2008 Year-End Criminal Antitrust Update

January 7, 2009

Introduction

The dramatic surge in worldwide criminal antitrust enforcement over the last decade continued at a remarkable pace in 2008, with no signs of ebbing on the horizon.  This update provides a summary overview of criminal antitrust enforcement in 2008 and a discussion of the trends we see from that activity over the next few years.  Gibson Dunn has been fortunate to have represented many clients in these matters.  Among the most notable developments and trends from the last couple years, and 2008 in particular, are:

1. The ever-increasing amount of fines imposed by the U.S. Department of Justice, Antitrust Division (“DOJ” or “Antitrust Division”) – including fines of $400 million, $120 million, and $65 million imposed by the DOJ in November 2008 on LG Display, Sharp and Chunghwa Picture Tubes, respectively – and the world’s other leading antitrust enforcement authorities, particularly the European Commission (“EC” or “Commission”)  which as become more aggressive in seeking higher fines;

2. Individual foreign defendants are submitting to U.S. jurisdiction and receiving the longest criminal antitrust prison sentences in history, joining the significant upward trend of prison terms imposed on all criminal antitrust defendants;

3. A number of jurisdictions beyond the U.S. and Canada are imposing criminal antitrust sanctions on individuals and corporations, most notably the United Kingdom.  In Australia, a draft bill has been introduced that would create criminal penalties for cartel conduct.  Developments from 2008 demonstrate that criminal antitrust defendants involved in a single cartel may be criminally liable and subject to prison terms in multiple jurisdictions;

4. The first-ever attempted revocation of an amnesty applicant’s conditional amnesty by the DOJ and the continued fall-out from that decision;

5. The continued aggressive prosecution of non-antitrust charges by the Antitrust Division; and

6. The continued mixed record of the DOJ in obtaining convictions of individual defendants at trial in antitrust cases.

2008 also marked a year of notable changes that could have significant impact in the next year and beyond.  Obviously, in two weeks the United States will have a new President and new leadership at the DOJ.  The highly regarded Assistant Attorney General in charge of the Antitrust Division for the last three and one-half years, Thomas Barnett, has already resigned.  Given public statements made by President-elect Obama, and the success achieved by the Bush Administration in collecting record-setting fines and obtaining ever-higher prison sentences, the Obama Administration likely will continue the increasingly aggressive investigation and prosecution of criminal antitrust offenses.

Enforcement by the Numbers

Dramatic Increases in Fines Continue Through FY 2008 (and beyond)

When compared to the last eight years, the statistics for FY 2008 demonstrate the dramatic increase in the sanctions as a result of DOJ’s criminal enforcement actions.[1]  First, criminal antitrust fines continued to increase throughout FY 2008 with a clear likelihood that FY 2009 will set a staggering new record with respect to total fines levied.  In FY 2007, DOJ antitrust criminal enforcement resulted in approximately $630 million in fines imposed, and in FY 2008, the amount of criminal antitrust fines rose to approximately $686 million.

FY 2009 promises to be a record-setter.  As the chart below illustrates, for just the first quarter of FY 2009 (October-December 2008), the DOJ has already imposed criminal antitrust fines of approximately $592 million; this represents 86% of the fines imposed over the course of the entire prior year.  The bulk of this figure came from the agreed-upon fines imposed on the first three companies to enter guilty pleas in the DOJ’s TFT-LCD investigation (see more below); at least seven corporate subjects remain, some of which can be expected to pay comparable fines.

U.S.Criminal Antitrust Fines (2000-2009)

Although these aggregate numbers present a striking illustration of the DOJ’s increased enforcement of the criminal antitrust statutes, they do not reflect adequately the enormity of each fine imposed.  The chart below breaks out the criminal fines imposed by the DOJ in FY 2008/2009 that exceeded $10 million.  Notably, four of the fines imposed in this time period exceeded $100 million, including the second and third largest criminal antitrust fines imposed by the DOJ in history (the LG and Air France-KLM fines, respectively):

U.S. Fines of $10 million or more in FY 2008/2009

The levels of and increases in fines levied by the European Commission are even more staggering.  In 2007, the EC collected more than €3.3 billion ($5.2 billion USD) in cartel fines – an 80% increase over the €1.8 billion imposed in 2006 and an incredible 388% increase over the €683 million imposed in 2005.  In 2008, there was a decline from 2007 with fines of approximately €2.3 billion ($3.2 billion USD), down €1 billion, but still a dramatic increase in penalties from just three years ago, as the chart below illustrates:

European Commission Cartel Fines (2003-2008)

The fines from 2008 include the largest penalties ever imposed by the Commission:  €1.4 billion ($1.95 billion USD) against participants in an information exchange conspiracy in the automobile glass industry, with one participant alone fined €896 million ($1.25 billion USD).

