India/US Competition Laws
Cartel Enforcement
Competition Commission of India
Cartel Training
Washington, D.C.
October 25-29, 2010
MONDAY
Donald Klawiter – Sheppard Mullin
Charles Critchlow – Baker & McKenzie
Chi Leng – Nathan Associates
TUESDAY
James Griffin – King & Spalding
Terry Calvani – Freshfields, Bruckhaus, Deringer
David Sharp – Nathan Associates
Cartels & Agreements
Agenda 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 STATUTE
Monopolies & Restrictive Trade Practices Act, 1973
Competition Commission of India
Dhanedra Kumar, Chairperson
A. K. Chauhan, Director General
Hearings before the Commission
Competition Appellate Tribunal
Supreme Court of India
The Sherman Act (1890)
(15 USC
The Clayton Act (1914)
(15 U.S.C.
Foreign Trade Antitrust Improvement
Act (1981)
Antitrust Division,
U.S. Department of Justice
Christine Varney, Assistant Attorney General
Trials in U.S. District Court
Appeals to Circuit Courts
U.S. Supreme Court
Statutory Prohibitions
Agreement in respect of production,
Contract, combination or conspiracy
supply, distribution…which causes or “in restraint of trade”
Sherman Act 15 U.S.C. § 1
is likely to cause an appreciable
adverse effect on competition in India Direct, substantial, reasonably
Competition Act §3 (1)
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
Joint Ventures analyzed under a “rule
agreements if they increase efficiency of reason” weighing impact of
in production, supply, distribution,
restraints against efficiencies and net
storage, acquisition or control of
competitive benefits
Case Law Interpretation
goods or provisions of services
Competition Act §3(3)
Penalties/Exposure
10% of average turnover for 3 preceeding years
Fines up to $100 million on each count
15 U.S.C. §1.
or for a
cartel[1]:
(Under U.S. sentencing guidelines a base fine 20
of volume of commerce, adjusted by culpability
3 times profit or 10% of turnover for each year of score considering various factors)
continuation, whichever is higher
Competition Act §27
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 Individuals fined up to $1 million
to maximum of rupees ten crore
Up to 10 years imprisonment on each count
Penalties by New Delhi Magistrate: up to 3 years 15 USC. § 1
in prison, fines up to reupees 25 crore, or both, for
failure to comply with orders, upon complaint by
the Commission
Competition Act §42
[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 Antitrust Division generally empowered to
motion, upon receipt of a complaint,or
enforce both criminal and civil penalties
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
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
Competition Act §26
FBI assistance, court-approved search
Director General for the purpose of
warrants and wiretaps available
inquiries is vested with the powers of
civil court (including interviews,
examinations) besides powers to conduct Grand jury issues document subpoenas
executed by Justice Department, and can
‘search and seizure’
hear testimony; a variety of interview and
Competition Act §§ 41, 36
immunity techniques are available
Leniency Programs
Commission may impose a “lesser
Full leniency for first to come forward,
penalty” on someone who makes
and its employees if an investigation
disclosure before DG issues his report has not yet begun (unless corporation
Competition Act §46
coerced others or was the originator),
or if Division does not at the time
Cooperation must be complete,
have evidence likely to result in
information must be “vital,” with
sustainable conviction and not unfair
consideration to be given to “stage” at
to others
which person comes forward, quality
and report is a corporate act, is with
of information, and facts and
candor and complete, unlawful acts
circumstances
were promptly terminated when
First applicant reduction up to 100%;
discovered, cooperation is complete,
second and third applicants providing
restitution is made [remain exposed to
“significant added value” may get
single damages, no trebling]
reductions of up to 50% and 30%
No leniency (amnesty) for later
Reg. No. 4 of 2009
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)
(b)
(c)
(d)
determing prices;
limiting or controlling production, supply, markets…or services;
sharing market through allocation;
resulting in bid rigging or collusive bidding
is presumed to have an appreciable adverse effect
Competition 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
Competition Act §3(3)
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 noncompetition 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
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
32
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
33
* Whinston, M.D. (2006). Lectures on Antitrust Economics, p.
15.
