1 the recovery act: understanding, detecting & reporting antitrust violations john terzaken,...

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THE RECOVERY ACT:Understanding, Detecting &

Reporting Antitrust Violations

John Terzaken, Assistant ChiefU.S. Department of Justice,

Antitrust DivisionNat’l Criminal Enforcement Section

(202) 307-0719 / john.terzaken@usdoj.gov

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What is Antitrust?

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The Sherman Act (15 U.S.C. §1)

• “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

• Prohibits agreements among competitors in restraint of trade or commerce

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Sherman Act Elements

• Agreement

• Unreasonable restraint of trade– Price-Fixing

– Customer/Market Allocation

– Bid-Rigging

• Interstate commerce

• Statute of Limitations: 5 years from the last act in furtherance of the conspiracy

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Price Fixing

Agreements among competitors to:

– Same price or raise prices

– Eliminate discounts or have uniform discounts

– Establish minimum or floor prices

– Establish a standard pricing formula

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Allocation

Agreements among competitors to:

– Allocate customers

– Allocate territories

– Allocate sales volumes

– Allocate production volumes

– Allocate market shares

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Bid Rigging

• Agreement in advance to manipulate outcome of bidding process

• Types: – Bid Suppression

– Complementary Bidding

– Bid Rotation

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What do you think the penalties are for Sherman Act violations?

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It's risky, of course---if we're caught, it could mean many hours of community service.

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Penalties Are Significant

• Corporation– Up to $100 million

• Individual– $1,000,000; and/or– 10 years incarceration

• Corporation or Individual– Twice gain to defendant; or– Twice loss to victim

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Companion Violations

• Bribery/Gratuities (18 U.S.C § 201)

• False & Fictitious Claims (18 U.S.C. § 287)

• Conspiracy to Defraud U.S. (18 U.S.C. § 371)

• False Statements (18 U.S.C. § 1001)

• Mail/Wire Fraud (18 U.S.C. §§ 1341, 1343)

• Obstruction of Justice (18 U.S.C. § 1519)

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Why am I here?

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Detecting Violations

• You!

• Amnesty Program – Self Reporting

• Agent Referrals

• Anonymous Complaints

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U.S. v. Godfrey Allen Payne d/b/a Allen Payne Surplus

Criminal No.: 93-20059-01 (D. Kan.)

The seal was lifted on a one-count indictment which was filed on June 22, 1993 in U.S. District Court in Kansas City, Kansas, charging Godfrey Allen Payne d/b/a Allen Payne Surplus with participating in a conspiracy between May 1988 and August 1990 to rig bids, in violation of Section 1 of the Sherman Act, involving auctions of government surplus conducted by the Defense Reutilization and Marketing Office and the General Services Administration ("GSA") in Kansas, Missouri and Nebraska. The investigation is being conducted by the Chicago Field Office of the Antitrust Division with the assistance of the Army Criminal Investigative Division; the Defense Criminal Investigative Service; GSA, Office of the Inspector General in Kansas City, Missouri; and the U.S. Attorney's Office for the District of Kansas.

Working Together

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PUERTO RICO EXECUTIVE CHARGED WITH

CONSPIRING TO DEFRAUD HIS EMPLOYER

WASHINGTON, D.C. — A Puerto Rico federal grand jury today indicted a

former executive of Tricon Restaurants International (Tricon), for conspiracy to

commit mail fraud in connection with a kickback scheme used to defraud his

employer, the Department of Justice announced.

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According to the indictment, from October 2000 until February 2004, Matos

received $31,000 in kickback payments from Albith Colón, the president of Gate

Engineering Corporation (Gate), an electrical contractor, in exchange for Matos

providing favored treatment to Gate by awarding it more than $1 million worth of

electrical contracts. Although the contracts were awarded on behalf of Tricon, the

company was unaware of the kickback payments.

Working Together

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Recovery ActRisk Management Agencies must immediately review the risk framework provided in Chapter 3 of this Guidance, capture and report against the common government-wide accountability measures, identify any additional agency-specific risks not provided for in Chapter 3, prioritize risk areas, and initiate risk mitigation strategies. At a minimum, immediate risk mitigation actions must address: •Audits and investigation of Recovery Act funds to identify and prevent wasteful spending and minimize waste, fraud, and abuse; •Qualified personnel overseeing Recovery Act funds; •Competitive awards maximized; •Timely award of dollars; •Timely expenditure of dollars; •Cost overruns minimized; and •Improper payments minimized. To assess how well the Federal government and funding recipients are progressing in meeting the items above, agencies should begin preparing to track progress against the above accountability measures.

