ANTITRUST DIVISION

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Understanding, Detecting Reporting Antitrust
Violations
State of Nevada April 2009
Lara M. Kroop Chris Wheeler U.S. Department of
Justice Antitrust Division San Francisco Field
Office [phone] Lara.Kroop_at_usdoj.gov Christi
na.Wheeler_at_usdoj.gov
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U.S. DOJ Criminal Enforcement Investigative
Offices
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Antitrust Division Offices
New York Philadelphia Washington, D.C.
Cleveland
Chicago
Atlanta
Dallas
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Antitrust Division Should Be On Your Radar Screen

• Agencies who receive Recovery Act Funds must
  identify and prevent wasteful spending and
  minimize waste, fraud, and abuse.
• Competitive bidding creates opportunities for
  fraud.

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Why The Antitrust Division?

• Resources
• Investigative Expertise
• Investigative Tools
• Prosecutorial Expertise

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Antitrust Enforcement

• Criminal enforcement
• Bid rigging
• Price fixing
• Market allocation
• Merger review
• Monopolies and other civil violations

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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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Criminal Penalties Obtained

• Largest Single Fine 500 Million
• Largest Single Case 1.6 Billion
• Recent jail sentences 4 years

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Top Targeted Domestic Industries
(1979 1992)
(1983 1989)
(1990s)
(1993 present)
(1982 1989)
(2000 present)
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Basics of Antitrust Law
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Sherman Antitrust Act 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.
• Price fixing, market allocation and bid
  rigging are all
• criminal violations.

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Elements of a Sherman Act 1 Violation

• Agreement
• Unreasonable restraint of trade
• Interstate commerce

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Agreement

• Meeting of the minds/understanding
• Two or more unrelated persons
• Does not have to be expressed or written

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Unreasonable Restraints

• Bid Rigging
• Price Fixing
• Market Allocation

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Interstate Commerce

• Flow
• Affects

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Conditions Conducive to Collusion

• Few sellers or bidders in the industry, or a
  small group of major vendors controls a large
  percentage of the market.
• The product is standardized (commodity) and other
  competitive factors, such as design, quality, or
  service are not prevalent.
• The product has no readily available substitute.

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Conditions Conducive to Collusion

• Vendors repeatedly sell to the same buyers.
• Competitors in the industry frequently interact
  through social conventions, trade association
  meetings, shifting employment, or when conducting
  legitimate business.
• Bidders personally submit bids at the same
  physical location.

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Detecting Bid Rigging
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What is Bid Rigging?

• Bid Rotation
• Competitors agree to take turns being the low
  (winning) bidder
• Bid Suppression
• Competitor agrees not to bid
• Complementary Bid
• Competitor agrees to bid high

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Bid Rotation
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Aircraft Parts Case
Price war is over between Smith Smith and
Jay-Em. Presidents of Jay-Em and Smith
Smith, 1986
Prices increased significantly 60 jump between
85 and 86. No economic explanation to support
such a significant price increase.
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Traffic Signals Case
No significant cost advantage due to geographic
location. Bid pattern continued even when more
projects offered in one area over other areas.
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Complementary Bid
Bidder 1 awards subcontract, or pays kickback to
Bidder 2.
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Typhoon Repair Projects - Guam
Minimum of three bids required. Companies either
with no interest in project, or in existence only
on paper, submit high bids so friend will get the
project.
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(No Transcript)
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Eisenhower Tunnel Case
150,000 Kickbacks 35,000 Flatiron Paving
Corn Construction
Peter Kiewitt
65,000
Asphalt Paving
Bid prices significantly over engineers
estimate. Competing bidder given subcontract on
project.
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Bid Suppression
Bidder 2 expressed interest in obtaining
project. Had capability and resources to do the
project.
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Concrete Case
Bidders submit identical prices so both can share
in the project. Identical pricing
not experienced on previous projects. Bid prices
significantly higher than pricing offered in
adjacent county.
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Judy Green E-Rate Case

• West Fresno Elementary School District Technology
  Project
• Green Hired As Consultant to District
• Green Creates Request for Proposal (RFP)
• RFP calls for bids on four (4) items
• Cabling
• Data (switches and routers)
• Servers
• PBX/video

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Green Orchestrates Bid Rig

• TERMS OF BID RIG AGREEMENT
• Only vendor H will bid on project
• Vendor I subcontract for data and pbx
• Vendor P subcontract for servers
• Vendor V subcontract for video
• Vendor S subcontract for data cabling
• Vendors will provide kickback to Green
• Green will disqualify non-conspirators

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Detecting Price Fixing
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What is Price Fixing?

• Agreement to raise, lower or maintain prices
• Agreement not to negotiate on price
• Agreement to limit discounts, rebates or
  promotions
• Agreement on price formulas or guidelines

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Lysine

• Lysine is a feed additive used by farmers around
  the world 600M/year.
• The worlds major producers secretly met at trade
  association meetings to agree on the exact
  tonnage for each and a price that was fixed to
  the penny.
• With the assistance of an informer, the FBI was
  able to record some of the meetings!

