion

• Economic analysis is an integral part of competition enforcement

• Econometric analysis has also become prevalent, particularly in price-fixing cases

Cartel Remedies

How can we optimally

deter price fixing?

Fines In Criminal Antitrust CasesCan Be Enormous

Fines In The United States• Fines FY00 - FY 09 - Over $4 Billion• 75 Corporate Fines of $10 Million or more• 18 Corporate Fines of $100 Million or more• 18 U.S.C. § 3571(d) – Alternative Fine Statute

– Twice the gain – Twice the loss

Even Larger Fines In Europe• EC Imposed Fines 2004-2009 — Over €10 Billion

101

How Do We Measure Compensatory Damages?

• Damage methodologies compare the prices paid during the period of alleged wrongdoing with the “but for” price

• The “but for” price is the price that would have prevailed in the absence of (i.e., but for) the cartel

• Two general approaches• Utilizing benchmarks• Econometrics

102

Benchmarks

• “Before-during-after” approach• Examine product price before, during, and after cartel period;

difference between the cartel price and the competitive price measures the damage

• May meet objection that changes in factors other than the cartel may have produced price changes during cartel period

• “Yardstick” approach• Examine price movements of a comparable product, unaffected by the

cartel, and compare to price of the cartelized product to determine damages

• Variant examines production costs, and “cost plus” pricing determines what the price would have been absent the cartel

• “Geographic area” approach• Examine product price from a region or part of the world where the

cartel did not occur. Prices in the affected and unaffected areas are compared to estimate damages

103

Benchmarks

• Benchmarks may be fine (or necessary due to data constraints) in some cases

• But they may fail to account for other systematic factors (other than the cartel) that may have influenced price during the cartel period

• We need an approach that allows us to account for all relevant factors

104

Econometrics (Multiple Regression)

• Econometrics is the application of statistical methods to economic data

• The basic idea underlying econometrics is to build a model that accurately describes the “real world,” in equation form

• It is a technique that allows us to account for any factor (variable) thought to be potentially relevant, and have its actual influence examined

105

Econometrics (Multiple Regression)

• Each variable’s impact is disentangled from all others, allowing us to measure the isolated influence of each

• In price-fixing, the allegation is that cartel members conspired to impact the price

• With econometrics, we can measure the cartel’s impact on price, alone, net of all other influences

US: Over $4 Billion in Fines Collected Since 2000

OUR THESIS

1. General deterrence is the objective.

2. Either monetary or custodial sanctions should in theory be able to provide an appropriate level of deterrence.

3. But to do so, fines would have to be much larger.

4. Such an increase in fines is politically infeasible.

5. Only custodial sentences are likely to deter cartels.

Our stock of knowledge--

• We know a lot about the substantive law and the underlying economics because these subjects have been studied by a great many people for a great many years.

• We know much less about the role of deterrence in “white collar” crime.

Law Library

The Problem with Fines and other Monetary Payments—

1. Ceteris paribus we should prefer fines over custodial sentences.– Incarceration requires

state resources, while fines contribute to state resources.

– Incarceration is a significant restriction on human liberty.

2. But in practice, fines are insufficiently high to deter.

Thinking seriously about deterrence--

• So, shouldn’t we obtain optimal deterrence if the price fixer gives back what he or she took in the form of either fines or compensatory damages?

But this assumes we catch them all--

• Unfortunately, cartel authorities catch only a small percentage of price-fixers.

• Indeed, the evidence suggests that a majority get away. The Cartel Police at work



• The penalty must be adjusted by the probability of detection, prosecution and punishment.

JEREMY BENTHAM1748-1832

An Introduction to the

Principles of Morals and Legislation.

Recent cartel cases With international co-operation

US

EU

Vitamins $1,738,000,000

US

EU

Graphide Electrodes $649,000,000

US

EU

Lysine $298,000,000

US

EU

Citric Acid $237,000,000

US

EU

?

Air Cargo Transportation $1,513,000,000

TFT-LCD Panels $642,000,000

US

EU

?

Recent cartel cases With international co-operation

Vitamins $1,738,000,000

US

EU

European CommissionDirectorate General –

Competition

Philip LoweFormer Director-General

Neelie KroesFormer Commissioner

“Historic fines in the Vitamins Cases demonstrate the Commission’s serious commitment to fighting cartels.”


As long as we get to keep some ofthe money, price fixing is a good idea.

Problem #1: An Effective Fine May Be Too High—

Assuming• price increase of 10%,• profitability increase of 5%,• duration of 5 years, and• probability of detection of

16%

then monetary penalties would have to be in the range of 150% of annual turnover.

Wouter P. J. Wils

European Commission Legal Service

R E V I S E D

Problem #1: An Effective Fine May Be Too High—

Revised assumptions. Assuming

• price increase of 20%,• profitability increase of

10%,• duration of 5 years, and• probability of detection of

33%

then monetary penalties would have to be in the range of 150% of annual turnover.

