Antitrust Division Focuses Enforcement Efforts on Individuals Behind International Cartels

By Shylah R. Alfonso and Mara Boundy, Perkins Coie LLP

The Antitrust Division of the US Department of Justice (DOJ) is vigorously pursuing civil and criminal actions against individuals—not simply the companies they run.  The issues raised by the DOJ’s enhanced enforcement directive aimed at individual culpability is perhaps most acute for companies in Asia with current operations or plans to enter the US market.

The DOJ’s criminal enforcement actions have focused on international cartels, particularly those originating in companies headquartered in Asia.  For criminal matters yielding a corporate fine of $10 million or more, 72 of the last 132 fines (or 54.5 percent) were issued against companies in Asia.  In the last five years, 45 of the 57 fines (or 78.9 percent) of $10 million or more were issued against companies in Asia.

Under the Trump administration, the focus on Asia could intensify.  While the Trump administration has not provided a clear indication of its position on antitrust enforcement, Trump’s campaign rhetoric, appeal to populist opinion, and “America First” platform, could lead to aggressive criminal cartel enforcement decisions involving industries, countries, and companies that Trump does not trust.

The Acting Assistant Attorney General Renata Hesse commented on November 3, 2016 that the Antitrust Division will continue to reach beyond the United States to track down and stop people and companies that negatively impact competition in the United States.  She further stated that the Antitrust Division believes “the most effective deterrent to antitrust felonies is prison time for those who commit them.”

The Yates Memo

The impetus for this reinvigorated focus on individual culpability was a memorandum issued in September 2015 by Deputy Attorney General Sally Quillian Yates, known as the “Yates memo.”  While not a new policy, the Yates memo outlines the government’s intention to focus on holding corporate executives accountable for anti-competitive conduct.  The memorandum identifies six policies that highlight the Antitrust Division’s emphasis on deterring anti-competitive conduct by pursuing individual actors:

1.     Corporations must provide “all relevant facts about the individuals involved in corporate misconduct” “regardless of their position, status or seniority” in order to be eligible for cooperation credit;
2.     Investigations—both civil and criminal—will focus on individuals “from the inception of the investigation”;
3.     Civil and criminal attorneys within the division will communicate in order to “permit consideration of the full range of the government’s potential remedies”;
4.     Resolution of matters with the corporate entity will not provide protection from criminal or civil liability for any individual involved;
5.     If resolution of a case against a corporation is reached prior to the conclusion of investigations of any individuals, Antitrust Division attorneys must implement an investigative plan to resolve matters related to any individual before the statute of limitations expires; and
6.     Civil enforcement efforts should focus on holding the wrongdoers accountable and deterring future wrongdoing.

The Yates memo applies to the Antitrust Division’s civil and criminal investigations, and its message is clear: the agency is redoubling its focus on the individuals behind the corporations accused of violations of the antitrust laws.

Former Deputy Assistant Attorney General David I. Gelfand explained last year that in the civil context, “what the agency is usually seeking is a ‘deterrent effect’ . . . in order to ensure the anticompetitive behavior doesn’t recur, as well as ensuring the public is aware of any intentional wrongdoing.”  Cases involving horizontal agreements to divide markets and improperly share information are among those that the division is scrutinizing to determine whether to pursue individual actions.

For criminal cases, the Yates memo is more of a codification of the division’s enforcement trend over the last 15 years.  From 1990 to 1999, the Antitrust Division prosecuted roughly even numbers of corporations and individuals.  But, from 2000 to 2009, the Antitrust Division prosecuted twice as many individuals (453) as corporations (220).  And since 2010, the Antitrust Division has prosecuted nearly three times as many individuals as corporations (352 to 123).  As Deputy Assistant Attorney General for Criminal Enforcement Brent Snyder explained, this is the result of the division having “adopted new internal procedures to ensure that each of [its] criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible . . . . [and is] undertaking a more comprehensive review of the organizational structure of culpable companies to ensure that [it is] identifying and investigating all senior executives who potentially condoned, directed, or participated in the criminal conduct.”

Certain investigations in particular have demonstrated the Antitrust Division’s pursuit of these objectives.  Specifically, in the marine hose, coastal shipping, LCD, and ocean shipping investigations, the division prosecuted more than two individuals for every corporation; in the DRAM investigation, the ratio was more than three to one.  Among the individuals prosecuted in these investigations were the president and vice president of AU Optronics, the third largest LCD maker in the world, showing the division’s commitment to holding accountable the highest-level culpable executives at conspirator companies.  Notably, these two executives are foreign nationals and are currently serving out the longest sentences ever imposed on non-US citizens for antitrust offenses.

International Reach of the Yates Memo

Indeed, the Yates memo is not limited to defendants located within the United States.  Former Assistant Attorney General Baer told Congress that the division holds “offenders responsible for actions that injure US commerce regardless of where they reside or whether they are citizens of the United States or foreign nationals. . . . Working with [its] international partners and Department of Justice colleagues, [the Division] seek[s] extradition where appropriate and will continue to seek it in appropriate cases.”

Since 1999, 88 foreign defendants served or are serving prison sentences in the United States for their involvement in international cartels or their interference with the government’s investigations of those cartels.  This is just a fraction of the overall number of individuals prosecuted during the same period; however, as with the rise of individual prosecutions, prison sentences for foreign nationals are lengthening, doubling from eight months for those sentenced between 2000 and 2009 to nearly 16 months for those sentenced between 2010 and 2015.

