2009 Mid-Year Criminal Antitrust Update

July 6, 2009

At the mid-point of 2009, the dominant trends in criminal antitrust have been dramatically increased fines and prison terms, both in the United States and abroad, particularly for cartel conduct.  Highlights of 2009 include:

• U.S. criminal antitrust fines for FY 2009 already exceed $950 million, surpassing the total amount of fines collected in each full fiscal year in the past nine years;
• Significant guilty pleas, fines, and prison sentences in various enforcement authorities’ prosecutions of price-fixing conduct in Air Cargo, Marine Hose, Thin Film Transistor-Liquid Crystal Display (TFT-LCD) panels, Cathode Ray Tubes (CRT), and Dynamic Random Access Memory (DRAM), which are in addition to record-breaking fines and sentences already imposed in those cases;
• The longest prison term imposed on an individual in the United States for a single antitrust charge–48 months;
• The Obama Administration’s announcement of new leadership at the Antitrust Division, and continued vigorous enforcement of criminal antitrust laws, including proactive measures relating to economic stimulus funds; and
• New and enhanced criminal antitrust laws in Australia and Japan, accompanied by tough rhetoric.

These are just a few indications of the continued and increasingly vigorous criminal enforcement of antitrust laws around the world.  The following is a more detailed discussion of the year-to-date highlights of 2009. 

U.S. Criminal Antitrust Fines for 2009 at Record-Breaking Pace

With four months to go in the U.S. Department of Justice’s fiscal year, the Antitrust Division has already imposed criminal antitrust fines that exceed $950 million.  By comparison, for all of FY 2008, the DOJ imposed $701 million in criminal antitrust fines, which had been more than in any previous year since 1999.  The following chart puts FY 2009 to date in context of the last decade:

By March 2009, the DOJ announced that it had already imposed $745 million in fines, but in the next month alone it imposed an additional $214 million in additional fines on three international airlines in the ongoing Air Cargo Investigation (see below).  There remain numerous corporate and individual targets in the DOJ’s investigation into price-fixing in, among others, the TFT-LCD and CRT markets, which themselves are still at early stages.  As a result, the astronomically high aggregate fines in FY 2009 will only climb higher. 

Significant Prosecutions

International Air Cargo Investigation

The worldwide investigation into air cargo transportation price-fixing continued to produce substantial fines around the world.  The conspiracies alleged by the various enforcement authorities involved fees such as fuel surcharges and post-September 11 security charges imposed by several major international airlines.

The DOJ has obtained numerous additional corporate guilty pleas resulting in substantial fines.  In addition to the more than $1.2 billion in fines previously imposed on nine international carriers, the DOJ has obtained hundreds of millions of dollars in fines from an additional six carriers, totaling over $338 million for FY 2009 to date.  In January, the DOJ announced that LAN Cargo S.A., Aerolinhas Brasileiras S.A. (ABSA) (which is substantially owned by LAN) and El Al Israel Airlines each agreed to plead guilty to criminal price-fixing and collectively pay more than $124 million.  (LAN and ABSA jointly paid $109 million; El Al paid $15.7 million.)  Additionally, in April, the DOJ announced that Cargolux Airlines International S.A., Nippon Cargo Airlines Co. Ltd., and Asiana Airlines Inc., each also agreed to enter guilty pleas and pay fines totaling over $214 million:  Cargolux ($119 million); Nippon ($45 million); Asiana ($50 million).  This brings the total number of corporate defendants that have entered guilty pleas in the U.S. to 15, with collective fines of more than $1.6 billion, the highest fines ever imposed in a single criminal antitrust investigation.

What is more, the DOJ obtained a guilty plea from a fourth executive in its Air Cargo Investigation.  A former vice president of Martinair Holland NV, Franciscus Johannes de Jong, agreed to serve eight months in prison and pay $20,000 in fines for his participation in price-fixing in the air cargo industry.  In 2008, three executives (one each from Qantas, British Airways, and SAS) entered guilty pleas, with sentences ranging from six to eight months and $20,000 in fines (except for the SAS executive, who only received a jail sentence).

The DOJ is not alone in obtaining criminal fines in 2009 related to cartel conduct in the air cargo market.  In February, the Australian Competition and Consumer Commission (“ACCC”) announced that Martinair and Cargolux had each consented to pay $5 million (US) and Air France-KLM had also agreed to pay $6 million (US)–a total of $16 million (US).  The ACCC had already obtained $25 million (US) in its investigation into air cargo price-fixing.

Most recently, on June 26, the Canadian Competition Bureau announced that Air France, KLM and Martinair pleaded guilty and were fined a total of $10 million (US) in Canada’s investigation into the air cargo cartel.  The fines imposed on the companies were as follows: Air France ($4 million (US)); KLM ($5 million (US)); and Martinair ($1 million (US)).

The investigations in all jurisdictions remain ongoing.

Marine Hose Investigation

The global investigation into price-fixing in the marine hose industry that went overt in May 2007 with arrests in Houston and San Francisco and simultaneous search warrants executed at locations across the U.S., as well as in the U.K. by the Office of Fair Trading and in Europe by the European Commission, has remained active in 2009. 

