1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions apply to cartels in your jurisdiction?
The Antitrust Division of the Department of Justice (DOJ) prosecutes cartel conduct under Section 1 of the Sherman Act. The Sherman Act broadly prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce". In addition to criminal enforcement by DOJ, civil lawsuits may be brought by private plaintiffs under the Clayton Act as well as other government enforcers - most notably state attorneys general, who can bring claims under applicable state statutes.
1.2 Do any special regimes apply to cartels in specific sectors?
The Sherman Act's prohibition against cartel conduct is generally applicable regardless of sector. However, there is a limited number of specific exceptions. For example, the Clayton Act exempts from antitrust liability collective action in the labour market (ie, union collective bargaining conduct) and concerted action among marine insurance companies. Similarly, the Shipping Act of 1984 exempts certain agreements among ocean common carriers that have been filed with the Federal Maritime Commission. There are additional limited exemptions, including exemptions relating to the railway industry and Major League Baseball.
In addition, the Noerr-Pennington doctrine exempts from antitrust liability collective petitioning of the government, even where such actions seek to encourage the government to limit competition or injure competitors.
1.3 Which authorities are responsible for enforcing the cartel legislation?
The DOJ has exclusive authority to prosecute cartel conduct under the Sherman Act. Other parties, including private plaintiffs and state attorneys general, may bring civil enforcement actions.
1.4 How active are the enforcement authorities in investigating and taking action against cartels in your jurisdiction? What are the statistics regarding past and ongoing cartel investigations? What key decisions have the enforcement authorities adopted most recently?
The DOJ aggressively enforces criminal antitrust law and typically initiates several major investigations each year. From FY 2012 to FY 2015, the DOJ collected criminal fines exceeding $1 billion each year, including $3.6 billion in FY 2015.
Since then, criminal antitrust fines have been in a steep decline, dropping to $399 million in FY 2016 and $67 million in FY 2017 - a 10-year low.
Significant recent investigations include the following.
Automobile parts: The DOJ's investigation of manufacturers of various automotive components has been the largest cartel investigation in terms of the number of corporate prosecutions. Altogether, the investigation has resulted in dozens of convictions of corporations and individuals, with total fines exceeding $2.9 billion. The investigation started in 2011 and the last reported enforcement occurred in early 2018, when Maruyasu Industries Co. Ltd. pleaded guilty to price fixing of automotive steel tubes and agreed to pay a fine of $12 million.
Foreign exchange currency markets: The DOJ has actively investigated and prosecuted alleged cartel conduct in financial and technology markets. One example is the DOJ's investigation of an alleged conspiracy to manipulate the prices of US dollars and euros exchanged on foreign exchange spot markets. The investigation resulted in guilty pleas by a number of large financial institutions including Citicorp, Barclays, JPMorgan and The Royal Bank of Scotland, which paid fines of $925 million, $650 million, $550 million and $395 million, respectively.
Bid rigging in real estate foreclosure auctions: The DOJ has prosecuted bid rigging in real estate public foreclosure auctions. To date, there have been indictments and guilty pleas across multiple states, including Northern California, Mississippi, Florida and Georgia.
Packaged seafood: The DOJ uncovered evidence of price fixing while investigating a proposed merger between Bumble Bee and Chicken of the Sea. The merger review led to a criminal cartel investigation that has since resulted in a plea agreement with Bumble Bee, which agreed to pay a $25 million fine, and plea resolutions with five executives. StarKist, a third conspirator implicated in the investigation, agreed to plead guilty, but has not been sentenced as of the time of writing. Bumble Bee's chief executive has refused to enter a plea deal and is awaiting trial as of the time of writing.
No-poach cases: In October 2016 the DOJ issued guidance that it will prosecute naked agreements between competitors not to hire each other's employees as criminal violations of the antitrust laws. The DOJ has stated that it is investigating multiple alleged no-poach agreements, although no criminal charges have been filed to date.
