On 18 March 2014 Italy’s Competition Authority, the Autorità Garante della Concorrenza e del Mercato (“AGCM”), announced the launch of a bid-rigging investigation into Chef Express S.p.A. and My Chef Ristorazione Commerciale S.p.A. Both companies manage motorway service restaurants.
The independent company managing the submission process for tenders drew the attention of the authorities to evidence of collusion. According to the AGCM, evidence indicated that the two companies had colluded on bids for 16 of the 43 licences available. It has been alleged that they intended to take 8 licences each.
The investigation is the latest in a series of probes into bid-rigging in Italy. The rail sector is one of the more prominent recent investigations. For the last 15 years, Italy’s motorway service restaurants have been controlled by Autogrill, which is majority owned by the company that runs Italy’s motorways, Autostrade. Both are controlled by the Benetton family.
On 21 March 2014 the Brazilian Conselho Administrativo de Defesa Econômica, (“CADE”), announced that its investigation into trains and subways in 5 Brazilian states had turned up evidence of cartel activity. The investigation is one of the largest ever conducted in Brazil and includes several multinational companies.
The investigation is focused on train and subway procurements between 1998 and 2013. 18 companies and 109 employees are accused of participation. A search and seizure operation in July 2013, carried out by CADE, produced evidence of possible bid-rigging in 15 public tenders worth a total of BRL 9.4 billion. The investigation arose from participation in a leniency programme by the German conglomerate Siemens.
In a 200-page report, CADE’s investigators claim the subway contractors divided the tenders among themselves by agreeing bids in advance. CADE has alleged that contractors accepted payments from rivals for not participating in the tenders.
The politically sensitive investigation has attracted more media attention than any previous cartel investigation in Brazil, due to suggestions that public officials were aware of the alleged conspiracy. Siemens’ voluntary disclosure surfaced just weeks before a contract for a 318-mile high-speed line between the cities of Sao Paulo and Rio de Janeiro came up for bidding. Under Brazilian law the companies involved could be fined 20% of their turnover. Balfour Beatty, Caterpillar, Alstom and Mitsui are included within the scope of the investigation, which has reportedly proceeded slowly due to the quantity of information seized in the July 2013 raids.
Public prosecutors in São Paulo have launched a parallel investigation into whether illegal kickbacks were paid to government officials to obtain lucrative contracts for the construction, fitting and maintenance of metro trains and lines. Observers have suggested that the case could lead to the first prison sentences for cartel activity in Brazilian history.
On 19 March 2014, the European Commission announced the imposition of fines totalling € 953 306 000 on two European companies (SKF and Schaeffler) and four Japanese companies (JTEKT, NSK, NFC and NTN with its French subsidiary NTN-SNR) for participating in a cartel in automotive bearings market from April 2004 until July 2011.
The Commission found that the companies coordinated the passing-on of steel price increases to their customers, colluded on Requests for Quotations and for Annual Price Reductions from customers and exchanged commercially sensitive information. This occurred through multi-, tri- and bilateral contacts. The size of the EU market for automotive bearings is estimated to be at least € 2 billion a year.
Japanese company JTEKT was not fined as it benefited from immunity under the Commission’s 2006 Leniency Notice for revealing the existence of the cartel to the Commission. NSK, NFC, SKF and Schaeffler received reductions of their fines for their co-operation in the investigation under the Commission’s leniency programme. Since all companies agreed to settle the case with the Commission, their fines were further reduced by 10%.
Commission Vice President in charge of competition policy, Joaquín Almunia, said: “Today’s decision is a further milestone in the Commission’s ongoing effort to bust cartels in the markets for car parts, after the sanctions we imposed on producers of electric wires and of foam used in car seats. It is incredible to see that one more car component was cartelised. I hope the fines imposed will deter companies from engaging in such illegal behaviour and help restore competition in this industry.”
The decision is part of a major investigative effort into suspected cartels in the automotive parts industry. The Commission has pursued cartel activity in several sectors of the industry, including wire harnesses in cars (IP/13/673) and flexible foam used in car seats (IP/14/88).
The Commission announced on 19 March 2014 that it is investigating more products, such as airbags, safety belts and steering wheels (see MEMO/11/395), air conditioning and engine cooling products (see MEMO/12/563) and lighting systems.
On 23rd December 2013, the Korean antitrust regulator, the Korea Fair Trade Commission (“KFTC”), imposed fines of 114.6 billion won (approximately US$108 million) on a number of auto parts suppliers, including Japan’s Denso Corporation and Germany’s Bosch and Continental AG. The charges related to the fixing of prices for car instrument panels and wipers, in particular those sold to Hyundai and its affiliate, Kia Motors. The FTC has estimated that price collusion has affected the cost of around 11 million units. The parts in question account for approximately 0.5% of the price of the car.
The largest fine, 63 billion won, was imposed on the Denso Corporation, which was accused of fixing prices between January 2008 and March 2012, initially with Continental AG and then with Bosch. The FTC found that price collusion led to a sharp increase in price estimates provided by the suppliers. Continental AG and Bosch have been fined 46 billion and 5.6 billion won respectively.
