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.”
The Competition and Markets Authority (CMA) has published a consultation document setting out its draft Guidance and Rules of Procedure for investigation procedures under the Competition Act 1998 (the Guidance and Rules of Procedure). The document is part of a wider consultation about how the CMA will work in practice and how it will interact with businesses and individuals when it takes over the functions of the OFT on 1 May 2014. A previous blog post discussed the draft prosecution guidance on the criminal cartel offence.
The Guidance and Rules of Procedure largely mirrors the current OFT guide to investigation procedures in competition cases, but in addition covers a series of new powers granted to the CMA under the Enterprise and Regulatory Reform Act 2013. These include:
- Giving the CMA the power to interview individuals;
- Replacing the current criminal sanctions for failing to comply with investigations with civil financial sanctions;
- Giving the CMA the express power to publish a notice of investigation, which may name a party or parties to an investigation;
- Lowering the threshold for the CMA to impose interim measures; and
- Introducing new statutory factors to be taken into account in fixing a penalty.
The most controversial of these powers is the new power under section 26A of the Competition Act 1998 to require any individual who has a connection with a business which is a party to an investigation to answer questions on any matter relevant to the investigation. The OFT has said that the new power is designed to make the CMA’s investigations more robust and efficient by enabling it to obtain information orally that it would otherwise either not be able to obtain or only be able to obtain through written requests. However, concerns have been raised that it will be used to carry out ‘fishing expeditions’ for information during investigations and that individuals’ rights may not be adequately protected.
The CMA must provide both the person and the undertaking with a formal notice which will ordinarily state the time and place at which the person must be available for questioning. However, the Guidance and Rules of Procedure state that in certain circumstances the CMA may interview an individual using its formal powers immediately after giving the notice. This is likely to be during a dawn raid where the CMA is of the view that a delay in conducting the interview may compromise the investigation.
A person being formally questioned may request that a lawyer be present. The CMA will only permit a legal adviser who is also acting for the undertaking under investigation to attend the interview if it is satisfied that this will not risk prejudicing the investigation (for example because it would increase the risk of destruction of evidence or reduce the incentive for individuals being questioned to speak openly and honestly). If this is the case, then the person can request another lawyer and the CMA will delay questioning for a reasonable time to allow a legal adviser to attend. However, the Guidance and Rules of Procedure define “a reasonable time” as such period of time as the officer considers is reasonable in the circumstances. The wide discretion granted to the relevant CMA officer raises the possibility that people may be formally interviewed without a lawyer present or without being fully aware of their rights.
The definition of connected individuals is also very wide, covering not only directors and employees, but also consultants, volunteers, contract staff and professional advisers.
The consultation closes on 11 November