Criminal Antitrust Update - June 2011 Document Transcript
Criminal Antitrust UpdatePATTON BOGGS LLP | June 2011 Powered by Patton Boggs Criminal Antitrust Team INDUSTRY SCORECARDIN THIS ISSUE: Energy: Recent hikes in gasoline prices have sparked concerns in theIndustry Scorecard Obama Administration. Attorney General Eric Holder has created an Oil and Gas Price Fraud Working Group to monitor oil and gas markets in anCompliance Tip: The attempt to safeguard consumers and identify potential violations of criminalForeign Corrupt Practices or civil laws, including the federal antitrust laws. Reportedly, the workingAct group will specifically look for evidence of illegal activity resulting in increased higher gas prices for consumers, such as manipulation, collusionComment: Defending aGlobal Investigation- or misrepresentations of oil and gas prices. The group will also evaluatePenalty Phase developments in commodities markets regarding investor practices, supply and demand factors, and the role of speculators and index traders in oil futures markets.If you have any questions or if Technology: In April, the U.S. Department of Justice (DOJ) approvedyou require additional Google’s acquisition of ITA Software Inc., a flight information software company, despite numerous objections from the business community. ITAinformation, please contact: licenses software that enables companies such as Orbitz and Bing Travel, to offer flight comparative search information. Other players had objected,Andrew M. Friedman202-457-5267 (Direct) claiming that the deal would effectively cede control over ITA access to202-457-6315 (Fax) Google and interfere with fair competition in the travel firstname.lastname@example.org Consequently, DOJ required Google to ensure competition in the online airfare market as a condition for approving the ITA deal. For example,Julie J. Crain Google must fund flight search software research and license travel202-457-6122 (Direct) software at a fair price.202-457-6315 (Fax)email@example.com Though many companies still worry that as a result of the acquisition, Google will monopolize the travel software market, the DOJ’s approval indicates that concerns by competing businesses were insufficient to stop the merger. In an unrelated matter, Google recently set aside $500 millionRELATED WEB SITES: for a separate DOJ investigation, reportedly related to Google’s online advertising practices and preferred customers.Patton Boggs LLP Banking Industry: The EU is investigating sixteen investment banksPatton Boggs Antitrust involved in the credit default swap (CDS) market for violations of EU competition law. According to the EU, the investigation will focus onPractice Group whether the banks conspired to hinder access to CDS transaction data and make CDS transactions less transparent. Among the banks being investigated are: JPMorgan Chase & Co., Goldman Sachs Group Inc., UBS AG and Citigroup Inc. In a separate investigation, UBS AG received a non- prosecution agreement from DOJ in which the bank acknowledged responsibility for illegal conduct by former employees. According to the non- prosecution agreement, from 2001 through 2006, UBS employees entered into unlawful agreements to manipulate the bidding process for rig bids on municipal investment contracts. UBS avoided criminal charges by cooperating with the DOJ investigation and paying restitution.