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Evolution of Collusion

Motive 1

2Means

3Opportunity

4Agreement

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PRE-AWARD COLLUSIONSee the Signs

M.A.P.S.• Market

• Application

• Patterns

• Suspicious Behavior

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MARKETAre Conditions Conducive to Collusion?

• There are few sellers in an industry, or a small group of major vendors controls a large percentage of the market

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MARKET

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MARKET Other Indicators

• The product is standardized and other competitive factors, such as design, quality, or service are not prevalent

• Repeat competing vendors

• Competitors frequently interact through social conventions, trade association meetings, shifting employment, etc.

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APPLICATIONThe Dumb Crook

• Similar applications – handwriting; typeface; stationery; typos; mathematical errors

• Last-minute changes – white-outs or physical alterations to prices

• Vendor picks up an extra bid package for another vendor OR submits a competing vendor’s bid

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Paper v. Electronic

• Same basic fraudulent conduct

• Other M.A.P.S. factors to look for: – Metadata (hidden data)

– Cover e-mail header info. incorrect

– Same math errors, typos, etc.

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MetadataCan be Revealing:

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PATTERNSStudy History

• The same vendors submit bids and each one seems to take a turn as the winning bidder (bid rotation)

• A winning bidder subcontracts work to competitors that submitted unsuccessful bids or withdrew bids

• All bidding companies end up winning the same amount of work over a series of bids

• Same company always wins a particular bid• Fewer than normal number of bidders

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PATTERNSBid Rotation

• Bid 1: Company A wins

• Bid 2: Company B wins

• Bid 3: Company C wins

• Bid 4: Company A wins

• Bid 5: Company B wins

• Bid 6: Company C wins

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PATTERNSBid Suppression

• Bid 1: Companies A, B, C, and D bid

• Bid 2: Companies B, C, and D bid

• Bid 3: Companies A, C, and D bid

• Bid 4: Companies A, B, and D bid

• Bid 5: Companies A, B, and C bid

Also watch for subcontracts to the company that sits out!

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PATTERNSWho Is Getting What

• Bid 1: A wins a $3 million contract

• Bid 2: B wins a $5 million contract

• Bid 3: C wins a $1 million contract

• Bid 4: C wins a $4 million contract

• Bid 5: A wins a $2 million contract

Everyone = $5 million

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PRIOR BID PROPOSALS(Numbers are in 1000’s)

Proposal Company A Company B Company C

1 $3000 $3230 $3330

2 $5500 $5000 $5100

3 $2200 $2150 $2000

4 $2000 $2650 $2320

5 $2200 $2150 $2000

6 $1200 $1150 $1000

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SUSPICIOUS BEHAVIORItching to Get Caught

• No Chance Bidder – Bids submitted by vendor known to lack the ability to perform the contract

• Betting Bidder – Vendor brings multiple bids to an opening or submits bid once other bidders are determined

• Loud Mouth Bidder – Suspicious statements indicating advance notice of a competitor’s prices or that vendors have discussed bids

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WHAT YOU CAN DODiscourage Collusion

• Expand the list of bidders/applicants• Require sealed bids/applications to be delivered by

a specified time and to a specified location and date and time stamp the packages when they are received

• Require a certification of independent price determination to be submitted with all bids/applications

• Ask questions

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WHAT YOU CAN DODetect Collusion

• Use a highlighter to mark typos, errors, etc.• Retain bids, envelopes, Federal Express slips, fax

transmittal sheets, e-mail messages, etc.• Keep a chart of competition over time for products

and services you purchase• Keep your eyes and ears open• Ensure your whole team is familiar with M.A.P.S.

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PARTING WORDS

• Remember M.A.P.S. • Ensure that all purchasing officers are

familiar with M.A.P.S.• Find our M.A.P.S. checklist at: www.usdoj.gov/atr/public/criminal/recovery_

initiative.htmJohn Terzaken, Assistant Chief

U.S. Department of Justice, Antitrust DivisionNat’l Criminal Enforcement Section

(202) 307-0719 / john.terzaken@usdoj.gov