Wouter P. J. Wils

European Commission Legal Service

Such a penalty would force a large number of companies into liquidation—with costs to:

worker redundancy,

suppliers,

communities, and

tax revenues.

Is this capital punishment for undertakings?

Problem #2: The Agency Issue—

“As agents of corporations

commit violations of

competition law, it makes

sense to prevent them

from engaging in unlawful

conduct by threatening

them directly with

sanctions and to impose

such sanctions if they

violate the law.”

Problem #2: The Agency Issue—

• Managerial incentives are often different from corporate profit maximization objectives. Bonuses and salaries associated with performance, status, business travel, and power may be more important to managers.

• Monetary penalties imposed on shareholders may not impact those individuals who actually fixed prices.

But why not fine the individuals?

Problem #3: Victims Oftentimes Pay the Fine—

British Public School Case

What about the U.S.

United States Department of Justice

Antitrust Division

United StatesDepartment of Justice Headquarters Building

OBJECTIONS TO CUSTODIAL SENTENCES—

1.Danger of false positives.

2. Incarceration is inconsistent with social and legal norms.

“They cause a transfer of consumers’ money to themselves. They are offensive and abhorrent, not simply because they are malum prohibitum but also because they are mala in se.”

Mr. Justice McKechnie

High Court of Ireland

Sir John VickersWarden, All Souls College, Oxford University

formerly Chairman & Director-General, U.K. Office of Fair Trading

“Policy for Markets and Enterprise”Address before the British Chamber of Commerce Mar. 31, 2003. T

“cartels are like theft,

criminalisation makes the punishment fit what is indeed a crime”

Hon. Joel Kleinformerly Assistant Attorney General of the United States

Price-fixers are just

well-dressed thieves.

A WORLD TOUR OF COMPETITION AGENCIES--

Where are

cartel offences

criminal?

Jurisdictions with custodial sentences—

A WORLD TOUR OF COMPETITION AGENCIES–

U.S.A.Per se illegal.

No maximum fine.

Maximum term of imprisonment—10 years.

USA Enforcement Since 2000

• 75-100 Investigations initiated each year

• 30-40 Grand Juries empanelled each year

• 30-50 cases filed each year

• 434 individuals have been charged

• 215 corporations have been chargedDATA IS THROUGH END OF 2009


CANADA

Per se illegal.

Can$ 14,000,000.



IRELANDNot per se. Article 81(3) defence.

€ 4,000,000.



IRELANDJurisdiction of the Central Criminal Court—

Murder,

Rape,

Treason, and

Price Fixing.

The Irish Central Criminal Court in The Four Courts, Dublin


U.K.Dishonesty requirement.

No maximum fine.



Others1. Brazil: 5 years of imprisonment.

2. Estonia: 3 years of imprisonment.

3. Israel: 5 years of imprisonment.

4. Japan: 5 years of imprisonment.

5. Korea: 3 years of imprisonment.

6. Russia: 7 years of imprisonment.


Others.

Some countries have criminal sanctions, but for a very limited

set of cartel offences—

Germany: 3 years of imprisonment.

France: 5 years of imprisonment.

Spain: 5 years of imprisonment.


Others.

Countries where parliaments have introduced legislation to criminalise cartel offenses—

South Africa:

New Zealand:

The reality is really quite different from what the laws might suggest!

What actually happens—

• Estonia—no one.• Russia—no one.• Ireland—no one. (All suspended.)

• Japan—no one. (6 sentences, but all stayed.)

• Korea—no one. (All suspended.)

• Canada—no one. (1 incarcerated associated with violence)

• Brazil—no one. (Sentences imposed, but on appeal)

What actually happens—

• Estonia—no one.• Russia—no one.• Ireland—no one. (All suspended.)

• Japan—no one. (6 sentences, but all stayed.)

• Korea—no one. (All suspended.)

• Canada—no one. (1 incarcerated associated with violence)

• Brazil—no one. (Sentences imposed, but on appeal)

• Israel—7 have gone to prison (9 months the longest).


U.K.

The Marine Hose Case—

3 individuals sentences to U.K. prison terms.

"Cartels are not limited to national boundaries, and our coordinated work with the European Commission and the US Department of Justice illustrates our determination to investigate international and national cartels alike."John Fingleton, OFT Chief Executive

Joint plea agreements

• Marine hose individuals – longest sentences ever for foreign nationals

• Peter Whittle (30 months, $100,000); (£649,636)• Bryan Allison (24 months, $100,000)• David Brammar (20 months, $175,000)

(£366,354)

v


U.S.A.

Per se illegal.

