S54 Bid Collusion LTC2013

7/29/2019 S54 Bid Collusion LTC2013

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U.S. Department of TransportationOffice of Inspector General

Investigations

SA Ryan Lefort

USDOT-OIG, JRI-4 NOLA


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OIG Investigations Division

U.S. DOT and OIGs Mission Authority Role of OIG Investigations Division Investigative Regions Investigations Breakdown Enforcement Mechanism/Tools USDOT Modes Enforcement Priority Areas

Antitrust/Bid Rigging Defined Case Examples DOT/OIG Hotline Contacts


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U.S. DOTMission

Serve the United States by ensuring a fast,

safe, efficient, accessible and convenienttransportation system that meets our vitalnational interests and enhances the qualityof life of the American people, today andinto the future.


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U.S. DOT/OIG Mission

To conduct objective audits and investigationsof DOTsprograms and operations

To promote economy, effectiveness, and efficiency within DOT

To prevent and detect fraud, waste, and abuse in theDepartments programs

To review existing and proposed laws or regulations affecting the

Department and make recommendations about them

To keep the Secretary of Transportation and Congress fullyinformed about problems in departmental programs andoperations

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OIG Authority

Establishes the OIG as responsible for

conducting criminal, civil and administrativeinvestigations concerning allegations of fraudwaste and abuse against DOT programs,operations and personnel.

Establishes a Hotline Center to receive andcoordinate complaints of fraud, waste andabuse from employees and public citizens.

The Inspector General Act of 1978


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OIG Authority (contd)

Gives the Office of Inspector General

autonomy to do its work without interference.

Requires the IG to keep the Secretary ofTransportation and Congress informed of

findings.


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Role of OIG Investigations

Division

Conduct investigations of allegations and

complaints regarding fraud, waste, and abuse. Coordinate with other Federal & State law

enforcement agencies.

Refer matters for criminal and civil prosecution

or suspension/debarment action.

Conduct pro-active reviews unrelated to anyinvestigation.


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DOT-OIG CriminalInvestigative Regions

North DakotaMinnesota

SouthDakota

Wyoming

Colorado

Nebraska

KansasMissouri

Iowa

Wisconsin

Illinois

Kentucky

Indiana

(Includes Puerto Rico,

Virgin Islands)

(Includes Wake, Samoa, and Guam)

Montana

Idaho

Washington

Oregon

California

Nevada

Arizona

Utah

New Mexico

Texas

OklahomaArkansas

Louisiana

Florida

Georgia

Alabama

M

i

s

s

North Carolina

South

Carolina

Virginia

West

Virginia

Maryland

Pennsylvania

New YorkConnecticut

Mass

VermontMaine

Ohio

Rhode Island

Delaware

Alaska

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6

2

3

9 5

NH

New Jersey

Michigan

Tennessee

4Hawaii


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Enforcement Mechanism/Tools

Code of Federal Regulations (CFR 49)

IG Subpoenas Federal Search Warrant Federal Grand Jury Subpoenas Federal Criminal Code (Titles 18 and 49,

U.S. Criminal Code) Undercover Operations Consensual Monitoring


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Federal Criminal Statutes

18 USC 287/286 Criminal False Claims/Conspiracy

18 USC 371 Conspiracy to Defraud the U.S.

18 USC 1001 False Statements (including onUSDOT contracts/grants)

18 USC 1020 Highway Projects False Statements

18 USC 1341 Mail Fraud

18 USC 1343 Wire Fraud

18 USC 1519 Obstruction of Justice

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Federal Criminal Statutes

18 USC 201 Bribery 18 USC 207 & 208 Conflict of Interest

18 USC 209 Gratuities 18 USC 641 Theft of Government Property 18 USC 666 Theft or Bribery Concerning Programs

Receiving Federal Funds 18 USC 1505 Obstruction of Proceedings before an Agency

or Department

18 USC 1510 Obstruction of Criminal Investigation 18 USC 1516 Obstruction of a Federal Audit (must be of

program receiving more that $100K)

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USDOT Modes

Federal Aviation Administration

Federal Motor Carrier Safety Administration

Federal Highway Administration

Federal Railway Administration

Federal Transit Administration

Maritime Administration National Highway Traffic Safety Administration

Saint Lawrence Seaway Development Corporation

Research and Special Projects Administration


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Enforcement Priority Areas

Transportation Safety Aviation Safety and Security Motor Carrier Safety

HazMat Violations Contract & Grant Fraud DBE Fraud Anti-Trust Bid Rigging Procurement Integrity Act Violations Qui Tams

Employee Integrity Other Investigations

Consumer Fraud HHG Investigations Motor Fuel Tax Evasion Congressional Requests Computer Fraud Odometer Rollback Fraud Gray Market Vehicle Fraud