Patton Boggs LLP Criminal Antitrust Update | June 2011COMPLIANCE TIP: THE FOREIGN CORRUPT PRACTICES ACTThe Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq. (FCPA), prohibits companies from makingpayments to foreign government officials in order to obtain or retain business. Specifically, the anti-briberyprovisions of the FCPA prescribe any offer, payment, promise to pay or authorization of the payment ofmoney or anything of value to any person, while knowing that all or a portion of such money or object ofvalue will be offered, given or promised, directly or indirectly, to a foreign official in an attempt to influencethe official in his or her official capacity. This includes payments made to persuade the official to do commitor omit to do an act in violation of his or her lawful duty, or to secure an improper advantage from theofficial. As is the case with the Sherman Antitrust Act, FCPA violations can also result in severe criminalpenalties as well as imprisonment.It is becoming increasingly common for DOJ antitrust investigations to cross over into FCPA space wherethe alleged price-fixing cartels have international reach. Executives have been prosecuted for violations ofboth statutes in recent investigations. Sophisticated compliance programs should already take anintegrated approach to antitrust and FCPA training. Further, internal investigations of alleged price-fixing orbid-rigging should evaluate and pursue FCPA-related issues if red flags emerge. A thorough complianceprogram should include a clearly articulated policy against FCPA violations; a system by which employeesmay report and/or seek counsel regarding a payment to a third party; due diligence requirements relating toan employee’s ability to make payments to third parties; and periodic audits to ensure compliance andunderstanding of company policies. Payments to intermediaries or third-parties who may deal with foreigngovernment officials are often a focus of DOJ investigations and merit special attention in any complianceprogram.COMMENT: DEFENDING A GLOBAL INVESTIGATION-PENALTY PHASEOver the past decade, DOJ investigations of international price-fixing conspiracies have yielded numerousplea agreements and, increasingly, large corporate fines. The U.S. Sentencing Guidelines are an excellentfoil for this modus operandi because they allow enormous “volumes of commerce” to serve as the basis forcorporate fines. Because antitrust sentencing issues are so infrequently litigated, there are opportunities tochallenge assumptions about antitrust sentencing and advocate for more reasonable fines.For example, some of the commerce supposedly affected by alleged international price-fixing conspiracieshas little or no impact on U.S. markets, and most U.S. courts have not yet considered in the context of fully-litigated proceedings whether such commerce can support antitrust fines in the U.S. In practice,corporations that are conscious of this issue would be well advised to contest it in plea negotiations. Inrelatively recent criminal matters, the DOJ has “agreed to disagree” on this issue but excluded certainforeign-based commerce from its agreed fine calculations.DOJ Fine Calculation Process: U.S.-Based CommerceThe U.S. Sentencing Guidelines (USSG) state that in determining the base fine amount, the starting pointis “20 percent of the volume of affected commerce.” USSG § 2R1.1(d)(1). The USSG do not define“volume of affected commerce.” Defendants have argued that the USSG envision fines based only on U.S.domestic commerce, as acknowledged by the DOJ in past publications or statements.1 Recent pleaagreements confirm the DOJ will at times “agree to disagree” but will ultimately accept this approach asevidenced in the following instances:Page2 of 4
Patton Boggs LLP Criminal Antitrust Update | June 2011 • In the recent air cargo carrier antitrust investigation, some plea agreements used export commerce as the basis for the “volume of commerce” justifying a fine calculation – cargo shipments that originated in the U.S., but not shipments from foreign nations to the U.S.2 It is worth noting that most air cargo carriers are paid at the point of origin for their services. • In the DRAM (computer memory) investigation, the volume of affected commerce was measured by a defendants sales to original equipment manufacturers in the U.S.3 • Similarly, in the Hydrogen Peroxide investigation, volume of commerce was based on sales within the U.S.4The Foreign Trade Antitrust Improvement ActThe Foreign Trade Antitrust Improvement Act (FTAIA), which governs the jurisdictional reach of the federalantitrust laws, is one of the key statutory provisions underlying the argument that criminal fines in the U.S.should be based on U.S. – based commerce. The FTAIA states that antitrust allegations in the U.S. mustarticulate a “direct, substantial, and reasonably foreseeable” effect on