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Lysine Video Clips

• Tape Segment One January 18, 1995 Cartel Meeting
  in Atlanta, Georgia The Lysine Cartel Members
  Show Disdain For Customers And Antitrust
  Enforcement

• Tape Segment Two March 10, 1994 Cartel Meeting
  In Maui, Hawaii Cartel members Use Trade
  Association As A Cover For Conspiracy Meetings

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Detecting Allocation Schemes
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What are Allocation Schemes

Any agreement not to compete for
specific Territories Customers Produc
ts
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Dust Control Case
Pre-conspiracy
Conspiracy
Wyoming
Wyoming
Co. A
Co. A
Co. B
Co. B
Colorado
Colorado
Prior to agreement, AB competed for work in both
states. After agreement, each limited quotes to
customers in allocated territory.
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Commercial Garbage Cases
New Customers
Existing Customers
Company A Company B Company C
Company either refused to quote or quoted high
drop-box price. Company was servicing customers
in same area at lower prices.
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Sources of Antitrust Cases

• Employees
• Current or former
• Customers/Purchasing Agents
• Suspicious patterns/incriminating remarks
• Competitors
• Invited into conspiracy
• Corporate Amnesty Program

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Other Criminal Violations

• Fraud
• Obstruction

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Mail Wire Fraud
A
C
B
D
Customer
Customer
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False Statement
A
B
C
D
I did not discuss anything related to bidding
on this project with any other potential bidder.
Customer
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Suspicious Bid Patterns

• The same suppliers, with similar capabilities,
  submit bids and each company seems to take a turn
  being the successful bidder (bid rotation).
• The same company always wins a particular
  procurement and there are other companies with
  similar capabilities, but either dont bid or
  consistently submit higher bids (bid
  suppression).
• Some bids are much higher than published price
  lists, previous bids by the same firms or
  engineering cost estimates.

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Suspicious Bid Patterns

• Fewer than normal competitors submit bids and
  there is no economic explanation for the
  reduction in competitors, i.e. full workload,
  bankruptcy, etc.
• A company appears to be bidding substantially
  higher on some bids than on other bids with no
  apparent cost differences to account for the
  difference.
• A successful bidder subcontracts work to
  competitors that submitted unsuccessful bids on
  the same project.
• A company withdraws its successful bid and
  subsequently is subcontracted work by the new
  winning contractor.

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Possible Price-Fixing Patterns

• Identical prices when
• Prices stay identical for long periods of time
• In the past, prices were consistently different
• Price increases do not appear to be supported by
  increased costs.
• Prices are increased simultaneously and
  increased, either the same amount, or the same
  percentage, without any of the vendors involved
  giving prior notice to customers.

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Possible Price-Fixing Patterns

• Discounts are eliminated, especially in a market
  where discounts historically were given.
• Vendors charge the same prices to customers
  located locally as to those for the same goods
  that must be shipped long distances and freight
  charges are not added on. No economic
  explanation for similarity in such prices.
• Vendors are charging higher prices to local
  customers than to distant customers. No economic
  explanation for those price differences.

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Allocation Scheme Patterns

• Companies that have consistently sold in the
  territory (or to a customer) suddenly stop
  selling in that territory (to that customer) and
  there is no economic explanation for doing so.
• Company that consistently competed on price,
  begins quoting unreasonably high prices, or
  refuses to quote a price and/or refers customer
  to that companys competitor.

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Conduct That Indicates Possible Collusion

• Indications that one competitor may have prepared
  bid or pricing documents for other competitors
• Identical calculation, syntax or spelling errors
• Identical handwriting, typeface or stationery in
  the bid proposals or price announcements
  submitted by competing vendors
• Identical postmarks, return addresses, fax
  telephone numbers or e-mail addresses for
  electronic bids, also consider reviewing the
  metadata (hidden data)

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Conduct That Indicates Possible Collusion

• Bid or price documents contain white-outs or
  other notations indicating last minute price
  changes.
• A bidder requests a bid package for himself and a
  competitor or submits both his and anothers
  bids.
• A company submits a bid when it is incapable of
  successfully performing the contract. This is
  likely a complementary bid.
• A company brings multiple bids to a bid opening
  and submits its bid only after determining (or
  trying to determine) who else is bidding.

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(No Transcript)
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MetadataCan BeRevealing
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Suspicious Statements That Indicate Possible
Collusion

• Any reference to industry-wide or association
  price schedules.
• Advance (non-public) knowledge of competitors
  pricing.
• Statement that a particular customer, territory
  or contract belongs to a certain vendor It
  was our turn to win. We were supposed to be
  the low bidder.
• Statements that a bid was a courtesy,
  complementary, token, or cover bid.

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Suspicious Statements That Indicate Possible
Collusion

• Use of the word we with reference to the
  industry we decided to raise prices, we decided
  company X would be the low bidder.
• Statements related to a cessation of price
  competition The price war is over, prices will
  go up.
• Any statement indicating vendors have discussed
  prices among themselves or even that they have
  had non-public meetings or communications.

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What You Can Do To Discourage and Detect Collusion

• Expand bidders list solicit as many reliable
  sources as economically possible and keep track
  of possible bidders who express interest in the
  project.
• Require the submission of sealed bids to be
  delivered by a specified time and to a specified
  location and date and time stamp the bids when
  they are received.
• Set the public bid opening at least one day after
  specified due date.
• Require a certification of independent price
  determination to be submitted with all bids.
  Avoid abstract words such as competitor,
  collude, or sham in certification.

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What You Can Do To Discourage and Detect Collusion

• Retain all bids, envelopes, facsimile transmittal
  sheets or e-mail transmittal messages, that the
  bids or quotes were in or which accompanied the
  bids.
• Ensure that all purchasing department employees
  are familiar with the indicators of bid rigging,
  price fixing and market allocation.
• If the prices or bids submitted dont make sense,
  press your vendors to explain and justify their
  prices.
• Become familiar with the market in which you make
  your purchases.

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USDOJ Antitrust DivisionARRA Initiative Website

• www.usdoj.gov/atr/public/criminal/economic_recover
  y.htm

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Questions?

• Lara M. Kroop
• Chris Wheeler
• USDOJ, Antitrust Division
• [phone]
• Lara.Kroop_at_usdoj.gov
• Christina.Wheeler_at_usdoj.gov