Prison Terms for Foreign Defendants Also Increased Substantially

One of the more notable developments of criminal antitrust enforcement over the last several of years (and 2008 was no exception) is the length of prison sentences that the DOJ is requiring for individual foreign defendants who wish to enter into plea agreements.  The DOJ has stated that foreign nationals “are expected to serve jail sentences in order to resolve their criminal culpability.”[3]  As the chart below illustrates, in FY 2000, the average agreed-upon jail sentence for a foreign defendant was a little more than two months.  In FY 2008, mainly as a result of multi-year terms imposed on foreign executives in the Marine Hose investigation (see more below), the average prison term was approximately 15 months; an increase in excess of 600%.  Most recently, in December 2008, a Japanese executive from Bridgestone Corporation pleaded guilty in the Marine Hose investigation and agreed to a prison term of 24 months.

Average Jail Sentence for Foreign Defendants In International Cartel Cases

This increase in average jail sentences for foreign defendants is in line with the overall trend of increased prison terms for all defendants over the last eight years.  At the halfway point of FY 2008, the average prison term for all antitrust defendants was 31 months, which was the same as FY 2007.  Since that time, however, the DOJ has obtained lengthy prison sentences against numerous other individuals, including a defendant in its E-Rate bid-rigging investigation that led to a sentence of 7.5 years.  However, as discussed in more detail below, the aggressive prosecution and sentencing of foreign defendants, particularly in the last two years, has been a notable recent development that should serve as an increased warning to foreign companies and their executives to be wary of violating U.S. antitrust laws.  The DOJ has observed that long jail terms for foreign nationals “should carry a strong deterrent message to members of international cartels that victimize businesses and customers in the United States and abroad.”[4]

Significant Antitrust Investigations in 2008

Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) Panels

One of the most significant criminal investigations in 2008 involved price-fixing in the TFT-LCD panel industry.  TFT-LCD panels are the principal component for LCD televisions and computer monitors, among other LCD displays.  In December 2006, producers of LCD panels in Korea, Taiwan, Japan, and Europe received subpoenas or were the subject of raids by the DOJ, the Japan Fair Trade Commission (“JFTC”), the Korean Fair Trade Commission (“KFTC”), the Canadian Bureau of Competition (“CBC”), and the EC Directorate of Competition (“DG Comp”).  Among those who have acknowledged receiving subpoenas are:  Samsung, LG Philips (now LG Display), Sanyo Epson, Sharp, Toshiba Matsushita, Hannstar, NEC, Chi Mei Optoelectronics, AU Optronics, and Chunghwa Picture Tubes.  The investigation is focused on price-fixing by all major producers of TFT-LCD panels during the period 1998–2006.

In November 2008, the DOJ announced that LG and Chunghwa had entered into  agreements to plead guilty and pay substantial fines for conspiring with their competitors to fix the prices of TFT-LCD panels at regular “crystal meetings” that occurred from 2001 to 2006.  Sharp agreed to plead guilty to separate conspiracies to fix prices to Dell (for monitors and laptops), Motorola (for screens for RAZR cellular phones), and Apple (for displays for its iPod music players).

Combined, these defendants agreed to pay fines of $585 million:  LG agreed to pay $400 million – the second-largest criminal fine ever imposed by the Antitrust Division, while Sharp and Chunghwa agreed to pay $120 million and $65 million, respectively.  LG and Sharp were formally sentenced in December; Chunghwa will be sentenced in mid-January 2009.  Additionally, LG and Sharp each had four individual executives carved out from the plea agreements and therefore still subject to criminal prosecution.  Thomas Barnett, the then-Assistant Attorney General in charge of the Antitrust Division, noted, however, the significance of the cooperation these corporate defendants provided to the DOJ’s investigation: “The Board of Directors for LG Display, Sharp and Chunghwa deserve credit for making a timely decision to accept responsibility and cooperate.  Today’s fines would have been significantly higher were it not for their cooperation.“[5]  These pleas, and the DOJ’s statements in connection with them, indicate that 2009 will bring both additional pleas by and indictments of other companies and individuals who were a party to these conspiracies with further very large fines, as well as numerous significant prison sentences.