2 Definitions and scope of application
2.1 How is a ‘cartel' defined in the cartel legislation?
The Sherman Act does not specifically define cartel conduct. The Antitrust Division of the Department of Justice (DOJ) prosecutes naked agreements between competitors to fix prices, rig bids, divide customers or otherwise agree not to compete outside of the context of legitimate market activities such as joint ventures. The DOJ interprets ‘agreements' broadly. Illegal agreements can be proven with circumstantial evidence and need not be formal or written agreements.
2.2 What specific offences are defined in the cartel legislation?
The Sherman Act does not define specific offences. The DOJ prosecutes price fixing, bid rigging and related agreements. It has also issued guidance that it will prosecute naked ‘no-poach' agreements between companies not to hire each other's employees.
2.3 Is liability under the cartel legislation civil, criminal or both?
Liability under the Sherman Act can be both criminal and civil.
2.4 Can both individuals and companies be prosecuted under the cartel legislation?
The DOJ prosecutes both individuals and companies for cartel conduct.
2.5 Can foreign companies be prosecuted under the cartel legislation?
The DOJ has consistently brought actions against foreign companies for conduct directed at or affecting domestic US markets. Many of the DOJ's largest investigations have primarily targeted foreign corporations and individuals.
2.6 Does the cartel legislation have extraterritorial reach?
Section 1 of the Sherman Act applies to commerce between US states and commerce between the United States and other nations. The Foreign Trade Antitrust Improvements Act (FTAIA) defines the outer bounds of the extraterritorial reach of US antitrust law. Under the FTAIA, the Sherman Act reaches import commerce and non-import commerce with foreign nations having a "direct, substantial, and reasonably foreseeable" effect on domestic US commerce, which gives rise to a Sherman Act claim.
2.7 What is the statute of limitations to prosecute cartel offences in your jurisdiction?
The statute of limitations for criminal cartel offences is five years. The statute of limitations does not begin to run until the conduct has been completed or abandoned. Fraudulent concealment of the conspiracy does not stop the statute of limitations from running for criminal offences. The statute of limitations for most civil cartel offences is four years. For civil offences, fraudulent concealment can stop the running of the statute.
3 Investigations – general
3.1 On what grounds may the enforcement authorities commence an investigation?
The Antitrust Division of the Department of Justice (DOJ) may commence an investigation if it becomes aware of evidence of potential cartel conduct, which may come from the DOJ's review of public sources (including newspapers), a leniency applicant or documents uncovered in a merger or other government investigations.
3.2 What investigatory powers do the enforcement authorities have in conducting their investigation?
The DOJ may issue subpoenas to compel the production of documents and to compel testimony before a grand jury. The DOJ may also seek to interview witnesses and often works in conjunction with the Federal Bureau of Investigation (FBI) to conduct electronic surveillance and exercise search warrants (ie, conduct ‘dawn raids').
3.3 To what extent may the enforcement authorities cooperate with their counterparts in other jurisdictions during their investigation? How common is such cooperation in practice?
The DOJ considers cooperation with enforcement authorities in other jurisdictions a top priority because cartels often involve foreign defendants or conduct. The DOJ relies on mutual legal assistance treaties (MLATs) to gather evidence located outside the United States and work more closely with foreign jurisdictions. MLATs generally provide assistance for obtaining evidence and serving legal documents in foreign jurisdictions.
The DOJ may also coordinate with foreign jurisdictions when parallel investigations into the same or related conduct are underway in multiple jurisdictions. This coordination, for example, may involve the timing of dawn raids.
However, the DOJ faces significant limits in its ability to share information with foreign enforcers, which restricts the extent of potential cooperation. Most notably, grand jury secrecy rules prevent the DOJ from disclosing information or evidence obtained through the grand jury.
The DOJ has also sought the cooperation of foreign jurisdictions to extradite indicted fugitives travelling outside of the United States. For instance, the DOJ can seek Interpol ‘red notices' which operate as requests to identify and arrest fugitives.