As Former Assistant Attorney General Baer noted, the Antitrust Division, like other branches of the Department of Justice, has the power to extradite foreign nationals from certain countries in order to prosecute them in the United States.  Extradition is based on treaties, and currently, the United States has extradition treaties with more than 100 countries.  The division’s power to extradite depends on which treaty applies, whether the applicable treaty requires the offense also be illegal or carry certain consequences in the country of extradition, whether other charges may form the basis of the extradition, whether the charges are filed under seal, and whether the individual will be detained during the extradition process.  Perhaps most interesting, the division’s ability to file charges under seal maximizes its ability to extradite the charged individual by enabling the division to extradite them from any country (with which the United States has an extradition treaty) in which they might be traveling, regardless of citizenship or residence.  Thus an unsuspecting defendant may travel to a country whose extradition laws are more lax or whose laws mirror American antitrust laws, rather than seek refuge in a country with narrow parameters for extradition or with which the United States does not have an extradition treaty.  More countries are criminalizing antitrust offenses as well, thereby broadening the base of jurisdictions from which the United States could likely extradite offenders.

Extradition Treaties Enable Enforcement Abroad

The Antitrust Division had its first successful extradition of a foreign national based solely on antitrust charges in 2014.  The division charged Italian citizen Romano Pisciotti, an executive of marine hose manufacturer Parker ITR S.r.l., with bid rigging, fixing prices, and allocating market shares.  The indictment, filed in 2010, was sealed.  In 2013, Pisciotti was traveling in Germany, where he was arrested.  Though Pisciotti challenged the extradition, the German courts found the extradition treaty’s dual criminality provision satisfied and ordered Pisciotti extradited.  Before the US District Court for the Southern District of Florida, Pisciotti pled guilty to one count of conspiring to rig bids, fix prices, and allocate market shares of marine hose.  He was sentenced to 24 months in prison and a $50,000 fine.  Pisciotti was credited with the nine months he served during his extradition proceedings in Germany.

Later in 2014, the Antitrust Division extradited John Bennett from Canada.  The division had charged Bennett and two co-defendants—again under seal—with rigging bids on contracts for cleanups of EPA superfund sites, conspiring to defraud the government, and receiving kickbacks.  Like Pisciotti, Bennett challenged the extradition.  After more than five years of litigation, the Canadian courts found Bennett’s conduct constituted criminal conduct in Canada, thus satisfying the terms of the US-Canada extradition treaty, and ordered him extradited.  Just last month, Bennett was convicted by a jury of conspiracy to commit major fraud against the United States and to receive kickbacks.

In the six months since the Yates memo was issued, the Antitrust Division has publicly indicted nine foreign nationals on antitrust charges.  More may have been indicted under seal.  Those publicly indicted include six residents of Japan for conspiring under § 1 of the Sherman Act to allocate sales, rig bids, and fix prices for roll-on, roll-off cargo and for automotive body sealing products in the United States, and three German residents for conspiring under § 1 to fix prices of parking heaters for commercial vehicles sold in the US aftermarket.  Neither country’s domestic law allows for the extradition of its own nationals; but, under the terms of the extradition treaties between the United States and Japan and Germany, respectively, it is within the signatory-countries’ discretion to extradite its own nationals.  Whether the terms of these treaties impose diplomatic hurdles for the Antitrust Division’s enforcement efforts remains to be seen.  Perhaps, like Pisciotti, these defendants will be extradited during travel.  As it stands, dual criminality provisions, discretionary extradition, and lengthy extradition proceedings are not deterring the division from using its powers to pursue individuals it has charged with anti-competitive conduct and bring them to justice in the United States.

Vigilance is Key to Avoiding Anti-Competitive Conduct

The enhanced focus placed on individual culpability is in line with the division’s overall increased enforcement efforts.  Between 2000 and 2009, the Antitrust Division imposed nearly three times the amount of criminal corporate fines—totaling $4.2 billion—as it had between 1990 and 1999.  In the five years between 2010 and 2014, criminal corporate fines imposed by the division totaled more than $4.4 billion.  And in 2015 alone, the division imposed $3.6 billion in criminal fines.  The administration’s proposed budget for 2017 would increase funding for the division by 9.4 percent, allowing it to add another 98 attorneys to the 830 it has operated with since 2014.  International cartel enforcement was one of three priority areas identified by the division as the basis for its budget increase, along with domestic cartels and mergers.

The division’s increased enforcement efforts serve as a strong reminder to companies, particularly foreign companies with operations in the United States that are not as well versed in US competition law, that they need to be vigilant in educating their employees about prohibited practices and that the implementation of antitrust compliance policies, coupled with annual trainings, are an effective tool to help ensure the DOJ does not come knocking on their door.  If you have any questions regarding US antitrust compliance policies or trainings, please consult counsel for advice and information.

About the author: Shylah Alfonso is a partner in Perkins Coie’s Commercial Litigation group based in the firm’s Seattle office. She focuses her practice on antitrust and consumer protection counseling and litigation, antitrust clearance for mergers and acquisitions, class action and complex commercial litigation, and intellectual property litigation. Shylah has represented clients on a variety of antitrust matters, such as litigation matters in front of the Federal Trade Commission and the U.S. Department of Justice, as well as bringing and defending antitrust claims in state and federal courts.

Mara Boundy is an associate in Perkins Coie’s Litigation practice based in the firm’s San Francisco office. Mara has experience handling complex civil litigation matters concerning antitrust, unfair competition, breach of contract, and insurance coverage issues. She has litigated cases involving partnership liability, sovereign immunity, fraud, and rights in real property.