Finally, in December 2008, the JFTC fined Sharp 251 million Yen ($2.9 million USD) for its participation in a price-fixing scheme with Hitachi Displays for TFT-LCD panels sold to Nintendo for its DS Lite hand-held games consoles.  It is unknown at this time whether Hitachi also has been fined for its participation in the conspiracy.

Cathode Ray Tubes (“CRT”) Investigation

There also has been an active investigation in the cathode ray tubes industry, which is related to TFT-LCD.  In November 2007, U.S., European, Canadian, Japanese, and Korean enforcers served subpoenas and raided numerous makers of CRTs around the globe, which includes several companies that are also the subject of investigations in the TFT-LCD industry.  To date, no formal actions have been taken by the DOJ or any other enforcement authority, although the DOJ sought and obtained a lengthy stay of related civil litigation to permit its investigation to move forward unimpeded.  The discovery stay is set to be lifted in March 2009, so it is possible that there will be pleas and indictments before or just after that time.

Marine Hose Investigation

The investigation that became public in May 2007, with the simultaneous arrests in Houston and San Francisco of eight executives from the U.K., France, Italy and Japan for conspiring to rig bids, fix prices and allocate markets of marine hose, was active throughout 2008 and will no doubt continue into 2009.  At the time of their arrests in 2007, seven of the eight individuals – executives from Dunlop Oil & Marine Ltd (“Dunlop”), Trelleborg Industrie S.A. (“Trelleborg”), Bridgestone Corporation (“Bridgestone”), Parker ITR slr (“Parker), and PW Consulting – were taken into custody after, according to the government, engaging in a cartel meeting (which the DOJ covertly videotaped), during the time they were attending a trade conference in Houston.  Simultaneously, search warrants were 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 EC.  Marine hose is a flexible rubber hose used to transport oil between tankers and oil storage facilities.

To date, nine individuals have agreed to plead guilty for their participation in the cartel.  In what may prove to be a harbinger of future coordination between the Antitrust Division and DOJ’s Fraud Section unit that is responsible for enforcing the Foreign Corrupt Practices Act (“FCPA”), in December 2008 Misao Hioki, a Japanese national and the former general manager of Bridgestone’s International Engineered Products Department, pleaded guilty to his role in the marine hose cartel as well as his role in a conspiracy to pay bribes to government officials in Latin America and elsewhere in violation of the FCPA.  He was sentenced to serve 24 months in prison and pay a fine of $80,000.  Other sentences imposed in this investigation have ranged from as low as 6 months of house arrest for Giovanni Scodeggio, an Italian citizen who is the manager of Parker’s Oil & Gas Business Unit, to as high as 30 months of imprisonment for Peter Whittle, a former Dunlop executive and now the proprietor of PW Consulting.  Two former Manuli managers, Robert Furness and Charles Gillespie, pleaded guilty and have agreed to serve prison terms of 14 months and 12 months, respectively.

Whittle, together with Bryan Allison and David Brammar of Dunlop, U.K. citizens who pleaded guilty and were sentenced in the U.S. for their roles in the marine hose cartel, also were arrested and criminally charged with cartel offenses by U.K. antitrust authorities.  (More on this below)

Not all of the individuals charged with participating in the cartel have agreed to plead guilty.  Indeed, in November 2008 Francesco Scaglia and Val Northcutt, two sales managers from Manuli’s Oil & Marine Division, were acquitted of marine hose cartel charges after a four-week jury trial in Houston.  The jury deliberated for two hours before reaching its verdict.  Ewe Bangert, a German national and former executive of Dunlop, has pleaded not guilty to charges that he was involved in the cartel.  His case is pending in the Southern District of Florida in Fort Lauderdale, and a trial date has not yet been set.

In addition to the convictions of individuals, the DOJ has been investigating and prosecuting the companies involved in the cartel.  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.

Outside the U.S., the JFTC issued cease and desist orders against Bridgestone, Dunlop, Trelleborg, Manuli and Parker for their roles in the marine hose cartel.  The JFTC also announced that it had determined that Japan-based Yokohama Rubber Co. had joined the cartel, but it was not included in the order because the company voluntarily had admitted its conduct.  The EC and the Competition Division of the Secretariat of Economic Law in Brazil also reportedly are investigating the marine hose cartel.

International Air Cargo Investigation

The DOJ’s investigation into air cargo transportation price fixing, which had its first guilty pleas in late 2007, reached a climax in 2008.  The Antitrust Division obtained several jail sentences for corporate executives and the largest criminal fines against corporations ever obtained in a single investigation.

