Criminal Antitrust Enforcement Under the Obama Administration

Incarceration of Individuals

Incarceration of individuals is a better indication of DOJ enforcement aggressiveness than total corporate fines, which are more a measure of the volume of commerce affected by competitor cartels. Incarceration of individuals usually means that the DOJ demands a prison sentence from defendants, who are usually officers of major international corporations, as part of the corporation's resolution of a criminal antitrust investigation. In 2009, the DOJ negotiated a substantial increase in the total days of individual incarceration for antitrust violations, rising from more than 14,000 days in 2008 to more than 25,000 days in 2009, though still substantially less than the more than 31,000 days of incarceration imposed in 2007 under the Bush DOJ. The record number of incarceration days imposed in Antitrust Division prosecutions in 2007 is in part due to numerous prosecutions related to government procurement fraud arising from Iraq, Afghanistan, and Kuwait rebuilding, which were commonly prosecuted as mail fraud violations and not as antitrust offenses, though the Antitrust Division initiated the investigation based on suspicions of bid rigging. Additionally, antitrust investigations in two multinational industries, DRAM electronic chips and marine hose for handling petrochemicals, resulted in numerous officers of UK, French, German, Italian, and Japanese companies pleading guilty to U.S. antitrust violations, including one sentence that was the longest yet received (14 months) for a foreign citizen convicted of an antitrust violation.

The Obama DOJ has continued this prosecutorial policy to require incarceration for individuals convicted of antitrust offenses, including foreign citizens The percentage of individual defendants receiving some period of incarceration, the vast majority of which were received through plea agreements, was 80% in 2009, similar to the percentage in the last several years of the Bush Administration. DOJ's requirement that most individuals pleading to an antitrust violation serve some period of incarceration, which began before the Bush Administration, reflects DOJ's enforcement policy of making an antitrust violation “more than just a corporation's cost of doing business.” The current trend of individual incarceration for antitrust violations is in marked contrast to the 1990s and before, when approximately only 37% of individuals convicted of antitrust violations went to jail.

Increase in Victim Restitution

Perhaps more indicative of the Obama Administration's criminal antitrust enforcement compared with the Bush Administration is a substantial increase in victim restitution. In 2009, DOJ negotiated victim restitution of more than $17 million, compared to $5 million in the last year of the Bush Administration.

Civil Antitrust Enforcement

Candidate Obama's criticisms of the Bush Administration's antitrust enforcement are more correctly directed at the Bush DOJ's civil enforcement of the antitrust laws. The Bush DOJ was widely seen as lethargic in challenging mergers of competitors. However, the DOJ initiated 16 full merger investigations in 2009, compared with 20 in the last year of the Bush Administration, and a decline in mergers litigated, from 16 merger litigations in 2008 to 12 in 2009. Changes in economic conditions, principally the financial crisis of 2008-09, decreased the amount of merger activity that both Administrations reviewed. The Bush Administration also notably published a policy statement on monopolization, widely viewed as permitting greater latitude to companies with larger market shares. The first substantial action of Obama's Assistant Attorney General for the Antitrust Division was to rescind those DOJ monopolization guidelines.

Merger Control

The Obama DOJ has been vocal in the aggressiveness of its merger control and monopolization enforcement policies, despite the economic downturn. In additional to rescinding the Bush Administration's guidelines on monopoly enforcement policy, the Obama DOJ, in coordination with the Federal Trade Commission, published revisions to its merger enforcement policy statements that most commentators perceive as providing additional grounds to challenge more mergers of competitors. The Antitrust Division under Obama appears to be paying more time and attention to changing the prior administration's civil antitrust enforcement than criminal, but it does not seem that this has diverted Division resources from criminal antitrust enforcement.

Comparing Obama's and Bush's Criminal Antitrust Enforcement

Criminal Antitrust Enforcement

Focusing only on criminal antitrust enforcement, candidate Obama's criticisms of the Bush Administration were misplaced. Criminal antitrust enforcement has for the past 40-plus years remained relatively consistent from one presidential administration to the next. Prosecuting cartels, and particularly international cartels where price-fixed goods are sold into the United States, continued as a top priority for DOJ in the transition from the Bush Administration to the Obama Administration. The cartel investigations in the air cargo and LCD industries that resulted in the majority of criminal antitrust fines in 2009 were investigations initiated during the Bush Administration. In 2008 and 2009, six Asian LCD manufacturers agreed o plead guilty to fixing prices of electronic-display products sold in the United States and to pay criminal penalties totaling $862 million.

The continuation of active criminal antitrust enforcement from one administration to the next is not surprising. Criminal antitrust enforcement is largely free of the political decisions of whether “big business is bad” or how much government economic intervention is desirable. The Antitrust Division's criminal enforcement personnel have been career prosecutors, not politically appointed. The current Deputy Assistant Attorney General for Criminal Antitrust Enforcement has been with the DOJ since the last year of the Reagan Administration. Organizationally, the Antitrust Division's criminal enforcement operates relatively autonomously, without the direct reporting to, or substantial input from, the Deputy Attorney General, as prevails in the Criminal Division.

