April 29, 2009
On April 13, 2009, the U.S. Department of Justice, Antitrust Division announced an unprecedented effort to proactively 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 (“Recovery Act”), which President Obama signed into law on February 17, 2009. In addition to creating a center to accept complaints of such conduct by telephone and e-mail, the Antitrust Division also published on its website “Red Flags of Collusion” that provide guidance as to what types of conduct the Division regards as potentially collusive and which markets are most likely to foster collusive activity. It 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.
This undertaking underscores the Antitrust Division’s increasingly aggressive enforcement of criminal antitrust laws and illustrates 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 in excess of $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 Antitrust Division 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.”
The “red flags” published by the Antitrust Division illustrate the types of markets and conduct that it is seeking to target. Specifically, the notice states that collusive activity is more likely to occur in markets where:
The notice also directs individuals to look for certain characteristics or patterns before and after the award of a bid. For example, “red flags” would include: two or more proposals being written in the same handwriting, using similar language, having the same typos and math errors, being sent from the same address, and reflecting last-minute changes to price.
Patterns of conduct that are said to constitute “red flags” include:
Other “suspicious activity” includes a vendor submitting a proposal for goods and services that it cannot supply itself, a vendor submitting multiple proposals, or a vendor indicating prior knowledge of competitors’ proposals or likelihood of winning a contract.
The Division’s notice states that any combination of these “red flags” should be reported to the Division through its complaint center. These complaints can be made anonymously, but, in any case, the identity of the complainant will be maintained in confidence even if disclosed to the Division. The Division noted that self-reporting of illegal conduct can continue to be made through its Corporate Leniency Program. For more information, go to http://www.usdoj.gov/atr/public/criminal/economic_recovery.htm.
This is the first time the Division 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 underscores the Division’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. In the first half of FY 2009 alone, the Division has collected over $950 million in criminal fines, which is significantly more than the $701 million it collected in all of FY 2008 and is on the way to breaking all previous records regarding criminal antitrust fines. The Division also brought criminal charges against 59 individuals and 25 companies in 2008 (the largest number since 2000), with 137 pending grand jury investigations (the largest number since 1992). The length of jail sentences obtained by the Division against business executives has continued to increase. The average sentence the Division secured against U.S. executives was over 30 months in 2008; 18 months for foreign executives–a Division record.
These statistics emphasize the significant consequences for companies and their employees for engaging in collusive activity and the need for vigilance in complying with the antitrust laws. The Division’s announcement this week should put any company competing for awards under the Recovery Act or other stimulus programs on notice that they need to be particularly concerned that they are compliant with the antitrust laws.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have concerning this notice or about enhancing your company’s antitrust compliance programs. Please contact the Gibson Dunn attorney with whom you work, or any of the following:
Gary R. Spratling (415-393-8222, firstname.lastname@example.org)
Joel S. Sanders (415-393-8268, email@example.com)
Trey Nicoud (415-393-8308, firstname.lastname@example.org)
Joshua D. Hess (415-393-8276, email@example.com)
Rachel S. Brass (415-393-8293, firstname.lastname@example.org)
Stephen C. McKenna (303-298-5963, email@example.com)
James Ashe-Taylor (+44 20 7071 4221, firstname.lastname@example.org)
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