The conspiracies alleged by the DOJ involved items such as fuel surcharges and post-September 11 security charges imposed by several major international airlines.

The initial wave of guilty pleas began in late 2007, when British Airways and Korean Air pleaded guilty.  British Airways and Korean Air paid $300 million each.  (A portion of the British Airways criminal fine was for fixing passenger fuel surcharges.)

Additional corporate guilty pleas started in January this year and continued through June.  Companies pleading this year (and their criminal fines) were:

• Air France-KLM Royal Dutch Airlines ($350 million);
• Japan Airlines ($110 million);
• Qantas ($61 million);
• Cathay Pacific Airways ($60 million);
• SAS Cargo Group ($52 million);
• Martinair Holland ($42 million).

According to Associate Attorney General Kevin O’Connor, this brought the total fines in the air cargo investigation to $1.2 billion, the highest fines ever imposed in a single criminal antitrust investigation.

Several of the airlines’ executives also separately agreed to plead guilty and serve jail sentences.  These were Bruce McCaffrey of Qantas (eight months plus a $20,000 criminal fine); Timothy Pfeil of SAS Cargo Group (six months); and Keith Packer of British Airways (eight months plus a $20,000 criminal fine).

Internationally, Qantas and British Airways each agreed to pay additional criminal fines in Australia (AU$20 million and AU$5 million, respectively).  In December, New Zealand’s Commerce Commission announced an investigation of these and other airlines (13 in all) plus a total of 7 executives.  Airlines reportedly subject to the New Zealand investigation include United, Lufthansa, and El Al.  The European Union antitrust enforcement officials also continue their investigation into the air cargo sector.

According to the DOJ’s press release in late September 2008, the investigation is ongoing.

DRAM Investigation

The DOJ’s investigation into price-fixing in the dynamic random access memory (“DRAM”) market, which began in 2002, has been among the most significant ever.  The DRAM investigation has yielded criminal charges against 18 current and former executives from multiple companies, in addition to guilty pleas from those companies (including Samsung, Hynix, and Elpida) that required them to pay fines that collectively exceeded $730 million.  Of particular note to illustrate the DOJ’s increasingly aggressive position with respect to foreign defendants, one Samsung executive, Il Ung Kim, agreed to plead guilty last year and serve 14 months in prison and pay a $250,000 fine.

The overall success of the DOJ’s investigation into and prosecution of price-fixing in DRAM, however, suffered a notable setback in 2008.  In February 2008, the Antitrust Division tried a Hynix executive, Gary Swanson, on a criminal charge of conspiring to fix DRAM prices.  The Swanson trial was the only prosecution in the DRAM case that went to trial.  After a nearly three-week trial, the jury deadlocked 10-2 in favor of acquittal and a mistrial was entered.  The DOJ declined to re-try Swanson and there are no further prosecutions expected.  Given the number of guilty pleas, the cooperation of an amnesty applicant, and the significant fines and prison sentences imposed, the Swanson mistrial represented a somewhat surprising and negative coda to the DRAM investigation, although the fines and jail sentences meted out should continue to give companies and their employees pause in engaging in potentially anticompetitive conduct.

New York Marine Plastic Pilings Investigation

The DOJ obtained two guilty pleas in 2008 relating to a scheme to rig bids in the New York Pier 86 reconstruction project.  Between 1999 and 2003, two firms were involved in bribing a city engineer, Charles Kriss, to ensure that the firms were chosen for city contracts.  In 2007, Robert Taylor, the president of a contracting firm, pleaded guilty to multiple felonies, including conspiring to bribe Kriss.  Taylor was sentenced in early 2008 to 24 months in prison and a criminal fine of $300,000.  Kriss himself pleaded guilty in mid-2008 to conspiracy to commit bribery and was sentenced to 12 months in prison and $36,380 in restitution.  Finally, American Composite Timbers (ACT), which sold plastic marine pilings to be used in the project, pleaded guilty to conspiracy to commit bribery and agreed to pay a criminal fine that has yet to be determined by the court.

E-Rate Bid Rigging Investigation

This year saw several jury convictions, guilty pleas, and sentences in the E-Rate bid rigging investigation, which has resulted in convictions of 7 companies and 13 individuals to date, plus over $40 million in criminal fines and restitution.  The E-Rate program funds schools’ purchases of internet backbone equipment and is operated by the FCC.

