U.S. Antitrust Criminal Enforcement: Recent Developments and Future Trends Post Realignment

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1 Are You Talking to Me? Creating, Communicating, and Administering Clear and Compelling Antitrust Compliance U.S. Antitrust Criminal Enforcement: Recent Developments and Future Trends Post Realignment Moderator: Stacey Anne Mahoney Bingham McCutchen LLP New York, NY Speakers: Danielle Clark Hewlett-Packard Washington, DC Erica Salmon Byrne NYSE Governance Services/Corpedia, an NYSE Eronext Company Denver, CO Timothy Westrick JPMorgan Chase New Albany, OH Written by: Timothy Westrick JPMorgan Chase New Albany, OH

2 INTRODUCTION In addition to civil enforcement responsibilities conducted by the Washington, D.C.-based sections 1, such as merger review and civil litigation, the U.S. Department of Justice ( DOJ ), Antitrust Division ( Division ) also handles the investigation and prosecution of criminal Sherman Act 1violations. These restraint of trade violations include the per se violations of price-fixing, bid-rigging, and market allocation conspiracies, long the responsibility of the Division s regional criminal enforcement Field Offices. It is with respect to these criminal enforcement efforts that the Division finds itself in an interesting developmental period moving forward after recent organizational and leadership changes. Towards the beginning of FY 2013, DOJ and Division leadership pushed through and essentially completed dramatic changes termed collectively as a realignment of the Division, which involved the closure of the majority of the designated Field Offices. These management decisions shuttered field offices in Cleveland, Atlanta, Philadelphia, and Dallas, leaving the field offices in New York, San Francisco, and Chicago, and a criminal unit in Washington, D.C. (the National Criminal Enforcement Section), to handle the criminal enforcement responsibilities of the Division, from initial inquiries, to grand jury investigations, and through to trials. In addition to the Division losing a number of experienced and dedicated career prosecutors, entire regions such as the Southern United States now lack a physical presence of federal criminal antitrust enforcement professionals. The regional relationships between the Field Offices and their counterparts and investigative partners (e.g., state Attorneys General; local Federal Bureau of Investigation ( FBI ) Field Offices; investigators with federal agencies including the U.S. Department of Veteran Affairs, the U.S. Department of Housing and Urban Development, the Internal Revenue Service, etc.) have historically been the source of many investigative matters and cases. Despite opposition from some lawmakers and career prosecutors in the affected areas, the realignment was arguably a fait accompli before the top Department and Division management announced the plans to the trial attorneys and support staff personnel in the criminal enforcement ranks. As the pipeline of cases originating prior to the closure of the field offices and loss of Field Office personnel begins to dry up, the next few years will be watched by many to see if the realignment has had positive results from an enforcement standpoint, or proves to be penny-wise but pound foolish as opined by some. 2 Setting aside debate on the closure of the specific Field Offices and consolidation of Division criminal enforcement efforts, it appears clear that the focus of the Division moving forward will be to do more with less, and lean towards investigations which 1 Litigation Sections I, II, and III; Networks and Technology Enforcement Section; Telecommunications and Media Enforcement Section; and Transportation, Energy, and Agriculture Section. 2 Former U.S. Representative Dennis Kucinich letter to U.S. Attorney General Eric Holder, available at

3 may yield more bang for their resources buck. Whether out of necessity (due to loss of staff and/or budgetary constraints), or the prerogatives of Department and Division leadership, this appears to be in line with the focus of criminal enforcement which has been evolving under the career leadership of the last several years described below. ENFORCEMENT TREND OBSERVATIONS As noted recently by Assistant Attorney General for Antitrust Bill Baer, since January 2009, the Division has secured approximately $4.2 billion in criminal fines and filed over 300 criminal cases. 3 Total criminal fines for Division cases for FY 2012 and 2013 detailed on the Division website each topped $1 Billion, after two years of fines just above the $500 million mark, and topping the prior high of FY Prison terms for individuals prosecuted by the Division also show an uptick to an average of 25 months during the FY 2010 FY 2013 period from an average of 20 months during the preceding decade. (Total criminal antitrust cases filed, however, have been decreasing steadily since 2011.) The bulk of these impressive fines come from a select number of matters, including the on-going and longrunning automotive parts investigation. Results of the auto parts investigation have been promoted by the Division in its releases, highlighting resulting corporate fines including: U.S. v. Yazaki Corporation, $470 million U.S. v. Furukawa Electric Company Ltd., $200 million U.S. v. DENSO Corporation, $78 million U.S. v. Fujikura Ltd., $20 million U.S. v. Tokai Rika Co., Ltd., $17.7 million U.S. v. Autoliv, Inc., $14.5 million U.S. v. TRW Deutschland Holding GMBH, $5.7 million U.S. v. G.S. Electech, Inc., $2.7 million U.S. v. Nippon Seiki Co., Ltd., $1 million. This investigation and string of cases would appear to be a seam worth continued mining by the Division, with upwards of twenty-fine companies being charged for Sherman Act violations and presumably counting. 4 3 Reflections on Antitrust Enforcement in the Obama Administration remarks to New York State Bar Association by Bill Baer, January 30, DOJ Press Releases, Aisan Industry Co. Ltd. Agrees to Plead Guilty to Price Fixing on Automobile Parts Installed in U.S. Cars at and Former President and Vice President of Diamond Electric Agree to Plead Guilty to Participating in Auto Parts Price-Fixing Conspiracy at