No maximum fine


U.S. Jail Sentences In Antitrust Criminal Cases Are Also On The Rise

• FY97 - Average Jail Sentence - 4 Months

• FY09 - Average Jail Sentence - 25 Months– January, 2009 - Four Years - Longest Sentence For

A Single Antitrust Offense

• Executives From Europe And Asia Have Served Time In US Prisons

• Maximum - 10 Years; Guidelines Amendments Effective November 2005

Sentences: Average Length in Months—

8.7 7.9

10.3

14.5

18.420.8

12.2

24.4

9.4

30.8

25.0

0

5

10

15

20

25

30

35

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Prison Days Sentenced Since 2000

SANCTIONS

• Last year the average time served by persons convicted of price-fixing was over two years in prison.

• Sentences as high as four years have been imposed, and note that there is no legibility for parole.

And this wasbefore the penalties wereincreased!

OBJECTIONS TO CUSTODIAL SENTENCES—

1.Danger of false positives.

2. Incarceration is inconsistent with social and legal norms.

3. Increase in Rights of Defence will make conviction difficult.

CONCLUSION—

• Fines do not adequately deter.• An increase in fines to an appropriate level is

politically infeasible.• Custodial sanctions are the only penalties

likely to deter.

Other Consequences

• Civil Actions– Direct Purchasers– Indirect Purchasers– Foreign Purchasers (Empagran)

• State Civil Investigations And Parens Patriae Actions• Class Actions and Opt-out Claims• Shareholder Actions• Derivative Actions• Conviction in criminal proceeding is prima facie evidence

of liability in civil cases—what’s really at issue is damages

• Debarment

Corporate Leniency Policy — A Real Incentive For Early Cooperation

• What Is It And What’s Required?– Cooperation agreement with the Government– Admission (To Government) Of Criminal Violation– Exposition of all relevant facts– Documents wherever located (U.S. or abroad)– Best efforts to provide employee cooperation

• What does company get out of it?– No criminal charges against the company—No fine– No collateral consequences from a felony conviction– No charges against cooperating executives—No jail time – Potential to de-treble civil damages

Corporate Leniency Policy — A Real Incentive For Early Cooperation (cont.)

• Part A: Automatic if no preexisting investigation– No exercise of prosecutorial discretion– Cooperating executives receive automatic amnesty if

corporation qualifies under Part A

• Part B: Alternative amnesty—available after investigation underway– Evidence not yet sufficient to sustain a conviction– Cooperating executives receive serious consideration

for lenient treatment in form of immunity or individual amnesty

Corporate Leniency Policy — A Real Incentive For Early Cooperation (cont.)

• Requirements– Not The leader or organizer and did not coerce others to

join– Upon discovery corporation took prompt and effective

action to terminate its participation in illegal activity– Where possible, corporation makes restitution to victims– Full cooperation with Antitrust Division throughout

investigation and prosecutions

• Misrepresentations of Prerequisites or Failure to Cooperate Fully– Removal from program—Subject to prosecution– Evidence provided may be used against company

Criteria For An Effective Leniency Program Inducing Companies To Self Report

The Threat of Sever Sanctions• Perceived Risks Must Outweigh Potential Rewards• Criminal Sanctions Provide The Greatest Inducement

Realistic Fear Of Detection• Strong Enforcement Record • Must Have Adequate Tools of Detection - Law Enforcement

Powers• Incentives For Individual Cooperation/Reporting• Meaningful Penalties For Obstructing Investigation

Amnesty Plus - Cartel Profiling - Proactive Strategies• Strategies That Increase The Risk Of Detection • Omnibus Question• Penalty Plus - Increase Incentives To Self Detect And Report

Criteria For An Effective Leniency Program Inducing Companies To Self Report (Cont.)

Transparency In Enforcement Policies• Standards For Opening Investigation & Conduct Subject To

Cartel Investigation/Prosecution • Standards For Bringing Charges• Prosecutorial Priorities• Sentencing & Fine Calculations• Application Of Leniency Policy - Confidence & Predictability

Best Practices In Application Of Leniency Programs

Available Prior To And After Institution Of Investigation Use Of Markers To Enhance Race To Enforcement Authority -

Reasonable Standards For Extending Time Requirement Of Full Cooperation - Employees Too Confidentiality Transparency & Certainty In Policy And Procedures For

Applying For Amnesty Parallel Systems - Cover Civil And Criminal Consequences Education - Enforcement Community - Legal Community -

Business Community Lenient Treatment For Second/Third In

Effective Antitrust Compliance Programs

• First goal—prevent the problem in the first place– Requires commitment at highest levels of company– Education and certification of compliance by executives– Appropriate employees should understand government’s view of

“red flags”– Ensure all employees know how, and are encouraged, to report

suspicious conduct without fear of retaliation

– Encouragement of reporting—hot line—no retaliation– Severe consequences for violations

