1 understanding, detecting & reporting antitrust violations barry kaplan u.s. department of...

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Understanding, Detecting & Reporting Antitrust Violations

Barry KaplanU.S. Department of Justice,

Antitrust DivisionMidwest Field Office

312.353-9286 barry.kaplan@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

• Price fixing, market allocation and bid rigging are all criminal violations

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Elements of an Offense

• Concerted action in the restraint of trade – i.e., an agreement among competitors

• Between two or more independent entities

• Affecting interstate or foreign commerce

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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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Antitrust Criminal Penalty Enhancement Act of 2004

• Increased maximum criminal penalties:– Individuals- 10 years and/or $1,000,000;

– Corporations- $100 Million

• Alternative fine provisions of 18 U.S.C. § 3571 – Twice the gross financial loss or gain resulting from the

violation where this number would exceed $100 Million.

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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?

$819,000,000,000$819,000,000,000

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NO PRESSURE

Risk Management “Agencies must immediately review the risk framework . . . and initiate risk mitigation strategies.”

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Evolution of Collusion

Motive 1

2Means

3Opportunity

4Agreement

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BATTLING BID RIGGINGSee the Signs

• Market

• Application

• Patterns

• Suspicious Behavior

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Market: Are Conditions Conducive to Collusion?

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Market: Are Conditions Conducive to Collusion?

• No readily available substitutes• The product is standardized• Vendors repeatedly sell to the same

buyers• Competitors in an industry frequently

interact • Bidders personally submit bids at the

same physical location

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APPLICATION:The Dumb Crook

• Similar applications – handwriting; typeface; stationery

• 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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Patterns in Bids or Prices

• The vendors take turns as the winning bidder (bid rotation)

• The winner subcontracts work to losers • It all evens out• The same guys always win (or lose)• Bids are unusually high• Fewer than normal number of bidders

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PATTERNS:Bid 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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PATTERNS:Bid 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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PATTERNS:Who 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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SUSPICIOUS BEHAVIOR:Itching to Get Caught

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

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

• Loud Mouth Bidder – Suspicious statements

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Detecting Bidding Fraud – Best Practices

Examine the bid files for:– Incomplete files

– Irregularities

• Same phrasing

• Same return address

• Same price calculations or errors

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PARTING WORDS

• Remember M.A.P.S.

• Err on the side of reporting suspicions

• We are here to assist you

Barry KaplanU.S. Department of Justice, Antitrust

DivisionMidwest Field Office

312.353-9286 barry.kaplan@usdoj.gov