Theory of Collusion - Competitive Market
P
CONSUMER
SURPLUS
PCOMP
MC = ATC
D
QCOMP
34
Q
Theory of Collusion - Collusive Market
P
CONSUMER
SURPLUS
PCOLL
CARTEL
PROFITS
PCOMP
MC = ATC
D
DEADWEIGHT LOSS
QCOLL
35
QCOMP
Q
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
36
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
37
Prisoners Dilemma: Airlines Example
Nash
Equilibrium
38
Cartel
Equilibrium
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
39
» Gives pretext for meetings
» Detects cheating
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
40
• 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.
Duration of Cartels
Distribution of Duration for
Contemporary International Cartels
10
9
Number of Cartels
8
7
6
Mean = 5.4
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9
11
13
17
20
23
Years Duration
41
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.
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**
42
* 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 AntiCartel 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
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 Investigation Through Prosecution of
Obstruction
U. S. Strategies For Investigation Of
Cartel Conduct (Continued)
• 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
Detection & Case Initiation
48
Cartel Detection – Reactive
Methods
• Customer Complaints
• Whistleblowers
• Informants
• Disgruntled Employees
49
• Leniency Applicants
Cartel Detection – Pro-Active
Methods
• Education & Outreach
• Internal Agency Education
• Procurement Agencies
• Financing Agencies (e.g., A.I.D.)
• Liaison with other Competition
Agencies
50
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
51
– Anonymous Attendance
Economic and Source Analysis
•
•
•
•
•
•
Review of Economic Literature
Investment Bank Reports
Internet Reports
Government Reports
Procurement Analysis
Merger filings
52
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
53
“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
54
“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
55
Handling of Complaints
Courtesy & 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
56
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
57
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 ?
58
Investigative Techniques
59
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
60
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
61
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
62
Basic Information to Obtain
How 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
63
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
64
The Importance of Notes
Time of entry, identification of search
officers, authorization
Chain of custody
Locations searched, filing system
description
65
Notes of discussions and
interviews
Best Practices
Preserve the element of surprise
Document your Authorization, furnish copy of search warrant
Courtesy & Professionalism
Address, but Minimize, Requests for Delay
Securing the premises
Accompanying individuals
Limiting Access
Obstruction
Unplugging shredders, computers
Limiting Entry/Exit
Warnings about
Briefcases, purses, wastebaskets
66
Coding & Document
Identification
Alpha-numeric identifiers
Use of Indices
Affidavits and authentication
Continuity of Possession
Security of Possession
Receipts
67
Electronic & Digital Evidence
68
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
69
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
70
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
71
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
72
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
73
Procedures at the Search
Single 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
74
Processing & Analyzing
Pre-determined queries
– Search key words, file attributes
Use information from informants and
witnesses to formulate
Use information from the paper documents
75
Interview Techniques
76
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
77
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
78
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
79
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”
80
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
81
The Golden Rules
CPR – Courtesy, Professionalism, Respect
“Always be Ethical”
“Be Not Afraid”
“There is no such thing as bad information”
82
Case Study
Case Study: Graphite Products*
• Graphite is an intermediate product used
in diverse downstream industries
•
•
•
•
•
84
Chemicals
Glass
Aerospace
Metallurgy
Semiconductors
* 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.
Case Study: Graphite Products*
• 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%
85
* 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.
Case Study: Graphite Products*
• Inputs to graphite production
•
•
•
•
86
Petroleum coke
Natural gas
Electricity
Labor
* 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.
