Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel - Q2 2022

In July 2022, cartel enforcers and defense counsel from around the globe met in Lisbon, Portugal at a workshop sponsored by the American Bar Association. The message from the enforcers was that, even though detection and prosecution of large international cartels has been down in recent years, the enforcers are ready and willing to use new tools to uncover cartel conduct. They also are willing to expand the scope of conduct that they will pursue as serious cartel offenses. In particular, enforcers from a variety of jurisdictions—including the United Kingdom, Portugal, and Brazil—are touting ongoing investigations of no-poach and wage-fixing conduct, similar to how the United States has prioritized antitrust enforcement in labor markets. And, as we noted in our last edition, Canada is implementing changes to its laws to enable criminal charges for labor market collusion.

This quarter also saw several criminal cartel trials in the United States and quite a few losses by prosecutors when juries did not agree that offenses had been proven beyond a reasonable doubt. The U.S. Department of Justice’s Antitrust Division suffered another defeat in its broiler chickens investigation when, at the conclusion of an unprecedented third trial, a jury acquitted the five remaining defendant executives. The Division may be looking to change strategy or it may be in for more of the same when its trials against remaining executives and companies arising out of the same investigation get underway this fall and next spring, respectively.

Despite these losses, the Division collected several wins in bid-rigging investigations. The Division scored one victory at trial, reached two plea agreements, and indicted three military contractors, all of which involved alleged efforts to manipulate the bidding processes for contracts. These cases confirm that the Division remains committed to investigating and prosecuting violations across industries, regardless of the dollar amount at issue. It also shows that the Division continues to have success pursuing its more traditional cases. On the labor front, the Division recently announced a civil settlement with several chicken producers based on allegations of sharing wage information, which carries no criminal conviction or risk of jail but still represents progress in the Division’s attempts to police anticompetitive conduct in labor markets.

On the policy front, the Division continues to hint about the prospect of criminal monopolization cases, but only through speeches and general descriptions. The Division has thus far provided little insight about what conduct may lead to criminal charges and when it may file any such charges.

Internationally, although global cartel enforcement has been quiet, Portugal and Canada are working to ramp up their domestic enforcement actions, and Australia recently resolved the first cases brought pursuant to its criminal antitrust authorities.

We will bring you up to speed on these developments and more in this edition of the Quarterly Cartel Catch-Up.

Jury Acquits All Remaining Defendants in the Division’s Third Attempt to Convict Several Executives in Its Broiler Chickens Investigation

Key Point: The Division suffered a critical trial defeat when a third jury decided that each of the five executives alleged to have fixed prices of broiler chickens was not guilty.

On July 7, 2022, a jury found the five remaining broiler chicken executives not guilty of fixing prices for the sale of broiler chickens to restaurants and grocers across the country. In June 2020 and October 2020, the Division indicted ten executives from Tysons, Pilgrim’s Pride, Koch Foods, and Claxton Poultry, for allegedly conspiring to fix the price of broiler chickens from 2012 through 2019. But the Division’s first two attempts to try all ten executives ended in mistrials—on December 16, 2021 and March 29, 2022—because both juries were unable to reach a unanimous verdict. After the Division vowed to try the case for a third time, the judge ordered Assistant Attorney General Jonathan Kanter to appear and explain why a third trial was likely to end differently. Although the Division voluntarily dismissed the charges against five executives, it later confirmed that it would proceed with a third trial against the remaining five defendants.

The third jury’s verdict—an outright acquittal—means that all ten defendant executives have now been cleared of any criminal wrongdoing. This outcome does not bode well for the Division’s plans to try four other executives in October 2022, and two companies (Koch Foods and Claxton Poultry) in April 2023. Perhaps seeking to improve its chances of conviction on at least some charge, on July 12, 2022, the Division added charges against one of the executives, now also alleging obstruction of justice and witness tampering. But these new charges do not address the fact that three juries have now concluded that the Division’s evidence of price fixing in this industry was not enough.

Division Secures Conviction of Oil Executive for Bid Rigging

Key Point: The Division’s secures second trial victory of Sherman Act violation in 2022.

On May 18, 2022, after a three-day trial, an Eastern District of Louisiana jury convicted a former manager of a petroleum company for conspiring to defraud the United States by sharing non-public information that was then used to bid on government contracts involving the Strategic Petroleum Reserve, and for making false statements to federal agents. Johnny C. Guillory, Sr. worked for a company that managed and operated the Strategic Petroleum Reserve, which stores a portion of its oil in Louisiana. The Division alleged that, from February 2002 through at least October 2016, Guillory provided confidential bidding and pricing information to Cajan Welding & Rentals, and Cajan paid Guillory for that information. Over the course of this conduct, the government awarded Cajan more than fifty contracts valued at over $15 million. Guillory will be sentenced on September 8, 2022, and faces up to five years’ imprisonment, a fine of up to $250,000, and up to a three-year term of supervised release.