3.4 Is there an opportunity for third parties to participate in the investigation?
DOJ criminal cartel investigations are conducted through the grand jury process, which is governed by strict confidentiality rules. The DOJ may seek information from third parties through grand jury subpoenas, including subpoenas for the production of documents and testimony in front of the grand jury.
3.5 What are the general rights and obligations of the enforcement authorities during the investigation?
As noted above, the DOJ conducts criminal cartel investigations through the grand jury process and, more generally, the conduct of investigations is subject to the US Constitution and other federal legal protections accorded to individuals who are subject to an investigation. The grand jury, which consists of private citizens, must approve the issuance of subpoenas, which are a key investigative tool, as well as the filing of criminal charges. Grand jury investigations are also subject to strict confidentiality rules that prohibit the DOJ and members of the grand jury from public disclosure of information gathered in the investigation. The DOJ must also receive court approval for exercising certain investigative tools, including electronic surveillance and search warrants.
3.6 What are the general rights and obligations of the target company during the investigation?
In addition to the limitations on the DOJ's prosecutorial powers noted above, defendants are afforded the protections of the US Constitution. And while the DOJ investigates and prosecutes cartel offences, ultimate findings of guilt and liability and the penalty to be imposed are set by federal courts, not the DOJ. If a defendant enters into a plea agreement with the DOJ, the plea agreement and the related penalties must be approved by the court. If a defendant refuses to enter into a plea agreement and the DOJ proceeds with the prosecution, the DOJ must prove guilt to a federal jury.
3.7 What principles of attorney-client privilege apply during a cartel investigation?
Attorney-client privilege applies to confidential communications between a client and its counsel for the purpose of obtaining legal advice. Disclosure of privileged communications to third parties can break the privilege. In addition to attorney-client privilege, similar protections are afforded by the attorney work product doctrine. The attorney work product doctrine prevents adverse parties from discovering or compelling disclosure of materials prepared in anticipation of litigation by or for an attorney involved in the representation.
3.8 Are details of the investigation publicly announced? If so, what principles of confidentiality apply?
As noted above, grand jury investigations are governed by strict confidentiality protections. As a result, the DOJ does not disclose the details of its investigation while an investigation is pending. When the DOJ brings formal charges or enters into a plea agreement with a defendant, it will describe the factual predicate of the charges, but will limit detailed public disclosures relating to the conduct of the specific defendant.
The DOJ also treats as confidential information provided by leniency applicants and will generally keep confidential the identity of a leniency applicant unless required by court order or if the applicant has disclosed its own status.
4 Investigations – step by step
4.1 What initial steps do the enforcement authorities take to commence a cartel investigation?
The Antitrust Division of the Department of Justice (DOJ) may identify cartel conduct through a variety of sources, including leniency applications, its own investigations or referrals from other national or foreign government agencies. The DOJ's own investigations can include electronic surveillance and the exercise of search warrants.
After the DOJ identifies evidence of potential criminal conduct, it will open a grand jury investigation. An early step in the grand jury process is the issuance of subpoenas to companies and individuals who are subject to the investigation.
4.2 Are dawn raids commonly conducted in your jurisdiction? If so, what are the pre-conditions for conducting a dawn raid? When, where and by whom are they conducted? Do the enforcement authorities have the power to search private as well as company premises?
The DOJ can conduct dawn raids of corporate or individual premises. Before doing so, it must obtain a court-issued search warrant. To obtain a search warrant, the DOJ must demonstrate to a federal judge that there is adequate evidence of criminal conduct on the premises it intends to search. Once a search warrant has been issued, the search is conducted by the DOJ in conjunction with the Federal Bureau of Investigation (FBI).
4.3 What powers do officers have during the dawn raid? Are there any limitations on these powers?
The agents conducting the search are confined by the terms of the court-issued search warrant. The search warrant should clearly identify the premises to be searched, the evidence to be seized and the timeframe in which the search may occur.