Legislation

Legislatively, the Obama DOJ has advocated continuation of another program begun under the Bush Administration. In June 2010, President Obama signed into law an extension until 2020 of the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA). Originally passed in 2004, ACPERA substantially increased prison time and criminal fines for antitrust violations. In addition, it provided for leniency for self-reporting cartel members. Among its leniency provisions, ACPERA allows the first self-reporting company to receive amnesty and avoid criminal fines and prison time for its employees. The successful amnesty applicant is also eligible, in any related civil litigation, to avoid treble damages and joint and several liability (exposure is limited to “actual damages ' attributable to ' the [amnesty] applicant”). The DOJ has, in the Bush and now the Obama Administrations, considered ACPERA crucial to its cartel enforcement efforts. The Antitrust Division's Deputy Assistant Attorney General for Criminal Enforcement has referred to the Division's leniency program as the “single most significant development in cartel enforcement” in recent years. Christine Varney, the Antitrust Division's Assistant Attorney General, credits ACPERA with “significantly enhancing” the Department's efforts to detect and prosecute cartels.

Conclusion

Overall, the Obama Administration's criminal antitrust enforcement record to date demonstrates a continuation of the Bush DOJ's criminal enforcement policies. “More of the same” in criminal antitrust enforcement means a continuation of the aggressive enforcement policies of administrations that have characterized criminal antitrust enforcement in the past decade, regardless of the administration in office. With history as a guide, we can expect similar policies in the administrations that follow Obama.

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David Laing (david.laing@baker mckenzie.com), a member of this newsletter's Board of Editors, is a partner in Baker & McKenzie's Global Antitrust Practice Group in the Washington, DC, office. He is a former trial attorney with the Antitrust Division of the U.S. Department of Justice.

Candidate Barack Obama criticized the Bush Administration for “what may be the weakest record of antitrust enforcement of any administration in the last half century.” Obama stated that he would direct his administration “to reinvigorate antitrust enforcement” and take “aggressive action to curb the growth of international cartels.” Candidate Obama also stated that, “Under my administration, the antitrust law will mean something.” With the Obama Administration in place a year and a half, it's a good time to evaluate the Obama Justice Department's enforcement of criminal antitrust laws and determine whether the DOJ has been as active in criminal enforcement as the candidate promised.

Comparing the Statistics

Judging by the numbers, the Obama DOJ has been as active, or at least as successful, in criminal antitrust enforcement as candidate Obama promised. Criminal antitrust fines in 2009 exceeded $1 billion, the second highest amount of annual antitrust criminal penalties in the Sherman Act's 110-year history. All of the material antitrust fines in 2009 resulted from settlements that DOJ negotiated, rather than from sentences imposed after trial. The majority of 2009 criminal fines were from DOJ investigations in two industries ' air transportation and liquid crystal display (LCD), including five fines exceeding $100 million each.

Incarceration of Individuals

Incarceration of individuals is a better indication of DOJ enforcement aggressiveness than total corporate fines, which are more a measure of the volume of commerce affected by competitor cartels. Incarceration of individuals usually means that the DOJ demands a prison sentence from defendants, who are usually officers of major international corporations, as part of the corporation's resolution of a criminal antitrust investigation. In 2009, the DOJ negotiated a substantial increase in the total days of individual incarceration for antitrust violations, rising from more than 14,000 days in 2008 to more than 25,000 days in 2009, though still substantially less than the more than 31,000 days of incarceration imposed in 2007 under the Bush DOJ. The record number of incarceration days imposed in Antitrust Division prosecutions in 2007 is in part due to numerous prosecutions related to government procurement fraud arising from Iraq, Afghanistan, and Kuwait rebuilding, which were commonly prosecuted as mail fraud violations and not as antitrust offenses, though the Antitrust Division initiated the investigation based on suspicions of bid rigging. Additionally, antitrust investigations in two multinational industries, DRAM electronic chips and marine hose for handling petrochemicals, resulted in numerous officers of UK, French, German, Italian, and Japanese companies pleading guilty to U.S. antitrust violations, including one sentence that was the longest yet received (14 months) for a foreign citizen convicted of an antitrust violation.

The Obama DOJ has continued this prosecutorial policy to require incarceration for individuals convicted of antitrust offenses, including foreign citizens The percentage of individual defendants receiving some period of incarceration, the vast majority of which were received through plea agreements, was 80% in 2009, similar to the percentage in the last several years of the Bush Administration. DOJ's requirement that most individuals pleading to an antitrust violation serve some period of incarceration, which began before the Bush Administration, reflects DOJ's enforcement policy of making an antitrust violation “more than just a corporation's cost of doing business.” The current trend of individual incarceration for antitrust violations is in marked contrast to the 1990s and before, when approximately only 37% of individuals convicted of antitrust violations went to jail.