This case is the second trial victory for the Procurement Collusion Strike Force, after a North Carolina jury convicted an executive for rigging bids on contracts for drainage systems. Notably, the Division did not charge a violation of the Sherman Act. Rather, and consistent with the April 2022 updates to the antitrust section of the Justice Manual, the Division charged Guillory for conspiring to defraud the government during the bidding process, rather than for submitting a rigged bid. This case shows that the Division is ready and willing to use all of its tools to protect the competitive bidding process, especially when it involves the government.

Commercial Flooring Contractor and Its Former President Plead Guilty to Bid-Rigging and Price-Fixing Conspiracy

Key Point: The Division secured two additional plea agreements in an ongoing investigation into the commercial flooring industry.

On June 9, 2022, the Division announced a plea agreement with Commercial Carpet Consultants Inc., a Chicago-based commercial flooring contractor, and its former president, Jerry P. Watson, for their participation in a multi-year conspiracy to rig bids and fix prices for commercial flooring products and services. Commercial Carpet Consultants agreed to pay a $1.2 million criminal fine, and Watson will be sentenced at a later time.

These plea agreements are part of an ongoing federal antitrust investigation into the commercial flooring industry. Commercial Carpet Consultants is the fourth company charged, and Watson is the sixth individual to plead guilty. According to court documents, from at least as early as 2009 until at least June 22, 2017, the company and Watson agreed with other companies and individuals to submit coordinated bids so that the pre-determined company would win the contract at an inflated price.

Notably, the first charges in this investigation were resolved in August 2019 when one company pleaded guilty and agreed to pay a $150,000 criminal fine. Now, nearly three years later, this investigation finally appears to be winding down.

Division Indicts Three Different Military Contractors for Bid Rigging

Key Point: The Procurement Collusion Strike Force continues to aggressively investigate and prosecute bid rigging in a variety of government contracts industries.

The Division has indicted military contractors in three separate bid-rigging investigations.

On April 12, 2022, in the Middle District of Florida, the Division indicted Lawrence O’Brien, Bruce LaRoche, and Thomas Dailey for conspiring to rig bids for customized promotional products to the U.S. Army and secure sales for a pre-arranged winner. LaRoche and O’Brien were also charged with conspiring to defraud the United States by using shell companies that were owned or controlled by LaRoche to submit sham bids.

On May 20, 2022, in the Eastern District of Texas, the Division indicted Aaron Stephens for two separate schemes to rig bids for military contracts and to defraud the United States. Stephens allegedly rigged bids for eight military contracts in Texas, Michigan, and California, from May 2013 to April 2018, and received more than $15 million from the government for those contracts.

On June 23, 2022, in the Northern District of Georgia, the Division indicted Envistacom LLC, its executives Alan Carson and Valerie Hayes, and the owner of another company, Philip Flores, for fraud and conspiracy to defraud the United States. The contractors allegedly made false statements and submitted sham quotes from other companies to ensure they won sole-source awards between September 2014 to November 2016, which impacted government contracts worth more than $7 million.

DAAG Powers Continues to Hint at the Division’s Plans to Bring Section 2 Cases

Key Point: The Division has doubled down on its plans to bring criminal monopolization cases where there is evidence of an “intent to monopolize.”

On June 3, 2022, Deputy Assistant Attorney General Richard Powers delivered a speech in which he expanded on his March 2022 comments about the Division’s willingness to bring criminal monopolization charges by providing additional explanation of its reasoning. Powers’ initial March 2022 comments were a surprise, as his discussion of the possibility of criminal monopolization charges was prompted by a question from the audience. But in speeches in April 2022 and May 2022, Assistant Attorney General Jonathan Kanter, the head of the Division, affirmed its commitment to more vigorous enforcement of Section 2 (the monopolization section of the Sherman Act). The recent speeches suggest that the Division is strongly considering filing Section 2 charges in one or more of its investigations, and laying the groundwork for those charges.

Powers elaborated on the prospect of criminal monopolization charges even further during aJune 7, 2022 ABA webinar, in which he reiterated that bringing criminal charges under Section 2 is “not a novel idea or theory,” but rather consistent with the history of Section 2 enforcement actions. Notably, Powers explained that the policy was more than just an “academic exercise” and that there were active investigations in different industries.

In response to requests for guidance about the standards the Division will use to assess the viability of criminal monopolization charges, Powers demurred and noted that the “ample case law” on the subject obviated the need for additional guidance. However, he did provide hints about how the Division is likely to approach any Section 2 investigation by stating that criminal charges would most likely be filed when there is “clear evidence” of monopolistic intent, such as when the Division does not face the challenges that are typical in civil monopolization cases (e.g., presenting economic evidence on market definitions and market share). But, as the Division has learned the hard way in its recently unsuccessful attempts to prosecute labor-market violations, novel theories may look better on paper than they fare in practice. Nonetheless, companies would be wise to consider whether any practice or aspect of their business could present risk.

Canadian Competition Bureau Unveils New Interactive Tool to Fight Bid Rigging

Key Point: The Bureau’s interactive tool provides a “collusion risk score” for any proposed contract solicitation, and seeks to enlist both public and private help in detecting and reporting possible bid rigging.