Among the notable convictions, guilty pleas, and sentences entered in the E-Rate case this year are the following:

• Judy Green was convicted in 2007 by a jury in San Francisco of rigging bids and defrauding the program, and was sentenced in early 2008 to 7.5 years in prison.
• Benjamin Rowner and Jay Soled pleaded guilty to conspiracy to defraud the program from 1999 through 2003; they agreed to assist the investigation and apparently have not yet been sentenced.
• Howe Electric, Inc., a California electrical contractor, agreed to plead guilty to bid rigging and pay a total of $3.3 million in restitution, criminal fines, and civil settlement.
• A federal court in South Carolina sentenced a school district official, Cynthia Ayer, who was convicted of mail fraud, to two years in prison and was ordered to pay restitution of $486,000.
• And in Atlanta, R. Clay Harris was convicted by a jury of bribing E-Rate administrators to receive contracts for his company.

Domestic Ocean Shipping Investigation

In October 2008, four U.S. shipping company executives agreed to plead guilty and serve jail sentences for their roles in an alleged conspiracy to rig bids, fix prices and allocate market shares for customers transporting goods between the continental United States and Puerto Rico by ocean vessel.  Peter Baci, an executive with Sea Star, and Kevin Gill, Gregory Glova, and Gabriel Sura (all executives from Horizon Lines) each agreed to serve a jail term that will be determined by the court on January 31, 2009, and pay a $20,000 criminal fine. A one-count felony obstruction of justice charge was filed against a fifth shipping executive, Alexander Chisholm, also of Sea Star, who agreed to plead guilty and serve jail time, to be determined by the court.

The DOJ noted in announcing these pleas that they were “the first charges in the Antitrust Division’s ongoing investigation into collusion in the coastal shipping industry.”[6]  Indeed, the DOJ’s investigation includes all domestic ocean shipping trade lanes.

Department of Defense Military Tie-Down Equipment Contracts

The DOJ continued its investigation into Defense Department contracts for military tie-down equipment.  Last year saw five bid-rigging charges and three guilty pleas.  This year there were more individual and corporate guilty pleas.  Peck & Hale LLC, a defense contractor, pleaded guilty to bid rigging and agreed to pay a criminal fine of $275,000.  Ransom Soper, another former Peck & Hale employee, pleaded guilty to bid rigging and fraud.  Wilson Freire, a former Peck & Hale executive, pleaded guilty to bid rigging and soliciting and accepting a kickback.  He agreed to serve 12 months in jail and pay a $10,000 fine.  Finally, Frank Granizo, president of a freight forwarding company pleaded guilty to fraud in connection with paying kickbacks.

Iraq, Kuwait & Afghanistan Investigations

The DOJ investigated and prosecuted several military officers and defense contractors doing business in or providing support to military operations in Iraq, Kuwait, and Afghanistan.  A Canadian night vision device contractor was indicted for fraud in attempted bid rigging.  At least three military officers pleaded guilty to bribery.  One defense contractor also pleaded guilty to bribery and agreed to pay over $800,000 in criminal fines and restitution.  Several other companies and individuals targeted by the DOJ in this investigation were also indicted for bribery, money laundering, and filing false tax returns.

Other Notable Prosecutions

There were several other notable investigations of varying scope, including the following:

• Defense Department fuel contracts:  an employee of Avcard (a division of Kropp Holdings LLC), Matthew Bittenbender, pleaded guilty to a conspiracy to steal trade secrets.  The trade secrets were to be sold to Avcard’s competitors, Far East Russia Aircraft Services, Inc., and Aerocontrol LTD.  Paul Wilkinson and Christopher Cartwright, employees of the competitors, also pleaded guilty to fraud.
• Bid-rigging of GICs:  Several major financial services institutions have recently disclosed that they had been subpoenaed in a federal and multi-state investigation of bid rigging in guaranteed investment contracts (GICs) and other municipal bond derivatives.
• Processed tomatoes:  Late in 2008, the DOJ obtained its first guilty plea into an investigation related to the sale of processed tomatoes.  Randall Rahal pleaded guilty in federal court in Sacramento, California to price fixing, racketeering, and other charges, and agreed to pay $600,000 in criminal fines and to cooperate in the investigation.  Previously-filed FBI affidavits allege that major national food companies including Agusa Inc., Safeway Inc., B&G Foods Inc., ConAgra Foods Inc., and Frito-Lay each had buyers acting as co-conspirators.[7]

There was also action in Antitrust Division investigations of more limited scope:

• Kwik-Chek Food Stores, Inc. and Jarrod Thomas were indicted for conspiring to fix the price of gasoline in Oklahoma.
• Other representative examples included guilty pleas related to bid rigging and market division in the door hardware market in El Paso; a market division guilty plea related to Cincinnati ice manufacture; and a bribery guilty plea related to the New York power authority.