In January, the European Commission announced that it had fined five marine hose manufacturers for a total of $173 million for their part in the conduct.  The companies receiving fines were Bridgestone Corporation ($76.8 million), Parker ITR slr ($33.5 million), Trelleborg Industrie S.A. ($32.1 million), Dunlop Oil & Marine Ltd. ($23.6 million), and Manuli Rubber Industries SPA ($6.4 million).  The Commission also announced that Yokohama Rubber Co. had received immunity as the first conspirator to come forward to cooperate.  The Commission levied harsher fines on Bridgestone and Parker because it found that they were the leaders of the conspiracy, whereas Manuli received a 30% reduction in its fine in exchange for its cooperation in the Commission’s investigation.

In April, the DOJ obtained additional guilty pleas in its own Marine Hose investigation, this time from two subsidiaries of Trelleborg (Virginia Harbor Services, Inc. and Trelleborg Industrie SAS).  The subsidiaries agreed to pay a total fine of $11 million in exchange for pleading guilty to two separate conspiracies involving price-fixing of marine hose and bid-rigging and allocating customers in contracts to sell plastic marine pilings.  In December 2008, Manuli pleaded guilty and was ordered to pay a fine of $4.54 million, and Dunlop agreed to plead guilty and pay a fine of $2 million.  Additionally, nine individuals have pleaded guilty in the U.S. to participation in the marine hose cartel.

The Korea Fair Trade Commission (“KFTC”) has also been active in 2009 in its Marine Hose investigation.  In May, the KFTC imposed fines on Bridgestone, Dunlop, Trelleborg, and Parker.  These fines were substantially lower, however, than the fines those companies received in the U.S. and Europe:  Bridgestone ($256,600); Dunlop ($117,400); Trelleborg ($40,200); Parker ($33,700).  Manuli was also implicated in the conduct, but did not receive a fine.  Yokohama escaped sanction because of its amnesty status in Korea.

TFT-LCD & Cathode Ray Tube Investigations

The TFT-LCD panel price-fixing investigation–which began in 2006 and was extremely active in 2008–has brought additional guilty pleas, fines, and indictments in 2009.  There also has been an active investigation in the cathode ray tubes (“CRT”) industry, which is related to TFT-LCD.  Last year, the DOJ had secured guilty pleas from three companies–LG Philips (now LG Displays), Chunghwa Picture Tubes Ltd., and Sharp Corporation–totaling $585 million in the TFT-LCD investigation.  This year to date, the DOJ has also secured a guilty plea from Hitachi Displays Ltd.  Hitachi agreed to pay a $31 million fine for its participation in a conspiracy to fix the prices for TFT-LCD panel sales to Dell from April 2001 through March 2004. 

The DOJ has also obtained indictments or guilty pleas from nine executives from all of the four companies that entered guilty pleas.  In January, four executives from LG Displays and Chunghwa entered pleas.  Chang Suk Chung, an LG executive, agreed to serve a seven-month prison sentence and pay $25,000 in criminal fines.  The Chunghwa executives–Chieng-Hon Lin, Chih-Chun Liu, and Hsueh-Lung Lee–agreed to serve nine, seven, and six-month prison terms, respectively, plus fines of $50,000, $30,000, and $20,000.  These executives pled guilty to participating in a conspiracy to fix TFT-LCD prices worldwide from September 2001 to December 2006.  All of these individuals who entered guilty pleas were foreign nationals, based abroad, and for whom extradition would have been difficult.  These guilty pleas continue the trend of the DOJ forcing foreign executives who participated in price-fixing to serve U.S. jail sentences.

The following month, in February, two more executives from Chunghwa and another executive from LG Displays were indicted.  The Chunghwa executives were Cheng Yuan Lin (a former CEO) and Wen Jun Cheng; the LG executive was Duk Mo Koo.  Then in March an executive from Hitachi–Sakae Someya–was also indicted.  Finally, in April, another LG executive, Bock Kwon, entered a guilty plea and agreed to serve a sentence of a year and one day in prison, plus pay a $30,000 criminal fine.  Several other TFT-LCD competitors still remain uncharged and further indictments and guilty pleas can be expected in the months to come.

Additionally, the DOJ’s CRT investigation has begun to yield criminal charges in 2009.  The DOJ was in the nascent stages of its CRT investigation in 2008, but in February 2009, the grand jury issued its first indictment in the CRT investigation for Cheng Yuan Lin, a former CEO of Chunghwa, who was also indicted in the TFT-LCD investigation.  To date, this is the only indictment in this investigation, but this remains a case to continue to watch in 2009 as more are expected, if the TFT-LCD investigation is any guide.

