Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel ‒ Fall 2019

Below we summarize significant cartel enforcement developments from U.S. and other antitrust enforcers in recent months, including: the Department of Justice Antitrust Division’s (the “Division”) review of its International Guidelines in an effort to increase global coordination; the latest corporate sentence in the Division’s packaged seafood industry probe that comes as one executive awaits trial; the European Commission fines imposed against participants in an alleged canned vegetable cartel; and Japan’s antitrust enforcer uncovers evidence of cartel conduct during a merger review. These stories and more are in this latest edition of the Quarterly Cartel Catch-Up.

Assistant Attorney General Delrahim Announces Review of Antitrust Division’s International Guidelines

Key Point:  Announcement underscores the Division’s commitment to continued coordination with international antitrust enforcers to achieve consistent, business-oriented outcomes.

On September 12, 2019, Assistant Attorney General of the Division Makan Delrahim announced a review of the Division’s International Guidelines during a speech at the 46th Annual Fordham Competition Law Institute Conference on International Antitrust Law and Policy. Delrahim stated that the review reflects the importance of comity in international competition enforcement and the symmetry expected from foreign enforcers. According to Delrahim, comity among antitrust enforcers is necessary to minimize the burden on businesses and to avoid international politicization of antitrust disputes, but should not be equated with deference to foreign interpretation. In this regard, he identified the European General Data Protection Regulations (GDPR) and measures to require global licensing of U.S. patents as broad remedies that limit the Division’s ability to reach a different conclusion and risk harming American consumers.

But Delrahim stressed that the Division’s role is not to play “international antitrust cop” where U.S. commerce is not affected, and cautioned against use of U.S. antitrust laws “to expand their sphere of influence.”  Instead, to achieve consistency in antitrust enforcement around the globe, the analysis should be based on objective rules and economic principles, rather than political considerations. Therefore, Delrahim explained, the Division should only defer after a “full and fair investigation,” and considering “any history of discrimination in favor of its own domestic companies or against foreign companies.” 

Historically, the Division has actively participated in international efforts to coordinate both antitrust policy and investigative matters. For example, the Division contributes to the Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization that promotes international cooperation and policy development in a number of areas, including competition. The Division is also a member of the International Competition Network (ICN), which was established in 2001 to facilitate international cooperation and uniformity in competition policy and has grown to include more than 140 member agencies today.  Apart from its policy efforts, the Division works to coordinate cartel enforcement in individual matters.  

StarKist Co. Receives Statutory Maximum $100 Million Fine for Canned Tuna Price Fixing Scheme, While Former Bumble Bee Foods CEO Prepares for Trial

Key Point: Courts may be undeterred by claims of financial hardship when it comes to imposing penalties for cartel conduct.

On September 11, 2019, U.S. District Judge Edward M. Chen sentenced StarKist Co. to pay a $100 million fine for its participation in a conspiracy to fix the prices of canned tuna sold in the United States from as early as November 2011 to as late as December 2013. Judge Chen imposed the statutory maximum fine, finding that StarKist failed to prove that its financial circumstances warranted a lower penalty. StarKist had claimed that a large fine could lead to layoffs and a plant closure as well as undermine its ability to settle claims with purchasers in ongoing private litigation. The company asked for a reduced fine, based on provisions of the U.S. Sentencing Guidelines that allow for a reduction when the Guidelines-based fine would substantially jeopardize the continued existence of a company. Instead, the court accounted for StarKist’s claims by structuring StarKist’s payments over a five-year period. The court also sentenced StarKist to 13 months of probation, but declined to order the company to pay restitution since it has been actively settling civil claims. StarKist has agreed to cooperate in the ongoing investigation into price-fixing in the packaged seafood industry, which as previously reported, has netted additional corporate and individual guilty pleas and charges. 

In November 2019, Judge Chen will preside over the trial of Bumble Bee Food’s former CEO, Christopher Lischewski, who was indicted for his alleged involvement in the tuna cartel. Bumble Bee’s former senior vice president of trade marketing and senior vice president of sales have both pleaded guilty and have been named as government witnesses in the upcoming trial. The court recently ruled that jurors would not be permitted to hear evidence regarding the guilty pleas entered by StarKist, Bumble Bee, and Chicken of the Sea, given the risk that it could prejudice the jury.

Japanese Competition Authority Uncovers Beverage Can Cartel During Merger Review 

Key Point: This is the first known case in which a cartel investigation by Japan’s competition authority started from a merger review. The case also illustrates the risks of filing a merger notification without filing a leniency application when the notifying company has stopped participating in a cartel scheme. 