Graphite Case Study:
Price Fixing Data
$20
Conspiracy Period
Competitive Period
$18
$16
$14
$12
$10
$8
Enforcement
authority alleges
rising costs were a
pretext for
additional
conspiratorial price
hikes
Jan-99
Oct-98
Jul-98
Apr-98
Jan-98
Oct-97
Jul-97
Apr-97
Jan-97
Oct-96
Jul-96
Jan-96
Oct-95
Jul-95
Apr-95
Jul-94
Apr-94
Jan-94
Oct-93
Jul-93
Apr-93
$0
Jan-95
$2
Cartel members
claim this price
increase is
attributable to rising
costs
Oct-94
$4
Apr-96
$6
Actual Price
87
Let’s use econometrics to disentangle supply, demand, and cartel
effects
Graphite Case Study:
Binary Model Equation
• General form:
price = (supply, demand, conspiracy)
Coefficients:
• Linear form:
Measure the impact of
the explanatory
variables on the
dependent variable
price = α + β1(supply) + β2(demand) + β3(cartel)
Depende
nt
Variable:
The variable
to be
explained
88
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
“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
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®)
89
Graphite Case Study
OLS Estimation of the Binary Model
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.9755
R Square
0.9515
Adjusted R Square
0.9494
Standard Error
0.6368
Observations
72
ANOVA
df
Regression
Residual
Total
Intercept
Supply
Demand
Cartel
90
3
68
71
Adj R2:
Approximately 95%
of the variation in
price is explained
by the three
explanatory
SS
MS
F
Significance F
variables
541.3121 180.4374 444.9284
0.0000
27.5769
568.8890
0.4055
Coefficients Standard Error
19.6984
α -56.0090
1.7421
0.0884
β1
β2
4.3440
1.5627
β3
2.0354
0.3271
t Stat
-2.8433
19.6994
2.7799
6.2232
P-value
0.0059
0.0000
0.0070
0.0000
T stats: Easy rule of
thumb… if > |2|, it is
statistically
significant
Lower 95%
Upper 95% Lower 95.0% Upper 95.0%
-95.3166
-16.7014
-95.3166
-16.7014
1.5656
1.9185
1.5656
1.9185
1.2258
7.4622
1.2258
7.4622
1.3828
2.6881
1.3828
2.6881
price = -56.01 + 1.74(supply) + 4.34(demand) +
2.04(cartel)
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 + 54.29
price = $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
91
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
92
Forecast Data
$20
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)
$18
$16
$14
$12
$10
Actual Price
93
Jan-99
Oct-98
Jul-98
Apr-98
Jan-98
Oct-97
Jul-97
Apr-97
Jan-97
Oct-96
Jul-96
Apr-96
Jan-96
Oct-95
Jul-95
Apr-95
Jan-95
Oct-93
Jul-93
Apr-93
$0
Oct-94
$2
Jul-94
$4
Apr-94
$6
Jan-94
$8
Forecast: Predicted and Actual
$20
Estimation Period
Forecast Period
$18
$16
$14
$12
Actual Price
94
Predicted Price
Jan-99
Oct-98
Jul-98
Apr-98
Jan-98
Jul-96
Apr-96
Jan-96
Oct-95
Jul-95
Apr-95
Jan-95
Oct-94
Jul-94
Apr-94
Jan-94
Oct-93
Jul-93
Apr-93
$0
Oct-97
$2
Apr-97
$4
Jan-97
$6
The
difference
between
actual and
predicted is
damages
per unit
Oct-96
$8
Jul-97
$10
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
95
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*
96
* Rubinfeld, D.L. (1985). Econometrics in the Courtroom. Columbia Law Review, 85(5), pp.
1048-1097.
Conclusion
• Economic analysis is an integral part of
competition enforcement
• Econometric analysis has also become
prevalent, particularly in price-fixing
cases
97
Cartel Remedies
How can we optimally
deter price fixing?
Fines
Fines In Criminal Antitrust Cases
Can 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
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
101
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
102
• 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
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
103
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
104
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
105
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--
Law Library
• 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.
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?
Thinking seriously about deterrence--
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
Thinking seriously about deterrence--
• The penalty must
be adjusted by
the probability of
detection,
prosecution and
punishment.
JEREMY BENTHAM
1748-1832
An Introduction to the
Principles of Morals and Legislation.
Recent cartel cases
With international co-operation
Vitamins $1,738,000,000
TFT-LCD Panels $642,000,000
Air Cargo Transportation $1,513,000,000
US
?
US
EU
Graphide Electrodes $649,000,000
US
EU
?