4 The liquid crystal display investigation, also long-running and predating the Division s field office closures, is another oft-touted case resulting in headline fines. 5 The AU Optronics case has garnered publicity in the legal realm not just for its eye-opening corporate fine of $500 million, but also for the potential clarification of the reach of the Division s international efforts to bring cartels before the U.S. Courts. AU Optronics and convicted executives have appealed their convictions, challenging both the application of the per se rule over the rule of reason analysis to determine if there was a violation, as well as the reach of the Division. Specifically, the parties, practitioners, and legal commentators await court decisions regarding how in these circumstances the Foreign Trade Antitrust Improvement Act ( FTAIA ) 6 in practice limits the extra-territorial reach of the Sherman Act. The AU Optronics appeal is currently pending before the U.S. Court of Appeals for the Ninth Circuit. 7 Historically, the Division Field Offices have had caseloads which included regional or domestic-based investigations and prosecutions, including bid-rigging or price-fixing cases involving everything from school milk contracts and road building projects to scrap metal dealers. 8 The scope and scale of these types of investigations certainly pale in comparison with the cases du jour of the last several years, in which the scope is international and the scale involves hundreds of millions of dollars in volume of commerce and corresponding fines. One on-going investigation which does call back to the former focus of the Division (i.e., smaller, regionalbased cases), is the Real Estate Auction investigation. This case, which is actually a group of subject-matter related cases, involves alleged bid-rigging and fraud at real estate and tax lien auctions around the United States. Division statements tally charges against over fifty individuals and two companies. 9 While not similar in scope to the numbers involved in the aforementioned international cartel cases, the total volume of cases, and the fact indicated by the Division statements that this is part of it s involvement in the efforts of the government s Financial Fraud Enforcement Task Force, points towards additional investigations into such localized conspiracies. One key with any string of such investigations is for the investigative bodies to know when a target-rich environment has been depleted of viable targets of enforcement, and to then work towards identifying a new area. The Division in criminal antitrust matters, like the applicable DOJ components and the U.S. Securities and Exchange Commission ( SEC ) handling FCPA matters, tend to conduct reviews which may track a particular industry (e.g., oil and gas services, health care or medical device providers) or geography (e.g., EMEA, LatAm, Africa). The 5 DOJ Press Release, Taiwan-Based Au Optronics Corporation, Its Houston-Based Subsidiary And Former Top Executives Convicted For Role In LCD Price-Fixing Conspiracy at U.S.C. 6a. 7 United States of America v. AU Optronics Corp. et al., case numbers , , and See DOJ pamphlet Antitrust Enforcement and the Consumer available at 9 DOJ Press Releases, Two Northern California Real Estate Investors Agree to Plead Guilty to Bid Rigging at Public Foreclosure Auctions at and Northern California Real Estate Investor Agrees to Plead Guilty to Bid Rigging at Public Foreclosure Auctions at