U.S. markets. If potentially unlawfulconduct occurred outside the U.S., was not implemented in the U.S., and/or had no meaningful impact inthe U.S., corporations could and should contend that the conduct did not violate antitrust laws in the U.S.On a more practical level, there is some inherent appeal to the argument that overbroad interpretations ofthe FTAIA interfere with foreign competition regulations and stretch U.S. antitrust jurisdiction beyond itsboundaries. The same logic applies to fining companies in the U.S. based on alleged conduct that occursoffshore.The foundation for using the FTAIA to craft arguments in defending criminal investigations was laid yearsago in litigation surrounding a civil dispute. The Supreme Courts opinion in F. Hoffman-LaRoche Ltd., v.Empagran S.A. arguably supports the view that foreign-based commerce should not be included in any finecalculation (see F. Hoffman-LaRoche Ltd. Empagran S.A., 542 U.S. 155 (2004)). While the Empagran casedealt with an antitrust class action brought by a class of foreign purchasers, the Supreme Court held thatthe FTAIA precludes foreign purchasers from bringing suit in U.S. courts under the Sherman Act wheretheir foreign injuries are “independent of any adverse domestic effect.” There is no precedent that holdsthis reasoning inapplicable to criminal antitrust fines.Recent Plea Agreements Based on U.S. Commerce OnlyAn example of the “agree to disagree” approach to foreign commerce occurred in British Airways’ (BA) pleaagreement for air cargo price-fixing. DOJ acknowledged that BA objected to including the sales of cargoservices outside the U.S. in the volume of affected commerce calculation for a U.S. – based antitrustfine.5 While DOJ stated that it did not agree with BA’s position, the primary basis for the fine levied on BAwas U.S. – based commerce. The plea agreement stated:Notwithstanding the early cooperation and substantial assistance provided by the defendant in this matter,the parties recognize the complexity of litigating the issues set forth in Paragraph 8(c) and the resultingburden on judicial and party resources, and agree that the appropriate resolution of this issue is to impose,for the cargo portion of the recommended sentence, a fine above what would be the bottom of theGuidelines sentencing range for the cargo conspiracy in order to reflect [foreign] commerce . . . .In our view, the size of the volume of commerce influenced this result; BA still paid a massive fine as aresult of the air cargo plea. However, both DOJ and BA must have recognized the risk of setting a badprecedent for limiting fines, on one hand, and risking even larger fines if BA litigated and lost this issue incourt. While the issue of whether foreign commerce is included in the volume of commerce for purposes ofcalculating a criminal fine remains unresolved, defendants in global conspiracy cases should be mindful ofthe uncertainty and be prepared to take advantage of it.Page3 of 4
Patton Boggs LLP Criminal Antitrust Update | June 2011 See Gary R. Spratling, Negotiating the Waters of International Cartel Prosecutions: Antitrust Division Policies Relating to PleaAgreements in International Cases, Speech Before the 13th Annual National Institute on White Collar Crime 18 (Mar. 4,1999), available at,http://www.usdoj.gov/atr/public/speeches/2275.pdf; Amicus Brief filed by US, Statoil ASA v. Heeremac V.O.F.,No. 00-1842, 2002 WL 32157022 (Jan. 3, 2002) (“[i]t is the policy of the United States to calculate the Base Fine by using only thedomestic commerce affected by the illegal scheme, and in all but two of the dozens of international cartel cases prosecuted, finesobtained by the government were based solely on domestic commerce”). See, e.g., United States v. Qantas Airways Limited, Plea Agreement, availableat,http://www.justice.gov/atr/cases/f229200/229266.htm. See, e.g., United States v. Samsung Electronics Co., Ltd., Joint Sentencing Memorandum, availableat, http://www.justice.gov/atr/cases/f213400/213416.htm. See, e.g., United States v. Solvay S.A., Joint Sentencing Memorandum, availableat,http://www.justice.gov/atr/cases/f216100/216144.htm; United States v. Akzo Nobel Chemicals Int’l B.V., Joint SentencingMemorandum, available at,http://www.justice.gov/atr/cases/f216100/216122.htm. See, e.g., United States v. British Airways PLC, Plea Agreement, availableat,http://www.justice.gov/atr/cases/f225500/225523.htm.This information is not intended to constitute, and is not a substitute for, legal or other advice. You should consult appropriatecounsel or other advisers, taking into account your relevant circumstances and issues. While not intended, this update may in partbe construed as an advertisement under developing laws and rules. You may receive this industry update from other people, whichoften occurs. To SUBSCRIBE or change your address, e-mail firstname.lastname@example.org.Page4 of 4