4.4 What are the rights and obligations of the target company and any individuals targeted during a dawn raid?
A company and any individual targeted by a search warrant can request to see the government agents' identification and may also request a copy of the search warrant. Company personnel may be present for the duration of the search and may request an inventory of items seized in the raid. However, they cannot interfere with the search and seizure of evidence authorized by the warrant. Individuals who interfere with the execution of a search warrant, including by hiding or destroying evidence or by lying to government agents, can be subject to criminal prosecution under obstruction of justice and related laws.
4.5 What evidence can be seized during a dawn raid? Do the enforcement authorities have the power to interview witnesses and take statements during a dawn raid?
Government agents exercising a search warrant may confiscate documents, computers and other physical evidence. They can also access and copy electronic files. Government agents may also seek to interview witnesses, although the witnesses are not required to answer the agents' questions.
A common tool used during dawn raids is to send simultaneously FBI agents to the homes of relevant employees or executives to question them about their involvement in, or knowledge of, the conduct under investigation. As with interviews during the execution of a search warrant, the individuals are not required to answer the agents' questions, but may be subject to prosecution if they lie to the agents.
4.6 How can a company best prepare itself for dawn raids? What best practices should it follow in the event of a dawn raid?
Companies can prepare for dawn raids by creating a raid response plan, including designating individuals responsible for managing the response. The response plan should include contacting counsel who can be available to assist in the response and provide related legal advice to the company as soon as possible. Companies should also educate their personnel on how to respond to a raid, including explaining their rights and obligations in the event of a raid.
4.7 What are the next steps in the cartel investigation following a dawn raid? What timeframe do these typically follow?
The next steps will vary between investigations. As a general matter, the DOJ is likely to follow the raid by reviewing the evidence collected and using the evidence to formulate its strategy for the remainder of the investigation. For example, the DOJ may expand the scope of the investigation if it identifies evidence of additional wrongdoing. Companies subject to a dawn raid are generally well advised to conduct their own internal investigation following the raid, and to engage with the DOJ to understand the scope of the investigation and seek copies of the materials collected during the raid.
4.8 What factors will the enforcement authorities consider in assessing whether cartel activity has taken place?
The primary factor is the evidence. In assessing whether cartel activity has taken place, the DOJ will review the evidence, which can include documents and witness testimony. The DOJ will also place significant weight on any admissions of a violation provided by a leniency applicant. During the course of an investigation, the DOJ will also hear presentations from counsel, which may argue that the evidence does not amount to a violation or may seek to narrow the scope of a violation.
4.9 In case of a finding of cartel activity, can the company seek to negotiate a settlement, plea bargain or similar resolution? If so, what is the process for doing so?
Companies can negotiate plea agreements with the DOJ. The plea negotiation process will generally start with the company informing the DOJ that it is interested in a negotiated resolution and is willing to cooperate in the DOJ investigation. Plea negotiations generally start after a period during which the DOJ investigation proceeds and the company cooperates by providing evidence and information requested by the DOJ. This process will often include proffers by company counsel to the DOJ, in which company counsel will provide information of relevance to the investigation. The process will culminate with negotiations that can involve the scope of the violation supported by the evidence, the volume of affected commerce and discounts that should be provided to the company based on the timeliness and value of its cooperation.
5.1 Is a leniency programme in place in your jurisdiction? If so, how does this function?
The Antitrust Division of the Department of Justice (DOJ) has had a leniency programme since 1978. The programme provides incentives for companies and individuals to self-report cartel conduct in exchange for amnesty or reduced liability. The leniency programme provides for two types of leniency. Type A leniency is available to companies and individuals that voluntarily provide information about cartel activity before the DOJ has begun an investigation. Type B leniency may be available to companies that provide information about cartel conduct after the DOJ has already become aware of the conduct through other sources.
In order to receive amnesty, the applicant must admit that it engaged in a criminal violation of the antitrust laws and must terminate its participation in the illegal conduct. The amnesty applicant must also report the conduct with candour and completeness, and provide full and complete cooperation in the DOJ investigation until the investigation has been completed. This cooperation generally includes attorney proffers describing the conduct, production of documents and making employees available for interviews.