US
EU
EU
Citric Acid $237,000,000
Lysine $298,000,000
US
US
EU
EU
Recent cartel cases
With international co-operation
Vitamins $1,738,000,000
US
EU
European Commission
Directorate General –
Competition
Neelie Kroes
Former Commissioner
Philip Lowe
Former Director-General
“Historic fines in the Vitamins Cases demonstrate the Commission’s
serious commitment to fighting cartels.”
Thinking seriously about deterrence-As long as we get to keep some of
the 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
Problem #1: An Effective Fine
May Be Too High—
Wouter P. J. Wils
European Commission Legal Service
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.
Is this capital
punishment for
undertakings?
Such a penalty would
force a large number of
companies into
liquidation—with costs to:
worker
redundancy,
suppliers,
communities,
tax
revenues.
and
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
United States
Department of Justice
Antitrust Division
What about
the U.S.
United States
Department of Justice
Headquarters Building
OBJECTIONS TO CUSTODIAL SENTENCES—
1. Danger of false positives.
2. Incarceration is inconsistent with social and legal
norms.
Mr. Justice McKechnie
High Court of Ireland
“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.”
Sir John Vickers
Warden, All Souls College, Oxford University
formerly Chairman & Director-General, U.K. Office of Fair Trading
“cartels are like theft,
criminalisation makes
the punishment fit what
is indeed a crime”
“Policy for Markets and Enterprise”
Address before the British Chamber of Commerce
Mar. 31, 2003. T
Hon. Joel Klein
formerly 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
No
se illegal.
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 charged
DATA IS THROUGH END OF 2009
A WORLD TOUR OF
COMPETITION AGENCIES–
CANADA
Per
se illegal.
Can$
14,000,000.
Maximum
term of
imprisonment—14
years.
A WORLD TOUR OF
COMPETITION AGENCIES–
IRELAND
Not
per se. Article 81(3)
defence.
€
4,000,000.
Maximum
term of
imprisonment—5
years.
A WORLD TOUR OF
COMPETITION AGENCIES–
IRELAND
Jurisdiction of the Central Criminal Court—
Murder,
Rape,
Treason,
Price
The Irish Central Criminal Court in
The Four Courts, Dublin
and
Fixing.
A WORLD TOUR OF
COMPETITION AGENCIES–
U.K.
Dishonesty
requirement.
No
maximum fine.
Maximum
term of
imprisonment—5
years.
A WORLD TOUR OF
COMPETITION AGENCIES–
Others
1.
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—
New Zealand:
South Africa:
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).
A WORLD TOUR OF
COMPETITION AGENCIES–
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
v
•
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)
A WORLD TOUR OF
COMPETITION AGENCIES–
U.S.A.
Per
No
se illegal.
maximum fine
Maximum
term of
imprisonment—10
years.
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—
35
30.8
30
24.4
25
25.0
20.8
18.4
20
14.5
15
10.3
8.7
7.9
12.2
9.4
10
5
0
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 was
before the
penalties were
increased!
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
Effective Antitrust Compliance Programs
(Continued)
• 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
Effective Antitrust Compliance Programs
(Continued)
• 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
Effective Antitrust Compliance Programs
(Continued)
• 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.
Unsolicited advice:
Lessons from my tenure in Ireland—
• Deterrence is THE objective. Justice, i.e.,
treatment of like cases in like fashion, is not.
• 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.
Unsolicited advice:
Lessons from my tenure in Ireland—
• Deterrence is THE objective. Justice, i.e.,
treatment of like cases in like fashion, is not.
• Bring only serious cases; don’t debase the
currency.
• 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.
Unsolicited advice:
Lessons from my tenure in Ireland—
• Deterrence is THE objective. Justice, i.e.,
treatment of like cases in like fashion, is not.
• Bring only serious cases; don’t debase the
currency.
• Avoid cartel cases where economics plays an
important role.
• Staff cartel cases appropriately.
Common mistakes—
The skill sets of cartel case
officers and those who investigate
other cartel offenses are different.
Unsolicited advice:
Lessons from my tenure in Ireland—
• Deterrence is THE objective. Justice, i.e.,
treatment of like cases in like fashion, is not.
• Bring only serious cases; don’t debase the
currency.
• Avoid cartel cases where economics plays an
important role.
• 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