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Shared Roles in

Fraud Detection and Investigation

State or Local Engineers and Inspectors

Front Line

Observe fraud indicators

Listen to disgruntled employees

Report concerns to FHWA and/or OIG

OIG Special Agents

Interview witnesses, obtain and analyze documents andother physical evidence, and present facts to Federalprosecutor

Assistant U.S. Attorney

Assess case facts and prosecute cases when warranted

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Common Goal in Fraud Detection

and Investigation

Most contractors, LADOTD personnel,

FHWA personnel, and OIG Special Agentshave the same overall objectives To spend the limited transportation $$$$ to improve roads and

bridges

Not to line the pockets of the small % of unscrupulous

contractors To remove the bad apples from the transportation

construction industry

Criminal/civil prosecution, suspension/debarment

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Common Types of DOT Fraud Schemes

Bid Rigging and Collusion (Antitrust)

Materials Overcharging Time Overcharging

Product Substitution

DBE Fraud

Quality Control Testing Fraud

Kickbacks

Bribery

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What is Antitrust?

Main Entry: antitrust

Pronunciation:"an-ti-'tr&st, "an-"tI-

Function: adjective

: of, relating to, or being legislation against or

opposition to trusts or combinations; specifically

: consisting of laws to protect trade andcommerce from unlawful restraints and

monopolies or unfair business practices

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The Sherman Act, 15 U.S.C. 1

Every contract, combination, in the form of a

trust or otherwise, or conspiracy, in restraint oftrade or commerce among the several States, or

with foreign nations, is declared to be illegal [a

violator] shall be deemed guilty of a felony, and,

on conviction thereof, shall be punished by a finenot exceeding $100 million if a corporation, or if

any other person, $1 million, or by imprisonment

not exceeding ten years.

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Additional Statutes

General Fraud

Mail Fraud, 18 U.S.C. 1341

Wire Fraud, 18 U.S.C. 1343

Crimes of Other Principals

Aiding and Abetting, 18 U.S.C. 2

Conspiracy to Defraud, 18 U.S.C. 371

Fraud Against the Federal Government

Bribery of a Public Official , 18 U.S.C. 201

False Claims Against the Government , 18 U.S.C. 287

Tax Fraud , 26 U.S.C. 7201 Theft/Bribery on Federally Funded Programs, 18 U.S.C. 666

Crimes Relating to Hindering an Investigation

Perjury , 18 U.S.C. 1621

Subornation of Perjury , 18 U.S.C. 1622

Obstruction of Justice , 18 U.S.C. 1503

False Statements to the Grand Jury , 18 U.S.C. 162319


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Who Investigates?

U.S. Department of Justice

U.S. Department of Transportation-OIG Federal Bureau of Investigation

State Attorneys General

Often Joint Investigations

Other Countries

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Criminal Antitrust Offices

Field Offices

Chicago New York

Dallas

San Francisco

National Criminal Enforcement Section(NCES) Washington, DC

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Antitrust Criminal Prosecutions by

Industry

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50

51

65

68

165

195

668

0 200 400 600 800

Food Brokers

Utilities Construction

Chemicals

Graphics Displays

School Milk

Electrical Contracting

Road Building

Number of Defendants


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Investigations into Antitrust

Antitrust Violations

Identifiers Case Examples

Investigative Practices and Techniques

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Collusion

Conspiracies are often lengthy

The result is overcharging, higherprices, and limited competition

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Elements of a Sherman Act

Violation

Agreement

Interstate Commerce

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Criminal Violations

Acts that are considered illegal agreements

Price Fixing Market Allocation

Bid Rigging

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What is Price Fixing?

Agreement to raise, lower, or maintain prices

Agreement not to negotiate on price Agreement to limit discounts, rebates, or

promotions

Agreement on price formulas or guidelines

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What are Market Allocation

Schemes?

Any agreement not to compete for specific:

Territories Customers

Products

Volume

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What is Bid Rigging?

An agreement to rotate bids

An agreement to submit complementary orinflated bids

An agreement not to bid or engage in bidsuppression

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Bid Rigging & Collusion

Definition

Contractors misrepresent that they are competing against each other

when, in fact, they agree to cooperate on the winning bid to increasejob profit.

Example

Three asphalt-paving contractors agreed at the beginning of theconstruction season on which company would win each job. Theythen shared winning bids by telephone immediately in advance of

electronic bidding, so the other two contractors could ensure their bidswere higher than the winning bid.

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Sources of Antitrust Cases

Employees

Contracting Officials Competitors

Self reporting under the DOJ AmnestyProgram

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The DOJ Corporate Leniency Program

(a/k/a The Amnesty Program)

Unlike immunity, it provides protection forcorporations

Open to one corporation per conspiracy

Requires full cooperation

Requires a commitment to pay civil restitution

Cannot be the organizer of the conspiracy Agrees to terminate its participation in the

illegal conduct

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The DOJ Corporate Leniency Program

(a/k/a The Amnesty Program)

NO CRIMINAL PROSECUTION!!!