The DOJ also has an ‘amnesty plus' programme. Under this programme, a company subject to a cartel investigation can obtain more lenient treatment by disclosing evidence of a second, unrelated conspiracy. Amnesty plus recipients receive amnesty in the newly identified conspiracy ‘plus' a discount on the fine in the first conspiracy.
5.2 What are the benefits of applying for leniency, both for the first mover and for subsequent applicants?
The primary benefit, available to the first company to self-report a cartel, is immunity from prosecution for the company and its current employees. The successful amnesty applicant thus avoids criminal penalties for itself, as well as incarceration and monetary penalties for its employees. In order to qualify for these benefits, the individuals must also cooperate in the DOJ investigation. The DOJ may also forgo prosecution of former employees.
The amnesty applicant is also eligible for reduced damages in follow-on civil litigation. More specifically, if it fulfils certain conditions, the amnesty applicant's civil liability is limited to damages caused by its own conduct. The amnesty applicant can thus avoid joint and several liability and triple damages normally available against defendants in civil lawsuits.
Subsequent applicants will not receive amnesty, but may negotiate reduced fines based on the timeliness and value of their cooperation.
5.3 What steps does a leniency application involve? What timeframe do these typically follow?
A leniency application is initiated by communication with the DOJ regarding the company's involvement in potential cartel conduct. As part of this process, the DOJ can issue a marker to hold the company's place as the first in line. The marker provides 30 days for the company to conduct an internal investigation and report on the related findings to the DOJ, although the DOJ will often extend this marker to provide additional time. Once the marker expires, the company may either withdraw its marker (if the internal investigation reveals no unlawful conduct) or perfect the marker by admitting the violation and cooperating with the DOJ investigation.
5.4 What are the rights and obligations of the applicant during the leniency application and over the course of its cooperation with the enforcement authorities?
The applicant must report the wrongdoing with candour and completeness, and provide full, continuing and complete cooperation. The amnesty applicant effectively waives the right to challenge the existence of a criminal antitrust violation if it wants to maintain the benefits of amnesty, since it is required to admit that it engaged in such a violation. Nevertheless, the applicant reserves the right to withdraw its application and challenge a finding of a violation if it concludes during the course of the investigation that the conduct at issue did not in fact violate the antitrust laws.
5.5 Is the leniency programme open to individuals? Can employees or former employees benefit from a leniency application filed by their employer? Do the authorities operate a programme for individual whistleblowers separate to the leniency programme?
The DOJ's leniency programme is available to both companies and individuals. While leniency is generally sought by companies, individuals may seek leniency independently of the company and without the company's knowledge. There is no antitrust-specific whistleblower statute in the United States. However, where a potential antitrust violation involves government contracts, whistleblowers may obtain a monetary award under the False Claims Act, up to as much as 25% of any resulting recovery by the federal government.
5.6 Can leniency be denied or revoked? If so, on what grounds?
The DOJ can revoke leniency if the leniency applicant fails to satisfy the obligations described above.
6 Penalties and sanctions
6.1 What penalties may be imposed in criminal proceedings on companies? What penalties may be imposed on individuals?
The Sherman Act provides for criminal corporate penalties up to the greater of $100 million per violation or twice the defendant's gross gain or victims' gross loss in corporate fines. Individuals may receive up to 10 years' imprisonment and a $1 million fine.
6.2 What penalties may be imposed in civil proceedings on companies? What penalties may be imposed on individuals?
Both companies and individuals may be subject to joint and several liability and treble damages in private litigation.
6.3 How are penalties in cartel cases determined? In deciding on the applicable penalties, will the enforcement authorities consider penalties imposed in other jurisdictions?
In practice, the Antitrust Division of the Department of Justice (DOJ) will calculate penalties based on the volume of commerce affected by the alleged violation, and will also take into account factors such as the timeliness and value of the defendant's cooperation. However, the ultimate power to approve and set penalties lies with the court. The DOJ generally does not take into account penalties imposed by other jurisdictions, although it may do so in limited circumstances, such as where penalties imposed elsewhere impact on the defendant's financial viability and ability to pay a penalty in the United States.