Non-Title 15 Prosecutions

The Antitrust Division, in addition to its continued vigor in enforcing criminal antitrust laws, also continued its aggressive pursuit of non-Title 15 charges, including fraud, bribery, obstruction of justice, and false statements.  Examples of fraud prosecutions include charges relating to construction contracting in New Orleans for Katrina recovery, and the E-Rate investigation discussed above.  Bribery examples include the overseas military investigations, the tomato processing investigation, and the New York investigation into marine plastic pilings discussed above.

Former Assistant Attorney General Barnett, commenting on the Kriss indictment in the marine plastic pilings investigation, explained the Antitrust Division’s stance on bribery: “Bribery undermines the benefits afforded by competition, which lies at the heart of the Antitrust Division’s mission.  We prosecute such violations to the full extent of the law.”[8]

The end of the year brought the first ever joint antitrust/Foreign Corrupt Practices Act (“FCPA”) guilty plea in the Marine Hose case.  As discussed in more detail above, Misao Hioki, the former general manager of Bridgestone Corporation’s Japanese marine hose business, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Sherman Act and conspiracy to violate the FCPA.

Notable Foreign Prosecutions and Developments

Marine Hose

As described above, the Marine Hose case has been a source of interesting developments in the past year.  One of the notable events was the prosecution of three marine hose executives for price-fixing by the U.K.’s Office of Fair Trade (“OFT”), the first criminal antitrust case it has ever prosecuted under a 2002 law that permitted OFT to pursue criminal penalties for cartel conduct.  As part of their plea agreements in the U.S., the executives were allowed to go to the U.K. to face the OFT’s separate charges against them there and serve in the U.K. any term of imprisonment imposed by the U.K. court.  The U.S. plea agreement deferred sentencing in the United States pending the resolution of the OFT’s prosecution, but it required the defendants not to seek from the U.K. court a prison sentence less than the sentences set out in each of their plea agreements, respectively:  Whittle (30 months), Allison (24 months), and Brammar (20 months).  The fact that DOJ permitted the executives to face charges in the U.K. and serve a prison sentence there concurrently with their U.S. sentences, and the OFT successfully obtained guilty pleas and prison sentences, suggests a new trend of coordinated, successive criminal prosecutions and potentially successive jail sentences in international cartel cases.

The deal these defendants struck with the DOJ, however, likely caused them to serve longer sentences than they otherwise might have under U.K. law.  Although the three were originally given sentences greater than the terms agreed to in their U.S. plea agreements, in November 2008, the U.K. Court of Appeals reduced each of these defendant’s sentences to match their sentence in the U.S.  The court made it clear that it would almost certainly have reduced their sentences even further but for the U.S. plea agreements.  Had Whittle, Allison, and Brammar been given sentences less than the periods agreed to in the U.S., they would have had to serve the balance in the U.S.  As one of the jurists on the panel noted to the media, “We have considerable misgivings about disposing of these applications in the way we intend, but, if we are to avoid injustice, we feel we have no alternative.”[9]

This is an important issue that will confront executives subject to criminal antitrust liability in several jurisdictions and will undoubtedly be the subject of increasing debate and clarification in the next several years.

Extradition of U.K. Citizen To U.S. To Face Antitrust Charges Temporarily Blocked By House of Lords

One of the DOJ’s disappointments in 2008 was the blocked (at least temporarily) extradition of Ian Norris, a U.K. citizen and former carbon parts executive, to face criminal antitrust claims in the U.S. for allegedly participating in an 11-year conspiracy to fix the price of carbon parts from 1989 to 2000.  Norris was indicted and arrested in London in 2005, and his extradition to the U.S. was originally approved by the U.K. government.  Norris resisted extradition, however, on the ground that his actions were not criminal under U.K. law at the time, thus it would be unjust to subject him to criminal prosecution in the U.S.  (Price-fixing only became a crime in the U.K. under the Enterprise Act of 2002, which postdated Norris’ conduct).  In a ruling in March 2008, the House of Lords agreed and halted Norris’ extradition, remanding the case to a district judge to determine whether Norris could be extradited on obstruction of justice charges.  The judge ruled in July that he should be extradited; Norris’s attorneys promised to seek review with the Home Secretary and to appeal to the House of Lords if necessary on the grounds that the criminal sentence in the U.S. could rely upon uncharged conduct – such as, apparently, the alleged price fixing.[10]  Nevertheless, the Norris case serves as an important precedent for foreign executives who face criminal liability in the U.S. for conduct that is not criminal in their own country and could limit the DOJ’s potential reach beyond the U.S. border in international cartel cases.