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Two Types of Amnesty:

No Open AntitrustInvestigation

Amnesty almostautomatic

Includes all officers,directors, and

employees whocooperate

Open AntitrustInvestigation

Amnesty is discretionary Open to the first

company that comesforward

Could not otherwise

sustain a conviction Not unreasonable

Individual immunity is notautomatic

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Some things to look for

What is the bidding history? Trends? Is there competition?

Does the contractor subcontract a substantial portionof work which they would normally perform?

Are there identical line items amongst competitors?Why?

Are there identical misspelled words amongcompeting bids?

If a search is conducted of the companys bid files, isthere supporting documentation of its number? Howdid the company arrive at the bid number?

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The Conspiracy

Antitrust violations require an agreement tocollude, not the actual act.

The agreement is the crime.

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The Complementary Bid

The participants agree to submitcomplementary bids in an effort to providethe appearance that there was competition.

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Case Example: Vinton et al

Company executives from Vinton Construction,Streu Construction, and an area manager from

James Cape & Sons (unbeknownst to hisemployer) agreed to rotate bids and submitinflated bids on projects totaling over $100million.

The illegal activities spanned several years.

By engaging in a bid rotation and acomplementary bid scheme, the trio gave the falseperception of competition.

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How it all began

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Cape & Sons that it suspectedone of its employees wasengaged in some kind of illegalactivity

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Based upon limited initial information, the FBIattended a bid workup session at JamesCape & Sons in a covert capacity.

After observing furtive activities on behalf ofthe employee, the FBI confronted him.

Upon being confronted, the employeeinformed the FBI of a scheme to rig bids andagreed to co-operate with the Government.

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The FBI notified the U.S. Department ofJustice Antitrust Division (DOJ ATR) andU.S. Department of Transportation Office ofInspector General.

A joint investigation began examining the

methods used, contracts affected, and theon-going conspiracy.

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Methods used by the players

The co-conspirators would talk via phone,cell phone, Nextel direct-connect, and inperson.

When talking over the phone, the co-conspirators would talk in code.

Additionally, in person meetings occurred todiscuss who wanted what projects.

What the co-conspirators did not expect was federal agents were there too

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On several occasions the participants of thescheme met at various locations to discussand agree upon what companies wouldreceive certain projects.

Including a situation at the Holiday Innparking lot in Fond Du Lac, WI.

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Upon learning of what was planned for the (then)upcoming January 13, 2004 bid letting, several

plans were put into action

It was determined to initially let the riggedbids go through to WisDot and notify them

the morning of the letting. At the same time the letting occurred, DOT

OIG and FBI agents conducted simultaneoussearch warrants at Vinton Construction and

Streu Construction locations. DOT OIG and FBI agents also served arrest

warrants on Ernest Streu, John Streu, JamesMaples and Michael Maples.

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Streu Construction, Vinton Construction, andthe five individuals pled guilty

All were removed from bidding on Federallyfunded projects

Approximately $3 million in fines and restitution

Three defendants jailed, one home confinement

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Techniques Utilzed Extensive Market Research Bid Analysis and Trends (Bid Analysis Management System (BAMS)) Undercover Work

Informants Interviews The knowledge of bid rigging is often limited to the

executives (and estimators) of a company. Consensual Recordings Surveillance

Things to note: Where do contractors stay before lettings?

Although relationships are established long before lettings, thesharing of numbers often occurs the night before, or the day of,lettings.

Subpoenas (telephone records, credit cards, etc.) and SearchWarrants

Body Wires Computer Forensics

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Common Excuses of Conspirators

But, no one was harmed

But, the state received a lower price But, our bid was within the engineers

estimate

But, other companies could still beat us

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The Reality

Collusion always causes higher prices byreducing competition.

Reducing competition is after all thedefinition of collusion.

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Agencies involved in the case:

U.S. Department of Justice - Antitrust Division

U.S. Attorneys Office

U.S. Department of Transportation - Office of Inspector General Kent Byers, Senior Special Agent, Chicago

Office 312-353-0106; [email protected]

Federal Bureau of Investigation

Wisconsin Department of Justice - Attorney Generals Office

Federal Highway Administration - Office of Chief Counsel

Federal Highway Administration - Wisconsin Division

Wisconsin Department of Transportation

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DOT/OIG Hotline

CALL: OIG Hotline 1-800-424-9071 or 202-366-1461 E-Mail: [email protected]

Write: USDOT-OIGP.O. Box 23178

Washington, DC 20026-0178
mailto:[email protected]:[email protected]


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Contacting Us:

USDOT/OIG JRI-4

ATLANTA (Main Office):

61 Forsyth, SW 17T60

Atlanta, GA 30303

404-562-3875

ASAC Ray Sanchez

LOUISIANA (Post of Duty)504-816-3019

SA Ryan Lefort


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QUESTIONS?

S54 Bid Collusion LTC2013

Documents

Transcript of S54 Bid Collusion LTC2013