On June 16, 2022, the Canadian Competition Bureau announced the launch of its “Collusion Risk Assessment Tool,” which it hopes will help “protect the[] procurement process from bid-rigging. ”According to the Bureau, this interactive tool will help protect both public and private sector procurement efforts by assessing the risk of a proposed call for bids on a contract. After completing a questionnaire about the contract, the tool will provide users with a “collusion risk score” and suggest a suite of best practices to help mitigate those risks.

This tool is intended to flag the same tell-tale signs of possible collusion that government enforcers use.In addition to raising awareness of the risk of bid rigging, the Bureau is enlisting both public and private procurement officials in its efforts to protect and promote competition. The launch page for the tool includes links for users to report suspected wrongdoing. Public awareness campaigns like this one often help to generate new leads and spark the opening of new investigations. They also help deter wrongdoing by giving aspiring bid-riggers another means of possible detection to worry about.

Cartel Enforcement in Portugal Ramps Up

Key Point: The Portuguese Competition Authority carried out dawn raids and announced fines for consumer goods retailers.

The Portuguese Competition Authority (PCA) carried out a number of cartel enforcement actions over the past few months, including unannounced dawn raids and significant fines for price fixing. On May 2, 2022, the PCA announced that it carried out three unannounced inspections in the first quarter of the year, along with opening three new cartel investigations. The PCA did not disclose the companies or industries it was investigating, but indicated that at least one of the inspections related to the healthcare industry and COVID-19.

Additionally, on June 9, 2022, the PCA fined five companies a total of €132 million for fixing prices in a wide range of products, including detergents, deodorants, ice cream, and tea. The PCA alleged that four supermarket chains Auchan, E. Leclerc, Modelo Continente, and Pingo Doce used their common supplier to collude. The PCA’s investigation of the grocery industry in Portugal has been ongoing since 2017, and the PCA has assessed €645 million in fines to date.

The PCA’s focus on cartel enforcement in the healthcare and consumer goods sectors is consistent with actions taken by other enforcers around the world. As the PCA explained, economic conditions can lead to “crisis cartels,” in which companies facing supply challenges seek to overcome them by colluding on prices. As global economic woes continue, the PCA and other international enforcers are likely to stay busy.

Cartel Enforcers and Defense Bar Meet to Discuss Trends, Future of Cartel Enforcement

Key Point: Enforcers identified bid rigging and labor markets as priorities for future enforcement, and have adopted broader enforcement strategies in response to declining leniency applications.

The ABA’s International Cartel Workshop took place in Lisbon from June 27-29, 2022. During the workshop, hundreds of cartel practitioners, including past and current enforcers from the EU, UK, Canada, Brazil, and other jurisdictions, met to discuss recent developments in cartel enforcement, as well as to predict future enforcement priorities.

The decline in leniency applications across jurisdictions was a primary topic of discussion.Leniency programs were established to incentivize the self-reporting of violations and have historically been a significant source of cartel investigations.However, multiple jurisdictions reported a decrease in leniency applications or applications limited to domestic conduct. Several enforcers observed that the decrease was not the result of less cartel conduct so much as the rising costs of leniency, given the potentially onerous cooperation requirements and increase in civil litigation. The defense bar in particular called attention to the Division’s recently announced changes to its leniency program as likely contributing to the increased hesitation in seeking leniency. In the absence of leniency applicants, several enforcers highlighted the extent to which they have started to rely more heavily on whistleblowers, data analytics, and other tools to uncover cartel conduct.

Enforcers also shared how these other detection efforts have helped to shape their current priorities.For example, Portugal and other European enforcers highlighted an increased focus on domestic bid-rigging cartels, and increased reliance on algorithms and related analysis of bidding data to help spot anomalies. Several enforcers also discussed an emerging interest in policing anticompetitive conduct in labor markets. For example, Canada has expanded its criminal liability to include no-poach and wage-fixing agreements (set to take effect in 2023), while enforcers in the EU, Brazil, and elsewhere are reportedly investigating labor market agreements as civil violations under their respective enforcement regimes.

First-Ever Australian Cartel Prosecutions End with Suspended Prison Sentences

Key Point: An Australian judge found that the defendants’ remorse and the risk of significant collateral consequences justified suspending their prison sentences.

On June 9, 2022, an Australian judge handed down suspended prison sentences for the first four individuals convicted of violating the country’s competition laws since Australia criminalized cartel conduct in 2009. The four individuals pleaded guilty to conspiring to fix the exchange rate of the Australian dollar and the Vietnamese dong. The judge imposed sentences on each defendant to emphasize the seriousness of the violations, but she ultimately suspended the sentences after finding that the guilty pleas show remorse and noting the significant collateral consequences that each defendant would suffer if confinement were required.

The trial for the fifth defendant is scheduled to start in September 2022. However, this initial outcome suggests that a sentence imposed after a full-fledged trial may not be as forgiving. Notably, the Australian Competition and Consumer Commission (ACCC) waited a decade after the change in the law to bring this criminal case. As the ACCC tries more cases and brings additional charges, it is likely only a matter of time before guilty defendants face harsher criminal punishments.