French Metal Producers Hit With Record Fine

In December 2008, the French Competition Authority levied a €575.4 million ($797.7 million USD) penalty against 10 steel brokers and sellers that conspired to fix prices in the French steel market through regular meetings of a sham trade association between 1999 and 2004.  The single largest fine – and the largest ever imposed by the French Competition Authority – of €301.8 million ($424 million USD) was imposed on Arcelor Mittal’s French subsidiaries.  Co-defendant Klockner Distribution Industrielle SA was hit with the second-largest single fine in French history of €169.3 million.

China Adopts First Antitrust Law in Its History

In August 2008, China’s Anti-Monopoly Law, which was first adopted in 2007, became effective.  Though the law is a major step in establishing a system of commercial law consistent with international norms, the text and the system that will interpret and apply it raise serious concerns about whether the law will, in practice, be used primarily to protect competition and consumer welfare in China, or whether it will be used as a protectionist device to favor State Owned Enterprises and privatized indigenous companies in Chinese markets.  Article 3 of the law seeks to provide a general list of the broad types of conduct proscribed by the statute.  “Monopolistic Conduct” is defined as the following activities that eliminate or restrict competition or are likely to have the effects to eliminate or restrict competition:

• Monopoly agreements between undertakings;
• Abuse of dominant market position by undertakings; and
• Concentrations conducted by undertakings that may have the effect of eliminating or restricting competition.

Initial analysis suggests that the only criminal components to the law relate to obstruction of investigations and official corruption.

Australia Criminal Cartel Legislation

In October, Australia’s Department of Treasury proposed new legislation that would criminalize “serious” cartel conduct.  The maximum penalty for a cartel violation under the new law is 10 years in prison plus a AU$220,000 fine for individuals and the greater of AU$10 million, three times the benefit gained by the corporation, or ten percent of the corporation’s annual turnover.  Chris Bowen, the minister responsible for drafting the legislation, said, “Together with the United States the 10-year jail term puts Australia at the forefront in fighting illegal cartels.”[11]

Other Significant Developments

Stolt-Nielsen

One of the most significant recent setbacks for the DOJ resulted from its decision to revoke the conditional amnesty of Stolt-Nielsen, a London-based parcel tanker shipper, in its investigation into bid rigging and price fixing in the industry.  After the DOJ revoked Stolt-Nielsen’s amnesty for alleged continued anticompetitive conduct, it secured an indictment against the company in 2006.  In late 2007, a federal court dismissed the indictment, finding that Stolt-Nielsen did not breach its conditional amnesty agreement with the DOJ and the government could not prosecute Stolt-Nielsen under that agreement.  In December 2007, the DOJ declined to appeal the ruling.

In related litigation, Stolt-Nielsen brought suit against the United States to compel production of all of the Antitrust Division’s amnesty agreements with other parties under the Freedom of Information Act (“FOIA”).  In July 2008, the D.C. Circuit reversed summary judgment in favor of the government on the ground that the district court did not make any findings as to whether materials that were protected from disclosure could be segregated from those that could.  Although the district court has not ruled on remand, this decision raises the unsettling prospect that an amnesty applicant’s agreement with the DOJ to cooperate in an antitrust investigation will not remain confidential, thereby potentially compromising investigations and exposing applicants to enhanced exposure in civil litigation.