Shin Dong-kwon, Head of the Cartel Investigation Bureau at the KFTC, said, “We collaborated with antitrust regulators from the US and the EU to crack down on price collusion among auto parts makers. And we will closely monitor international cartels targeting the Korean market in the future.”
The U.S. Justice Department and antitrust enforcers worldwide have been investigating price-fixing by around 20 companies and 21 executives in the automotive industry. To date, the corporations in question have agreed to pay $1.6 billion in fines.
On Friday 6th December 2013 Judge Daniel R. Dominguez of the US District Court of Puerto Rico in San Juan handed down the longest sentence in US history for a single antitrust charge. Frank Peake, the former president of Sea Star Line LLC, was sentenced to serve five years in prison and to pay a $25,000 criminal fine for his participation in what the indictment described as a conspiracy to fix rates and surcharges for freight transported by water between the continental United States and Puerto Rico.
The prison sentence was far shorter than the 87 months sought by prosecutors from the Antitrust Division of the US Department of Justice. The prosecuting attorney in the case was reported to have said that the record sentence was intended to “get the attention of companies and executives around the world.”
Reports have quoted the Department of Justice as asserting that Peake and his co-conspirators conspired to fix, stabilise and maintain rates and surcharges for Puerto Rico freight services, to allocate customers between them and to rig bids submitted to customers. Peake was involved in the conspiracy from at least late 2005 until at least April 2008.
As a result of an ongoing Department of Justice investigation, the three largest water freight carriers serving routes between the continental United States and Puerto Rico, including Peake’s former employer Sea Star, have pleaded guilty and been ordered to pay more than $46 million in criminal fines for their roles in the conspiracy. Sea Star pleaded guilty on 20th December 2011, and was sentenced by Judge Dominguez to pay a $14.2 million criminal fine. Sea Star transports a variety of cargo shipments, such as heavy equipment, perishable food items, medicines and consumer goods, on scheduled ocean voyages between the continental United States and Puerto Rico.
Custodial sentences have been handed down to five other individuals. Additionally, Thomas Farmer, the former vice president of price and yield management of Crowley Liner Services, was indicted in March 2013 for his role in the conspiracy and is scheduled to go to trial in May 2014.
Foreign Ministry of Belarus has indicated that the extradition of Uralkali CEO Vladislav Baumgertner from Belarus to Russia is soon to be completed.
Uladzimir Makei, Belarusian Foreign Minister, is reported to have confirmed during a press conference in Moscow that he was “confident the problem will soon be solved completely in a lawful manner.” He added that he was unable to give the precise date of the extradition, but that to his knowledge only a “few minor things are left to be done.” Makei noted he had agreed with his Russian counterpart, Sergey Lavrov, that “private issues” would not have a negative impact on the co-operation between the two countries. Mr Makei’s announcement comes after the Belarusian Prosecutor General, Alexander Konyuk, confirmed on 14th November 2013 that there were no obstacles to the extradition, although he emphasised that Uralkali’s CEO faced similar charges in Moscow to the ones he faced in Minsk.
As mentioned in a previous blog on 17th October 2013, Baumgertner is currently under house arrest in Minsk on charges of embezzlement and abuse of power. His arrest in August 2013 came in the wake of Uralkali’s decision to withdraw from a cartel with Belarusian potash producer, Belaruskali, leading to a collapse in prices. Together the two companies controlled approximately forty per cent of global potash exports. Belarusian President Alexander Lukashenko made clear his strong opposition to the termination of co-operation between the two companies. Potash, a soil nutrient, provides twelve per cent of the state revenue of Belarus and ten per cent of its export income.
On 4th November 2013, the US Senate unanimously passed legislation to extend whistleblower protection for employees providing information to the Department of Justice relating to criminal antitrust violations.
The Criminal Antitrust Anti-Retaliation Act was jointly introduced by Senator Patrick Leahy (Democrat, Vermont) and Senator Chuck Grassley (Republican, Iowa), chairman and ranking member of the Senate Judiciary Committee. The Senators were the authors of previous whistleblower provisions within the 2002 Sarbanes-Oxley Act, passed in the aftermath of the collapse of Enron. Senator Grassley was reported as commenting that “Too often whistleblowers who risk their careers to expose waste, fraud and abuse are treated like second-class citizens.”
The recent Bill was based on a report released in July 2011 by the US Government Accountability Office. It adds a civil remedy for those who have been fired, or otherwise discriminated against, after blowing the whistle on criminal antitrust activity. Employees who believe they are victims of retaliation may file complaints with the Secretary of Labor. The new Act provides for those employees to be reinstated to their former status if the Secretary of Labor finds in their favor. Senator Leahy commented that “The Criminal Antitrust Anti-Retaliation Act does not provide employees with an economic incentive to report violations. The legislation simply makes whole employees who have been fired or discriminated against for blowing the whistle on criminal conduct.” Critics of the measure have pointed to the absence of an economic incentive as an obstacle to the effectiveness of the legislation.