On September 26, 2019, the Japan Fair Trade Commission (JFTC) issued cease and desist orders to three manufacturers of aluminum and steel beverage cans and ordered payment of administrative fines totaling around 25.7 billion JPY (US $248 million). The JFTC found that the can manufacturers engaged in a scheme to not take away each company’s existing business and to maintain prices of beverage cans until March 31, 2016, when Toyo Seikan, the largest can manufacturer in Japan, stopped participating in the scheme. 

One month after Toyo Seikan’s exit, the parent company of Toyo Seikan and the parent company of Hokkai Can, Japan’s second largest can manufacturer, announced their merger. In September 2016, the JFTC opened a Secondary Review of the proposed merger. During that review, the JFTC uncovered information indicating collusive conduct regarding sales of food cans, and conducted dawn raids in April 2017 against Toyo Seikan, Hokkai Can and Daiwa Can, the third largest can manufacturer in Japan. 

In February 2018, the JFTC conducted further dawn raids regarding sales of beverage cans, based on a leniency application by Daiwa Can. One month later, the parent companies of Toyo Seikan and Hokkai Can canceled the merger. The JFTC continued cartel investigations for another year and a half before issuing Cease and Desist Orders and Surcharge Payment orders to Toyo Seikan, Universal Can, and Hokkai Can. Daiwa Can received full immunity from the beverage can cartel. Toyo Seikan filed a leniency application after the dawn raids in February 2018 and received a 30% fine reduction. The food can investigation only resulted in an administrative guidance against the participants for exchanging price-related information. The JFTC’s effort reflects a broader trend among antitrust enforcers of uncovering cartel conduct during merger reviews.

Australian Antitrust Enforcer Updates Immunity Policy to Enhance Cooperation as Executive Is Charged with Obstructing Cartel Investigation

Key Point:  Enforcers are resorting to a wide array of procedural tools to encourage cooperation in cartel investigations.

On October 1, 2019, the Australian Competition and Consumer Commission (ACCC) implemented changes to its immunity policy, under which the first cartel participant to report a cartel can receive civil and criminal immunity.  Under the new policy, which was announced in September 2019, immunity applicants will be asked to enter into a cooperation agreement at the start of the immunity process, which will detail the steps necessary for the applicant to receive immunity. In addition, the ACCC has launched an anonymous online portal to encourage whistleblowers to report cartel conduct. The portal removes a person’s IP address when reporting conduct and enables anonymous communications with investigators. 

In addition to these efforts, on October 8, 2019, the ACCC announced that the Commonwealth Director of Public Prosecutions (CDPP) had charged former BlueScope Steel executive Jason Ellis with two criminal obstruction charges. This is the first time an individual has been criminally charged with obstructing an ACCC investigation. That investigation, now in civil proceedings, involves allegations that Mr. Ellis and other BlueScope representatives met with eleven other steel market participants between September 2013 and March 2014 to fix prices. The ACCC also alleges that Mr. Ellis devised a “Carrot and Stick Strategy,” restricting the volume of steel being imported into Australia from other steel mills and increasing the price of flat steel products being exported by those mills into Australia. The CDPP, which is responsible for criminal cartel proceedings in Australia, decided not to commence proceedings against either BlueScope or Mr. Ellis, instead announcing criminal obstruction charges. Obstruction charges are frequently viewed as a “lever” in cartel investigations to encourage cooperation and dissuade interference with collection of evidence. The use of these charges here, coupled with the changes to the ACCC’s immunity policies, illustrate the extent to which enforcers are looking at more ways to encourage (and in some cases, enforce) cooperation in uncovering cartel conduct.

Online Bidder Pleads Guilty in Government Auctions Investigation

Key Point: Second individual pleads guilty to rigging bids in online auctions for government equipment as the Division’s investigation continues.

On September 24, 2019, the Division announced that Igor Yurkovetsky had pleaded guilty to conspiring to rig bids at online public auctions of surplus government equipment. The auctions, conducted by the Government Services Administration (GSA), allow the public to bid electronically on a variety of federal assets, such as computer equipment that is no longer needed by government agencies. The proceeds of the auctions are distributed to the government agencies or to the U.S. Treasury general fund. According to the Information, Yurkovetsky had participated in the conspiracy from 2012 through May 2018.