Finally, in reaction in part to Stolt-Nielsen, the DOJ has revised its Corporate Leniency Agreement for the first time since 1993.  As Scott Hammond, the Deputy Assistant Attorney General for criminal enforcement in the Antitrust Division, commented, “The point was bought home many times during the Stolt litigation that, as the authors of the conditional leniency letter, any ambiguities in the language would be held against the government.  Therefore, we will tighten up some of the language in our model letter to avoid any uncertainty in the future.”[12] One of the more notable conditions is that a company must waive its right to seek pre-indictment adjudication of the DOJ’s revocation of the amnesty agreement; Stolt-Nielsen initially sought to win a pre-indictment judgment in court.  Hammond has stated, however, that the changes were merely “clarifications” to provide “additional guidance and transparency in addressing issues relating to the implementation of the division’s voluntary disclosure programs.”[13]

Trial Losses for the DOJ

Although the last year has been mostly marked by the continued successes of the DOJ in increased investigations, fines, and jail sentences, it has also been marked by some notable trial losses:

• In July 2007, a federal jury in Hartford, Conn., acquitted coated-paper maker Stora Enso North America Corp. of charges in a rare price-fixing trial against a corporation.  In December 2006, the DOJ indicted Stora Enso for conspiring with one or more competitors to fix coated magazine paper prices in the United States from August 2002 through June 2003.  The jury returned a not guilty verdict, even though the DOJ had the cooperation of an amnesty applicant;
• In February 2008, a mistrial was declared in the trial of a former Hynix executive, Gary Swanson, for participation in the DRAM conspiracy after the jury returned hung 10-2 in favor of acquittal, and the charges were later dismissed (also discussed above); and
• In November 2008, a federal jury in Florida acquitted Scaglia and Northcutt, executives charged with participating in the marine hose conspiracy (also discussed above).

Although these losses are noteworthy, one should be careful not to read too much into them.  Trying cases is always unpredictable.  As the rest of this update illustrates, the DOJ is bringing numerous criminal antitrust cases to trial and securing long sentences (see, e.g., the E-Rate cases).  Plainly, the Antitrust Division is not afraid to try cases it  believes are merited.  Additionally, the individual defendants in price-fixing cases that go to trial are the hardest cases for the DOJ; most culpable executives plead guilty and only those with the most circumstantial cases against them risk trial.  Moreover, juries often identify strongly with individuals engaged in marginally prohibitive conduct and appear to be put off by cases that rest heavily on testimony from witnesses who have received amnesty from prosecution.  While these losses may seem consistent with the Antitrust Division’s uneven trial record against individuals over the last decade,[14] they followed a remarkable string of 18 straight trial victories for the Antitrust Division.  In any event, these recent losses will likely cause the Division to reevaluate factors in its charging decisions and may well give the Division pause in its decisions to pursue close cases.

Thomas Barnett’s Resignation 

On November 7, 2008, Thomas Barnett, an extremely bright and capable attorney, announced that he would resign as Assistant Attorney General in charge of the Antitrust Division, effective November 19.  Barnett had served in that position since February 2006 and had served as a Deputy Assistant Attorney General prior to that.  In his speech announcing Barnett’s resignation, Attorney General Mukasey said that “[u]nder Barnett’s leadership, the Division obtained $1.8 billion in criminal fines against 50 corporations and 91 individuals.  The average prison sentence for incarcerated defendants charged by the Division reached an all-time high of 31 months in FY 2007 with an overall average of 23 months during Barnett’s 3-1/2 years as head of the Division.  Foreign executives in international cartel cases also faced longer jail sentences, averaging 12 months in FY 2007.”[15]

The Obama administration appears primed to continue this aggressive enforcement of the criminal antitrust laws.  Indeed, President-elect Obama said repeatedly during the campaign that he would direct his administration to reinvigorate antitrust enforcement.  These comments may have been focused more on merger enforcement, but obviously demonstrate that the DOJ will not flag in its aggressive prosecution of price-fixing cases in the next administration.

Conclusion

By any measure, 2008 was an active year for the Antitrust Division, as well as its counterparts around the globe.  The year was marked with significant DOJ successes, including: record criminal fines; higher and higher prison sentences (including numerous significant sentences for foreign individuals); myriad guilty pleas; and the conviction of an individual for antitrust and FCPA offenses in a single enforcement action.  At the same time, 2008 saw the acquittal (or dismissal after mistrial) of several defendants at trial and several other disappointments, including the House of Lords ruling in the Norris case.

In international cartel enforcement, the U.K. brought its first ever criminal case against individuals in the Marine Hose investigation, and imposed significant prison terms matching those agreed to in the U.S.  Numerous other foreign enforcement authorities actively investigated and prosecuted both companies and individuals for antitrust violations.

And if the close of 2008 – marked among other things by the $585 million in fines levied in the TFT-LCD investigation – is any indication, 2009 promises to be another active year.  Indeed, the ongoing nature of the TFT-LCD investigation, as well as Air Cargo, Marine Hose, and other investigations, virtually guarantees that the trend of increased criminal antitrust enforcement defining the last several years will not end anytime soon.