5 identification of said industries or geographies of interest for the Division may be based on various factors, including historical prevalence of anticompetitive conduct, leads, pre-existing civil antitrust litigation, or even priorities established by the Administration. As the current Division targets are depleted, the Division will need to work to place their bet on the next big thing as far as industry or market in criminal antitrust investigations. While the last two years have shown strong enforcement successes based on the total of fines, the sustainability of such numbers will have to be seen and raise various questions: Have enforcement fines reached a plateau? Will fines collected decrease as the full effects of the Division realignment become apparent and cases initiated earlier and their progeny begin to dry up? Will fines continue to increase incrementally, and if so, would such a development be based on increased enforcement, or rather, a simple function of economics, increased international trade, and inflation? This brings up some additional thought-provoking, though not necessarily original, questions on enforcement: What is the true measurement of success for government enforcement in any practice area, be it antitrust, FCPA, mortgage fraud, or healthcare fraud: Total fines and months of confinement for individuals? If an antitrust enforcement regime is being truly effective and creating a deterrent to cartel activity, shouldn t cases and fines actually decrease? Some, including Division alumni, have even proposed the theory that the ever-increasing weight of the stick in Division cases may be having a deterrent effect, not on cartel behavior, but rather, on self-reporting and cooperation. CORPORATE LENIENCY PROGRAM FOCUS The golden egg-laying goose for the Division in recent years has to a large extent been its Corporate Leniency or Amnesty program used in the detection of cartel activity, which was revamped in the 1990 s. Corporations and individuals who report their cartel activity and cooperate in the Division's investigation and meet the program s requirements can potentially avoid criminal conviction and the attendant fines and prison sentences. 10 Additionally, the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), which essentially goes hand-in-glove with the Division s Leniency program, provides for other benefits to encourage cartel members to race to the Division and put down their marker, including avoiding treble damages in the virtually inevitable follow-on civil antitrust suits. Unlike the more amorphous and uncertain benefits to self-reporting to the DOJ such as in FCPA matters, being the first in to self-report cartel activity in an antitrust matter to the Division can bring with it a more concrete opportunity to avoid any criminal charges and penalties. This higher level of certainty likely is one important factor in the success for the Division, and relative attractiveness to amnesty applicants. 10 See USDOJ ATR corporate leniency policy at

6 Arguably, the ideal case for Division criminal enforcers is an international, multi-jurisdictional cartel conspiracy brought to their attention through a self-reporting cartel member. In such a scenario, the Division is typically provided with a strong case from Day 1: inside, first person information from a co-conspirator member of the cartel; documents, statements, and access to executives and employees, both current and former; and, required ongoing cooperation from the amnesty applicant as they work to perfect their application. One of the amnesty program requirements is that the Division had not previously received information or had been actively conducting an investigation already into the activity. As such, the Division may be directed to an industry or geographic region not previously examined for anticompetitive behavior, and which may lead to additional spin-off matters and a new target for investigation. Other aspects of the Division s Leniency program can make it a gift that keeps on giving for the Division investigators. When a criminal antitrust cartel member is the first to report and put in its marker, other members of the specific cartel can still avail themselves of the Division s program. The Second-In position creates benefits both for the second-in cartel member, but also for the Division. The potential benefits for the cartel member have been detailed previously by Division officials, including reducing the scope of the affected commerce used to calculate fines, securing a substantial cooperation discount, and more favorable treatment for culpable executives. 11 The benefits to the Division attorneys working on the matter are obvious, including more accessible witnesses, more evidence, and a better understanding of additional facets of the cartel from the vantage point of a party other than the original amnesty applicant. Closely related, and sometimes one in the same, is the Amnesty Plus situation. This example involves a company which may come in second in the race for amnesty for the original cartel conspiracy, but may have information about a separate cartel (i.e., based on a different market, industry, or geography). By being first-in for the separate conspiracy, that company become eligible for amnesty in the new matter, and can reap additional credits for cooperating in the first investigation, even more than a traditional second-in party. The successes of cases generated through the Corporate Leniency program, as crafted and developed over time by former Division career personnel, will likely in fact ensure its continued use and designation as the most useful tool in the Division s toolbox. CONCLUSION 11 "Measuring the Value of Second-In Cooperation in Corporate Plea Negotiations" Scott D. Hammond, then-deputy Assistant Attorney General for Criminal Enforcement, Antitrust Division, addressing The 54th Annual American Bar Association Section of Antitrust Law Spring Meeting, March 29, 2006.

7 As noted above, the Division has had great successes in criminal enforcement efforts, especially in the last two years, when measured by the benchmarks of total corporate fines and terms of imprisonment for individuals. What will have to be seen moving forward is if such successes are sustainable in light of recent structural, staffing, and leadership changes, especially after the ultimate disposition of investigations started and cases brought when the Division had a larger stable of career prosecutors and regional Field Offices.