6.4 Can a defendant company pay the legal costs incurred by and/or penalties imposed on its employees?
Companies may pay legal costs incurred by former and current employees.
7.1 Can the defendant company appeal the enforcement authorities' decision? If so, which decisions of the authority can be appealed (eg, all decisions or just the final decision) and to which reviewing authority? What is the standard of review applied by the reviewing authority (eg, limited to errors of law or a full review of all facts and evidence)?
The Antitrust Division of the Department of Justice (DOJ) does not have the power to impose penalties on a criminal defendant. If a defendant disagrees with the DOJ's position that a violation occurred, or if a defendant disagrees with the fines sought by the DOJ, the defendant can proceed to a criminal trial. At the trial, the defendant has the right to a jury and the jury is charged with finding whether the DOJ has proven that a violation occurred beyond a reasonable doubt. In the event of a guilty verdict, the defendant can appeal the verdict or the penalty imposed by the court. The appellate court will examine the record of the proceedings and review findings of fact for clear error and findings of law de novo.
7.2 Can third parties appeal the enforcement authorities' decision, and if so, in what circumstances?
Third parties generally cannot appeal the DOJ's enforcement actions.
8 Private enforcement
8.1 Are private enforcement actions against cartels available in your jurisdiction? If so, where can they be brought?
Private enforcement actions are frequently brought in the wake of government investigations and may be brought in federal court.
8.2 Can private enforcement actions be brought against both companies and individuals?
Cases may be brought against companies or individuals. In practice, however, lawsuits against individuals are rare.
8.3 Are class actions or other forms of collective action available in your jurisdiction?
Class actions are common and are frequently brought on behalf of both direct and indirect purchasers. Direct purchaser claims are brought under the federal Sherman and Clayton Acts, while indirect purchaser claims can be brought only under applicable state laws.
8.4 What process do private enforcement actions follow?
Private enforcement actions are filed in federal court and follow the general rules of civil procedure. Private enforcement actions are exceedingly expensive and often take years to complete, while incurring significant discovery and legal costs.
8.5 What types of relief may be sought and what types of relief are most commonly awarded? How is the relief awarded determined?
The Clayton Act provides for treble damages in private antitrust actions and plaintiffs may collect damages based on joint and several liability. Plaintiffs must prove that they were injured by the alleged violation and the amount of their injury. Damages are generally calculated based on overcharges sustained by the alleged cartel conduct. Plaintiffs may also seek injunctive relief.
8.6 Can the decision in a private enforcement action be appealed? If so, to which reviewing authority?
Enforcement actions by private parties are commenced in lower federal courts and may be appealed to a federal appellate court.
9 Trends and predictions
9.1 How would you describe the current cartel enforcement landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The Antitrust Division of the Department of Justice (DOJ) continues to stress the importance of its criminal enforcement programme. Nevertheless, there has been a marked decrease in fines imposed since 2016. This decrease has coincided with the conclusion of several significant investigations.
The most recent legislative reform to US cartel enforcement is the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), which limits a successful amnesty applicant's damages in follow-on private lawsuits when certain conditions are met. ACPERA will expire in 2020, unless it is reauthorised by Congress. Reauthorisation is probable.
10 Tips and traps
10.1 What would be your recommendations to companies faced with a cartel investigation and what potential pitfalls would you highlight?
The Antitrust Division of the Department of Justice (DOJ) cartel investigations carry significant exposure in terms of potential liability and reputational damage. Companies under investigation are well advised to move quickly in engaging with the DOJ and conducting an internal investigation to assess the nature of the conduct and its legal implications. Companies should also explore leniency opportunities from the outset and act quickly if leniency is available. The race for amnesty can be won or lost by a matter of minutes, and the potential benefits of successful leniency are significant. Companies should also be thoughtful in selecting counsel, ensuring that they retain counsel experienced in DOJ cartel investigations and with credibility in front of the agency.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.