As part of their agreement, co-conspirators would submit bids for particular lots offered for sale and designate a company to win a particular lot. The participants would then split the equipment won by the chosen winner. Yurkovetsky is the second individual to be charged in this investigation, after Marshall Holland, a Texas business owner, pleaded guilty in a Minnesota federal court in April 2019. Like Holland, Yurkovetsky has agreed to cooperate as the Division continues to investigate and seek information concerning bid rigging and other types of fraud related to the GSA auctions.

Shipping Executive Pleads Guilty; Louisiana-Based Shipping Company Fined for Role in Price-Fixing Conspiracy

Key Point: The Division has secured a third individual guilty plea and the first corporate fine in its latest investigation in the freight forwarding industry.

On October 24, 2019, the Division announced that Francis Alvarez, the owner of a large Houston-based freight forwarding company, agreed to plead guilty to one count of conspiring to fix prices for freight forwarding services. According to the one-count Information, Ms. Alvarez participated in the conspiracy from September 2010 to at least August 2014. The Division alleged that Ms. Alvarez’s conduct impacted customers in the United States and abroad because freight forwarding services frequently include receiving, packaging, and otherwise handling cargo that is destined for international shipment. Ms. Alvarez’s company was specifically involved in shipping cargo to Honduras. 

Ms. Alvarez entered her guilty plea on the same day that the court approved a $488,000 fine against Dip Shipping Company LLC, a Louisiana-based freight forwarder, for its role in the same conspiracy. Dip Shipping had previously agreed to pay that amount when it pleaded guilty for its role in the conspiracy in September. Dip Shipping is the first corporate defendant to face charges in the Division’s ongoing investigation into the freight forwarding industry. As previously reported, the Division arrested and unsealed indictments against Dip Shipping’s Chief Executive Officer, Roberto Dip, and its manager, Jason Handal, in June 2018, when the two were visiting the United States. The two executives subsequently pleaded guilty, and were sentenced in June 2019 to prison terms of 18 and 15 months, respectively. The ongoing investigation reflects the Division’s continued focus on antitrust violations in the shipping and transportation industries.

Japanese Suspension Assemblies Manufacturer Agrees to $28.5 Million Fine for Role in Global Price-Fixing Conspiracy

Key Point:  This is the first guilty plea stemming from the Division’s investigation into suspension assemblies used in hard disk drives.

On July 29, 2019, the Division announced that NHK Spring Co. Ltd. had agreed to plead guilty to a one-count felony charge related to its alleged agreements with co-conspirators to refrain from price competition and allocate their respective market shares for suspension assemblies. Suspension assemblies are components of hard disk drives used to store information electronically in computers or as stand-alone electronic storage devices. According to the Information, from as early as May 2008 until at least April 2016, NHK Spring and its co-conspirators exchanged pricing information to inform their negotiations with U.S. and foreign customers.

NHK Spring has agreed to pay a $28.5 million criminal fine for its role in the conspiracy and to cooperate in the ongoing investigation. In addition to the Division, Brazil’s Administrative Council for Economic Defense investigated NHK Spring for the same conduct related to its possible effects in Brazil. Several class actions have also been filed against NHK Spring for related conduct.

European Commission Issues Fines in Second Canned Food Cartel Case

Key Point: The European Commission continues to investigate collusion in the canned food industry.

On September 27, 2019, the European Commission (EC) fined two participants in the canned vegetables market a combined €31.6 million (US$35.3 million) for participating in a 13-year cartel. The participants were fined for allegedly exchanging commercially sensitive information, agreeing to market shares and volume quotas, allocating customers and markets, and bid rigging, which affected the prices of a variety of canned vegetables across Europe and specifically France, where both retailers and restaurants were targeted by the companies.

A third company, Bonduelle, revealed the cartel to authorities and, as a result, escaped what could have been a €250 million fine (US$278.3 million) through a leniency application. The two fined participants, Coroos and Groupe CECAB, acknowledged their participation in the cartel and their liability for it, thereby benefitting from a fine reduction under the EC’s Settlement Notice. They also received additional reductions for cooperating with the EC’s investigation. One of the two also received an additional, undefined fine reduction for “inability to pay,” which the EC may grant if the imposition of a fine would irretrievably jeopardize the economic viability of the business and cause its assets to lose all of their value. A fourth company, Conserve Italia, is reportedly still under investigation.

These fines follow prior EC enforcement actions in the canned food industry. In 2014, the EC fined Bonduelle €30 million (US$33.4 million) for its role in a canned mushroom cartel in an investigation that later resulted in a €5.2 million (US$5.8 million) fine against Spanish company Riberebro in 2016.

