THE RECOVERY ACT: Understanding, Detecting

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THE RECOVERY ACTUnderstanding, Detecting
Reporting Antitrust Violations

• John Terzaken, Assistant Chief
• U.S. Department of Justice, Antitrust Division
• Natl Criminal Enforcement Section
• [phone] / john.terzaken_at_usdoj.gov

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What is Antitrust?
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The Sherman Act (15 U.S.C. 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.
• Prohibits agreements among competitors in
  restraint of trade or commerce

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Sherman Act Elements

• Agreement
• Unreasonable restraint of trade
• Price-Fixing
• Customer/Market Allocation
• Bid-Rigging
• Interstate commerce
• Statute of Limitations 5 years from the last act
  in furtherance of the conspiracy

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Price Fixing

• Agreements among competitors to
• Same price or raise prices
• Eliminate discounts or have uniform discounts
• Establish minimum or floor prices
• Establish a standard pricing formula

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Allocation

• Agreements among competitors to
• Allocate customers
• Allocate territories
• Allocate sales volumes
• Allocate production volumes
• Allocate market shares

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Bid Rigging

• Agreement in advance to manipulate outcome of
  bidding process
• Types
• Bid Suppression
• Complementary Bidding
• Bid Rotation

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What do you think the penalties are for Sherman
Act violations?
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It's risky, of course---if we're caught, it could
mean many hours of community service.
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Penalties Are Significant

• Corporation
• Up to 100 million
• Individual
• 1,000,000 and/or
• 10 years incarceration
• Corporation or Individual
• Twice gain to defendant or
• Twice loss to victim

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Companion Violations

• Bribery/Gratuities (18 U.S.C 201)
• False Fictitious Claims (18 U.S.C. 287)
• Conspiracy to Defraud U.S. (18 U.S.C. 371)
• False Statements (18 U.S.C. 1001)
• Mail/Wire Fraud (18 U.S.C. 1341, 1343)
• Obstruction of Justice (18 U.S.C. 1519)

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Why am I here?
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Detecting Violations

• You!
• Amnesty Program Self Reporting
• Agent Referrals
• Anonymous Complaints

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Working Together

• U.S. v. Godfrey Allen Payne d/b/a Allen
  Payne Surplus
• Criminal No. 93-20059-01 (D. Kan.)
• The seal was lifted on a one-count
  indictment which was filed on June 22, 1993 in
  U.S. District Court in Kansas City, Kansas,
  charging Godfrey Allen Payne d/b/a Allen Payne
  Surplus with participating in a conspiracy
  between May 1988 and August 1990 to rig bids, in
  violation of Section 1 of the Sherman Act,
  involving auctions of government surplus
  conducted by the Defense Reutilization and
  Marketing Office and the General Services
  Administration ("GSA") in Kansas, Missouri and
  Nebraska. The investigation is being conducted by
  the Chicago Field Office of the Antitrust
  Division with the assistance of the Army Criminal
  Investigative Division the Defense Criminal
  Investigative Service GSA, Office of the
  Inspector General in Kansas City, Missouri and
  the U.S. Attorney's Office for the District of
  Kansas.

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Working Together

• PUERTO RICO EXECUTIVE CHARGED WITH
• CONSPIRING TO DEFRAUD HIS EMPLOYER
• WASHINGTON, D.C. A Puerto Rico federal grand
  jury today indicted a
• former executive of Tricon Restaurants
  International (Tricon), for conspiracy to
• commit mail fraud in connection with a kickback
  scheme used to defraud his
• employer, the Department of Justice announced.
• According to the indictment, from October 2000
  until February 2004, Matos
• received 31,000 in kickback payments from Albith
  Colón, the president of Gate
• Engineering Corporation (Gate), an electrical
  contractor, in exchange for Matos
• providing favored treatment to Gate by awarding
  it more than 1 million worth of
• electrical contracts. Although the contracts were
  awarded on behalf of Tricon, the
• company was unaware of the kickback payments.

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Recovery Act

• Risk Management
• Agencies must immediately review the risk
  framework provided in Chapter 3 of this Guidance,
  capture and report against the common
  government-wide accountability measures, identify
  any additional agency-specific risks not provided
  for in Chapter 3, prioritize risk areas, and
  initiate risk mitigation strategies.
• At a minimum, immediate risk mitigation actions
  must address
• Audits and investigation of Recovery Act funds to
  identify and prevent wasteful spending and
  minimize waste, fraud, and abuse
• Qualified personnel overseeing Recovery Act
  funds
• Competitive awards maximized
• Timely award of dollars
• Timely expenditure of dollars
• Cost overruns minimized and
• Improper payments minimized.
• To assess how well the Federal government and
  funding recipients are progressing in meeting the
  items above, agencies should begin preparing to
  track progress against the above accountability
  measures.