Increase in Victim Restitution

Perhaps more indicative of the Obama Administration's criminal antitrust enforcement compared with the Bush Administration is a substantial increase in victim restitution. In 2009, DOJ negotiated victim restitution of more than $17 million, compared to $5 million in the last year of the Bush Administration.

Civil Antitrust Enforcement

Candidate Obama's criticisms of the Bush Administration's antitrust enforcement are more correctly directed at the Bush DOJ's civil enforcement of the antitrust laws. The Bush DOJ was widely seen as lethargic in challenging mergers of competitors. However, the DOJ initiated 16 full merger investigations in 2009, compared with 20 in the last year of the Bush Administration, and a decline in mergers litigated, from 16 merger litigations in 2008 to 12 in 2009. Changes in economic conditions, principally the financial crisis of 2008-09, decreased the amount of merger activity that both Administrations reviewed. The Bush Administration also notably published a policy statement on monopolization, widely viewed as permitting greater latitude to companies with larger market shares. The first substantial action of Obama's Assistant Attorney General for the Antitrust Division was to rescind those DOJ monopolization guidelines.

Merger Control

The Obama DOJ has been vocal in the aggressiveness of its merger control and monopolization enforcement policies, despite the economic downturn. In additional to rescinding the Bush Administration's guidelines on monopoly enforcement policy, the Obama DOJ, in coordination with the Federal Trade Commission, published revisions to its merger enforcement policy statements that most commentators perceive as providing additional grounds to challenge more mergers of competitors. The Antitrust Division under Obama appears to be paying more time and attention to changing the prior administration's civil antitrust enforcement than criminal, but it does not seem that this has diverted Division resources from criminal antitrust enforcement.

Comparing Obama's and Bush's Criminal Antitrust Enforcement

Criminal Antitrust Enforcement

Focusing only on criminal antitrust enforcement, candidate Obama's criticisms of the Bush Administration were misplaced. Criminal antitrust enforcement has for the past 40-plus years remained relatively consistent from one presidential administration to the next. Prosecuting cartels, and particularly international cartels where price-fixed goods are sold into the United States, continued as a top priority for DOJ in the transition from the Bush Administration to the Obama Administration. The cartel investigations in the air cargo and LCD industries that resulted in the majority of criminal antitrust fines in 2009 were investigations initiated during the Bush Administration. In 2008 and 2009, six Asian LCD manufacturers agreed o plead guilty to fixing prices of electronic-display products sold in the United States and to pay criminal penalties totaling $862 million.

The continuation of active criminal antitrust enforcement from one administration to the next is not surprising. Criminal antitrust enforcement is largely free of the political decisions of whether “big business is bad” or how much government economic intervention is desirable. The Antitrust Division's criminal enforcement personnel have been career prosecutors, not politically appointed. The current Deputy Assistant Attorney General for Criminal Antitrust Enforcement has been with the DOJ since the last year of the Reagan Administration. Organizationally, the Antitrust Division's criminal enforcement operates relatively autonomously, without the direct reporting to, or substantial input from, the Deputy Attorney General, as prevails in the Criminal Division.

Legislation

Legislatively, the Obama DOJ has advocated continuation of another program begun under the Bush Administration. In June 2010, President Obama signed into law an extension until 2020 of the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA). Originally passed in 2004, ACPERA substantially increased prison time and criminal fines for antitrust violations. In addition, it provided for leniency for self-reporting cartel members. Among its leniency provisions, ACPERA allows the first self-reporting company to receive amnesty and avoid criminal fines and prison time for its employees. The successful amnesty applicant is also eligible, in any related civil litigation, to avoid treble damages and joint and several liability (exposure is limited to “actual damages ' attributable to ' the [amnesty] applicant”). The DOJ has, in the Bush and now the Obama Administrations, considered ACPERA crucial to its cartel enforcement efforts. The Antitrust Division's Deputy Assistant Attorney General for Criminal Enforcement has referred to the Division's leniency program as the “single most significant development in cartel enforcement” in recent years. Christine Varney, the Antitrust Division's Assistant Attorney General, credits ACPERA with “significantly enhancing” the Department's efforts to detect and prosecute cartels.

Conclusion

Overall, the Obama Administration's criminal antitrust enforcement record to date demonstrates a continuation of the Bush DOJ's criminal enforcement policies. “More of the same” in criminal antitrust enforcement means a continuation of the aggressive enforcement policies of administrations that have characterized criminal antitrust enforcement in the past decade, regardless of the administration in office. With history as a guide, we can expect similar policies in the administrations that follow Obama.

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[IMGCAP(3)]

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David Laing (david.laing@baker mckenzie.com), a member of this newsletter's Board of Editors, is a partner in Baker & McKenzie's Global Antitrust Practice Group in the Washington, DC, office. He is a former trial attorney with the Antitrust Division of the U.S. Department of Justice.