Insurance Companies Fined for Coordinating Insurance Prices in Portugal  

Key Point:  Portugal’s antitrust enforcer states that fighting cartels is a “top priority” as it imposes fines on the first known cartel in the Portuguese financial sector.

On August 1, 2019, the Portuguese competition authority, Autoridade da Concorrencia (AdC), announced that it had levied more than €54 million (US$60 million) in fines against four insurance companies and four executives for engaging in cartel practices. According to the AdC, from 2014-2017, the local branch of Zurich Insurance Group, as well as Portuguese insurers Lusitania, Fidelidade, Multicare, and Seguradoras Unidas, coordinated the prices for large corporate clients regarding workplace accident, health, and auto insurance. The companies presented higher prices to each other’s customers so that the incumbent insurer would retain the customers’ business. Lusitania and Zurich also allegedly allocated workplace accident insurance customers. 

The AdC discovered the cartel due to a leniency application by Seguradoras Unidas, which received full immunity pursuant to the AdC’s Leniency Programme. Fidelidade and Multicare ­subsequently applied for leniency and, while ineligible for full immunity, received a reduced fine. The companies received a further fine reduction by entering into a settlement agreement with AdC, which required them to admit fault and waive their right to further judicial proceedings. As a result of these reductions, the fines for both companies totaled €12 million (US$13.5 million). In contrast, Zurich and Lusitania, along with four individual defendants, were fined over €42 million (US$46.5 million) after they contested the AdC’s allegations. Soon after the announcement, Zurich Portugal announced that it was considering an appeal of the AdC’s decision.

Property Buyers’ Cartel Member Fined for Price-Fixing in New Zealand

Key Point:  New Zealand court issues fine in the Commerce Commission’s first-ever enforcement action against a buyer-side cartel.

On September 13, 2019, Ronovation Limited, a firm that provides advisory services to members investing in property, was fined NZ$400,000 for price-fixing by the High Court of New Zealand at Auckland. The Commerce Commission viewed Ronovation’s rules as anticompetitive because they prevented members from competing against each other for properties. Under the rules, the first member to state its interest in a property then had priority over other members, who were not permitted to negotiate or bid for the property. Ronovation’s rules were posted on its Facebook page in September 2011 and agreed to by its members, who then posted messages on Facebook to express interest in properties. Members purportedly used selfies in order to claim properties. The High Court held that this amounted to cartel conduct in breach of section 30 of the Commerce Act, and noted that the agreement potentially affected up to 471 properties over a seven-year period, as Ronovation’s membership grew to over 400 paid members. Ronovation would have been subjected to a higher fine but received a discount as a result of its cooperation with the Commerce Commission.

Notably, section 30 does not require that all parties to the agreement be in competition with each other; it only requires that two or more of the parties be in competition with each other. As such, while Ronovation itself did not compete with its members, it was liable for price-fixing under section 30 because its members were in competition with each other, and Ronovation facilitated their agreement not to compete against each other.  

Indonesia’s Antitrust Enforcer Begins Hearings into Alleged Airfare Cartel Involving Country’s Two Largest Carriers

Key Point: Hearings begin in a sprawling investigation into collusion in the Indonesia airline industry prompted by public complaints over ticket prices. 

On September 17, 2019, Indonesia’s Business Competition Supervisory Commission (KPPU) opened the first of a series of hearings into price-fixing allegations involving Garuda Indonesia, Lion Air, and five other domestic airlines, that combined make up roughly 95% of the country’s domestic aviation market. The first hearing involved claims that the airlines colluded over domestic ticket prices. The KPPU relied heavily on pricing data as evidence of collusion, including the fact that these airlines’ prices continued to rise at the end of 2018 despite a decrease in fuel prices, while the prices of a smaller competitor decreased by over 16%. The accused airlines, in contrast, have argued that their price increases were the result of rising fuel prices and poor Rupiah-U.S. dollar exchange rates. 

The hearings mark the latest phase of an investigation that began in January 2019 in response to public outcry stemming from soaring domestic airline ticket prices throughout 2018. Average prices continued to rise even as the Indonesian government instituted caps and floors on airfares, after which the KPPU formally announced charges in July 2019. The KPPU also alleges that the airlines colluded on high cargo fees, checked baggage fees, Islamic pilgrimage packages, and online ticketing. The KPPU hearings could take up to eight months. The probe comes on the heels of the ACCC’s investigation into Garuda’s involvement in a global air cargo cartel, which resulted in an AUD 19 million fine against Garuda in May 2019.