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Evolution of Collusion
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PRE-AWARD COLLUSIONSee the Signs

• M.A.P.S.
• Market
• Application
• Patterns
• Suspicious Behavior

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MARKETAre Conditions Conducive to Collusion?

• There are few sellers in an industry, or a small
  group of major vendors controls a large
  percentage of the market

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MARKET
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MARKET Other Indicators

• The product is standardized and other competitive
  factors, such as design, quality, or service are
  not prevalent
• Repeat competing vendors
• Competitors frequently interact through social
  conventions, trade association meetings, shifting
  employment, etc.

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APPLICATIONThe Dumb Crook

• Similar applications handwriting typeface
  stationery typos mathematical errors
• Last-minute changes white-outs or physical
  alterations to prices
• Vendor picks up an extra bid package for another
  vendor OR submits a competing vendors bid

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Paper v. Electronic

• Same basic fraudulent conduct
• Other M.A.P.S. factors to look for
• Metadata (hidden data)
• Cover e-mail header info. incorrect
• Same math errors, typos, etc.

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Metadata Can be Revealing
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PATTERNSStudy History

• The same vendors submit bids and each one seems
  to take a turn as the winning bidder (bid
  rotation)
• A winning bidder subcontracts work to competitors
  that submitted unsuccessful bids or withdrew
  bids
• All bidding companies end up winning the same
  amount of work over a series of bids
• Same company always wins a particular bid
• Fewer than normal number of bidders

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PATTERNSBid Rotation

• Bid 1 Company A wins
• Bid 2 Company B wins
• Bid 3 Company C wins
• Bid 4 Company A wins
• Bid 5 Company B wins
• Bid 6 Company C wins

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PATTERNSBid Suppression

• Bid 1 Companies A, B, C, and D bid
• Bid 2 Companies B, C, and D bid
• Bid 3 Companies A, C, and D bid
• Bid 4 Companies A, B, and D bid
• Bid 5 Companies A, B, and C bid
• Also watch for subcontracts to the company that
  sits out!

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PATTERNSWho Is Getting What

• Bid 1 A wins a 3 million contract
• Bid 2 B wins a 5 million contract
• Bid 3 C wins a 1 million contract
• Bid 4 C wins a 4 million contract
• Bid 5 A wins a 2 million contract
• Everyone 5 million

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PRIOR BID PROPOSALS(Numbers are in 1000s)
Proposal Company A Company B Company C
1 3000 3230 3330
2 5500 5000 5100
3 2200 2150 2000
4 2000 2650 2320
5 2200 2150 2000
6 1200 1150 1000
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SUSPICIOUS BEHAVIORItching to Get Caught

• No Chance Bidder Bids submitted by vendor known
  to lack the ability to perform the contract
• Betting Bidder Vendor brings multiple bids to
  an opening or submits bid once other bidders are
  determined
• Loud Mouth Bidder Suspicious statements
  indicating advance notice of a competitors
  prices or that vendors have discussed bids

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WHAT YOU CAN DODiscourage Collusion

• Expand the list of bidders/applicants
• Require sealed bids/applications to be delivered
  by a specified time and to a specified location
  and date and time stamp the packages when they
  are received
• Require a certification of independent price
  determination to be submitted with all
  bids/applications
• Ask questions

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WHAT YOU CAN DODetect Collusion

• Use a highlighter to mark typos, errors, etc.
• Retain bids, envelopes, Federal Express slips,
  fax transmittal sheets, e-mail messages, etc.
• Keep a chart of competition over time for
  products and services you purchase
• Keep your eyes and ears open
• Ensure your whole team is familiar with M.A.P.S.

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PARTING WORDS

• Remember M.A.P.S.
• Ensure that all purchasing officers are familiar
  with M.A.P.S.
• Find our M.A.P.S. checklist at
• www.usdoj.gov/atr/public/criminal/recovery_
  initiative.htm

• John Terzaken, Assistant Chief
• U.S. Department of Justice, Antitrust Division
• Natl Criminal Enforcement Section
• [phone] / john.terzaken_at_usdoj.gov