• Second goal—early detection– Early end to conduct—reduces criminal exposure—fines and jail

based on volume of commerce affected– Early end to conduct—reduces civil damages

– Leniency Programs

Effective Antitrust Compliance Programs (Continued)

• General Provisions And Structure– Educate Personnel About Basic Provisions of Antitrust Law And

Establish Clear Standards Of Conduct – Educate Personnel About Enforcement Agency’s Priorities,

Policies For Destabilizing Cartels, And Severe Penalties – Creation Of Clear Procedures For Obtaining Guidance In

Questionable Situations– Effectiveness Of Program Entrusted To High Level Personal– Day-To-Day Operation Entrusted To Specific Individuals Who

Report Directly To High Level Personnel Or To The Board– Ensure That Those Previously Involved In Questionable

Conduct Are Not Responsible For Conduct Of Program– Periodic Education Programs For All Personnel Including Senior

Management


• General Provisions And Structure– Incentives To Perform In Compliance And To Report Violations – Prompt And Effective Responses To All Reports of Violations– Appropriate Disciplinary Measures For Violation (Publicize)– Monitoring & Periodic Auditing To Ensure Compliance And

Detect Violations– Evaluate Effectiveness Periodically - Particularly After Serious

Violations– Periodic Risk Assessment To Identify Potentially Problematic

Areas Or Practices And Take Corrective Action


• Specific Provisions – Education Based On Specific Common Characteristics Of Cartels– Often Brazen Direct – Nothing Subtle – Agreements– Elaborate Steps To Avoid Detection– Senior Executives Often Involved– Often Highly Concentrated Industries – But Some Exceptions – Often Large, Publicly Traded Companies Involved – Cartel Participants Often Are Recidivists – Often Develop In Industries With Excess Capacity


• Specific Provisions – Education Based On Specific Common Characteristics Of Cartels (Continued)

– Control & Allocate Sales Volumes To Ensure Adherence To Fixed

– Often Meet Under Guise Or Cover Of Trade Association Meetings

– Threats And Retaliation To Police Agreement– Compensation Schemes - End Of Year Sales – Adjustments –

To Even Out Allocated Sales And To Ensure Adherence To Agreed Sales Volume Allocation During Year

• Role Of Enforcement Agency – Educate Business/Legal Communities About Enforcement

Programs, Policies, Procedures– Advocacy – Prevent & Detect (Benefits Of Leniency Policy)

“Red Flags” Of Collusion In Government

Procurement • US Officials View The Following As Indications Of Collusion:

Small number of bidders or proposals Similarities in bids or proposals - i.e., similar handwriting, typos,

mathematical errors; Proposals sent from same location - address, email, fax, courier

account number; Last minute changes (white out, etc.) made to alter prices; Metadata that shows bids/proposals created or edited by one vendor Patterns In Project Awards

Rotation of awards among bidders Vendors winning similar volume of work Winning vendor subcontracts to unsuccessful bidders or those that could

have, but did not bid

• Other “red flags” - Bids from unqualified vendors; delivery of multiple proposals by vendor at in-person procurement; vendor statements re: competitors’ pricing or advance knowledge of outcome.

Unsolicited advice: Lessons from my tenure in Ireland—

• Deterrence is THE objective. Justice, i.e., treatment of like cases in like fashion, is not.

Common mistakes—

Focus on cases that can be

brought and won in a

reasonable period of time.

Ignore other “good” cases.



• Bring only serious cases; don’t debase the currency.

Common mistakes—

If you bring misdemeanor-type

cases you will be forever

confronting others who want similar

treatment.




• Avoid cartel cases where economics plays an important role.

Common mistakes—

At least in the early years, focus on

cases where the evidence is clear.

Avoid cases where economic

evidence is relevant.





• Staff cartel cases appropriately.

Common mistakes—

The skill sets of cartel case officers

and those who investigate other

cartel offenses are different.





• Staff cartel cases appropriately.• Immunity programs without certainty don’t work

well.

Common mistakes—

Most companies are reluctant to seek

immunity unless the program is both

transparent and certain. The agency should

not have discretion.

Case Selection Criteria - Particularly For A New Enforcement Agency

• Keep It Simple– Clear Evidence of Collusion And Knowledge of Culpability– Conduct That Public/Business Community Will View As “Wrong”– Avoid Cases Where It’s Unclear Whether Conduct Is A Cartel Or

Joint Venture– Bring Cases You Can Win - Early Losses Create Confusion

• Goal Of Case Selection Is Deterrence– Focus On Domestic Markets Where Deterrence Is Maximized

• Bid rigging on government procurement contracts

• Price fixing/market allocation in domestic heavy industries and construction trades

– Focus On Domestic Cases That Will Result In Dramatic Fines

• Create A Dedicated Cartel Team

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