Commentators have pointed to the case of Marty McNulty as exemplifying the kind of injustice that Leahy and Grassley’s Bill is intended to eliminate. In 2005, McNulty claimed to have discovered that his employer, Arctic Glacier International, had agreed with Home City Ice to keep the prices of its packaged ice artificially high. He repeated the allegation to the FBI. Both companies were ordered to pay $9 million in fines. McNulty was fired and claimed to have been blackballed within the industry. Supporters of the new measure point out that McNulty would have both kept his job and been able to claim for damages suffered in the process.
Russia’s Federal Investigative Committee said on 14th October 2013 that it had opened an investigation into Vladislav Baumgertner, CEO of potash producer Uralkali, on suspicion of abuse of power. Russian authorities confirmed that they would be seeking Mr Baumgertner’s extradition from Belarus, where he is currently under house arrest on charges of embezzlement and abuse of power.
The Criminal Code of the Russian Federation outlaws cartel agreements under Article 178, imposing fines of up to one million roubles, maximum seven year prison sentences or three years of compulsory labour.
However, it was Uralkali’s withdrawal from a potash sales cartel with Belarusian producer Belaruskali, leading to a sharp downward slide in prices, which reportedly led to Mr Baumgertner’s arrest by authorities in Minsk in August 2013. Together the cartel controlled approximately forty per cent of global potash exports. Belaruskali and Uralkali are the world’s two largest producers of potash.
Belarus has called for the arrest of Uralkali’s billionaire shareholder Suleiman Kerimov, who has since reportedly entered into negotiations to sell his stake. Potash, a soil nutrient, provides twelve per cent of the state revenue of Belarus and ten per cent of its export income. Uralkali’s withdrawal from the cartel is reported to have been unwelcome news for Belarusian president, Aleksandr Lukashenko, who has urged the two sides to collaborate once again in a cartel once valued at approximately $20 billion per annum.
Latest reports have suggested that Russia’s preparations for an extradition request for Mr Baumgertner are well advanced.
On 10th October 2013, a jury in San Francisco acquitted former AU Optronics executive Richard Bai of criminal price fixing charges. After a two-and-a-half week trial in the Northern District of California, the jury reached its verdict after just over a day’s deliberation.
In 2009, the US Department of Justice Antitrust Division indicted Mr Bai and five other AU Optronics executives for allegedly conspiring with LG, Samsung, Chi Mei Optoelectronics and Chunghwa Picture Tubes to fix and stablilise the price of LCD panels to customers such as Hewlett-Packard, Dell and Apple. As reported here on 30th April 2013 (see below blog post), AU Optronics executive Shiu Lung Leung was sentenced in California to two years imprisonment and a fine of $50,000 for his involvement in a criminal conspiracy to fix the prices of liquid crystal displays used in computer screens and televisions.
Against Bai, a former head of the company’s Notebook Sales division, the Department of Justice alleged that he had implemented the price fixing conspiracy through his own conduct and by directing his subordinates to co-ordinate pricing with competitors. Prosecutors further alleged that Bai had acted as the company’s point of contact for co-conspirators seeking to fix the price of screens for notebook computers.
Persuaded by Bai’s legal representatives Shearman & Sterling and trial lawyer Brian Getz, the jury rejected the Department of Justice’s allegations, concluding that, although Bai took part in a meeting with LCD rivals, there was insufficient evidence that he conspired at those meetings. Getz commented that “No-one who came to testify could say that they price-fixed with him. They admitted that they colluded with executives above him, but not with Bai himself, and I think this is what swayed the jury.”
Takata Corporation, the Tokyo-based supplier of seat belts to Toyota, Honda, Nissan, Mazda and Fuji (the parent company of Subaru) will pay a US$71.3 million fine to settle conspiracy to restrain trade charges brought by the US Department of Justice Antitrust Division.
Takata is accused of conspiring with other companies between January 2003 and February 2011 to “suppress and eliminate competition in the automotive parts industry by agreeing to rig bids for, and to fix, stabilize and maintain the prices of certain seatbelts,” according to the criminal information sheet detailing charges against Takata, filed with the Detroit Court.
Reports indicate that Chairman and CEO Shigehisa Takada will take a 30 per cent cut in executive compensation while other directors take a 15 per cent cut. Gary Walker, a sales director at the company’s US subsidiary, TK Holdings, will reportedly serve a 14-month prison sentence and pay a US$20,000 fine.
Takata has pledged to continue to co-operate with ongoing Department of Justice investigations. The company stated that it “takes this matter seriously and has taken steps to strengthen its compliance programs to comply with all applicable laws and regulations. Takata has also strengthened its internal control systems to prevent a recurrence and is committed to regaining the trust of our stakeholders.”
The car industry investigation is the largest ever conducted in the United States. Settlement agreements with US antitrust authorities have been reached by several companies, including Tokai Rika, TRW Deutschland, Furukawa Electric, Fujikura and Nippon Seiki.
From the Department of Justice, Scott Hammond, of the Antitrust Division’s criminal enforcement program, said “Every time we discover a conspiracy involving the automotive industry, we seem to find another one.”