Longest Sentence for Single Charge Ever Imposed in Criminal Antitrust Case

In January, the DOJ secured a 48 month jail sentence in its investigation into collusion in shipping freight services between the continental United States and Puerto Rico.  Peter Baci, a shipping executive, agreed to plead guilty to participating in a conspiracy to suppress and eliminate competition in the U.S.-Puerto Rico shipping lane.  The 48-month sentence is the longest jail sentence ever imposed for a single antitrust charge.  The maximum sentence for antitrust crimes is 10 years.  Antitrust and obstruction of justice charges remain against three other executives in that case.  This case further illustrates that the DOJ is seeking longer jail sentences and will seek multi-year sentences against individuals even when they agree to enter into guilty pleas.  The average jail sentence for antitrust crimes was 9 months in 2006, 31 months in 2007, and 25 months in 2008. 

Other Developments in the United States

New Leadership at the Antitrust Division

The most notable development of 2009 at the DOJ has been the arrival of new senior leadership at the Antitrust Division, principally the appointment of Christine Varney as Assistant Attorney General.  However, as a sign of the DOJ’s continued focus on the enforcement of criminal antitrust laws, Scott Hammond has remained as the Deputy Assistant Attorney General for Criminal Enforcement at the Antitrust Division.  Hammond is the only Deputy Assistant Attorney General to remain in place at the Antitrust Division with the change of administrations.

Announcement of Citizen Complaint Center

On April 13, 2009, the DOJ announced an unprecedented effort proactively to enforce criminal antitrust laws by establishing a new “Citizen Complaint Center” to accept reports of potential collusive conduct and fraud in procurement and grant awards under the American Recovery and Reinvestment Act of 2009 (“the Recovery Act”).  In addition to creating a center to accept complaints of such conduct by telephone and e-mail, the DOJ also published on its website “Red Flags of Collusion” that provide guidance as to what types of conduct the DOJ regards as potentially collusive and which markets are most likely to foster collusive activity.  The DOJ also stated that it will be providing training to federal agency procurement and grant officers, as well as agency auditors and investigators to identify collusive conduct.

These efforts underscore the DOJ’s increasingly aggressive enforcement of criminal antitrust laws and illustrate that companies submitting bids or accepting funds under the Recovery Act (or any other stimulus programs instituted by the government) will be the subject of increased scrutiny.  The Recovery Act authorizes over $500 billion in stimulus spending for projects, such as for infrastructure and renewable energy, in addition to the hundreds of billions of dollars authorized to provide liquidity to the financial markets and stabilize the automotive, insurance, and financial services industries.  In announcing this new initiative, the DOJ noted that “[t]he potential risk of fraud and collusion increases dramatically when large blocks of funds, such as those associated with the Recovery Act, are quickly disbursed.”

This is the first time the DOJ has preemptively issued a warning regarding conduct that would violate criminal antitrust laws and established a “hotline” to receive reports of such conduct.  This announcement emphasizes the DOJ’s particular concern regarding illegal activity related to stimulus funds, but it is also in line with its increasingly vigorous enforcement of criminal antitrust laws. 

International Developments

Australia Passes Criminal Antitrust Statute

On June 16, the Australian Parliament passed legislation that would enact new civil and criminal prohibitions on cartel activities.  The law comes into effect upon Royal Assent, a formality that is expected to occur around the time of print, and will go into effect 28 days thereafter.  This new anti-cartel law provides for criminal sanctions, including up to 10 years of imprisonment, as well as substantial monetary penalties.  An overview of the law can be found at
http://minister.innovation.gov.au/Emerson/Pages/UPTO10YEARS.aspx.

Japan Approves Higher Criminal Sanctions for Cartelists and Bid-Riggers

On June 3, Japan passed increased criminal sanctions for collusive market conduct.  In an amendment to its Anti-Monopoly Act, the maximum prison sentence for engaging in cartel conduct or bid-rigging has increased from three to five years.  Monetary fines were also increased by 50%.  Additionally, the statute of limitations for cartel conduct and bid-rigging was increased from three to five years.

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following:

Washington, D.C.
F. Joseph Warin (202-887-3609, [email protected])
D. Jarrett Arp (202-955-8678, [email protected])
David P. Burns (202-887-3786, [email protected])  
John W.F. Chesley (202-887-3788, [email protected])

New York
Randy M. Mastro (212-351-3825, [email protected])
James A. Walden (212-351-2300, [email protected])
Peter Sullivan (212-351-5370, [email protected])
John A. Herfort (212-351-3832, [email protected])
Lawrence J. Zweifach (212-351-2625, [email protected])

Denver
Robert C. Blume (303-298-5758, [email protected])
Stephen C. McKenna (303-298-5963, [email protected])

Dallas
M. Sean Royall (214-698-3256, [email protected])

San Francisco
Gary R. Spratling (415-393-8222, [email protected])
Joel S. Sanders (415-393-8268, [email protected])
Trey Nicoud (415-393-8308, [email protected])
Joshua D. Hess (415-393-8276, [email protected])
Rachel S. Brass (415-393-8293, [email protected])

Los Angeles
Daniel G. Swanson (213-229-7430, [email protected]) 

Brussels
David Wood (+32 2 554 7210, [email protected])