海角大神

Why New York's Antitrust Division's growing aggression is bad for you.

The Antitrust Division鈥檚 sentencing statistics over the last two decades show a steady trend toward higher corporate fines for cartel offenses and longer jail sentences for individuals, passing the cost for trials and incarceration onto tax payers.

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Tim Brinton / Newsart.com
The New York Antitrust Division is looking to hire a new director. The division has become increasingly in prosecuting corporations.

The Justice Department is for the New York office of the Antitrust Division. Since this is a 鈥淪enior Executive Service鈥 position, applicants must demonstrate not just technical qualifications, but also 鈥Executive Core Qualifications鈥 defined by the Office of Personnel Management:

1) Leading Change: This core qualification involves the ability to bring about strategic change, both within and outside the organization, to meet organizational goals. Inherent to this ECQ is the ability to establish an organizational vision and to implement it in a continuously changing environment.

2) Leading People: This core qualification involves the ability to lead people toward meeting an organization鈥檚 vision, mission, and goals. Inherent to this ECQ is the ability to provide an inclusive workplace that fosters the development of others, supports employee diversity, facilitates cooperation and teamwork, and supports constructive resolution of conflicts.

3) Results Driven: This core qualification involves the ability to meet organizational goals and customer expectations. Inherent to this ECQ is the ability to make decisions that produce high-quality results by applying technical knowledge, analyzing problems, and calculating risks.

4) Business Acumen: This core qualification involves the ability to manage human, financial, and information resources strategically.

5) Building Coalitions: This core qualification involves the ability to build coalitions internally and with other Federal agencies, State and local governments, nonprofit and private sector organizations, foreign governments, or international organizations to achieve common goals.

The goal of the ECQs, according to OPM, is a 鈥渞esults driven, customer focused, team oriented Federal Government.鈥 I鈥檓 skeptical. The Antitrust Division is a particularly poor showcase for all these wonderful-sounding ECQs.

The basic problem is the Antitrust Division has no 鈥渃ustomers.鈥 The Division鈥檚 core 鈥減roduct鈥 is coerced guilty pleas in price-fixing cases. There are 鈥渞evenues鈥 in the form of criminal fines, which have been steadily increasing every year. There鈥檚 also prison sentences for individuals convicted of price-fixing, which isn鈥檛 exactly a consumer product 鈥 and taxpayers lose money on that deal since they鈥檙e forced to pay the costs of incarceration.

Turning to the particular ECQs, the first item 鈥 鈥淟eading Change鈥 鈥 seems irrelevant. The Antitrust Division鈥檚 鈥渙rganizational vision鈥 is fairly simple: Increase fines and prison sentences every year. I don鈥檛 see where there鈥檚 room for 鈥渟trategic change,鈥 particularly at the level of a field office director.

The second item, 鈥淟eading People,鈥 is interesting not so much because there鈥檚 anything remarkable here 鈥 it鈥檚 all standard MBA-speak 鈥 but because it contradicts a key tenet of the Antitrust Division鈥檚 mission. Note the ECQ states the executive 鈥渇acilitates cooperation and teamwork, and supports constructive resolution of conflicts.鈥 That鈥檚 more then a little ironic 鈥 after all, the Antitrust Division鈥檚 purpose is to create and maximize conflict, both between businesses and the government, and between businesses themselves.

The Antitrust Division鈥檚 key program is its 鈥淐orporate Leniency Policy,鈥 which in the Division鈥檚 own words spurs a 鈥渞ace to the prosecutor鈥 by firms to obtain a full pardon in exchange for implicating competitors in illegal 鈥減rice fixing.鈥 The Division uses the pardon recipient鈥檚 accusations to coerce guilty pleas from competing firms and individual executives. The Division is generating conflict for its own sake, as evidenced by :

Over the last three decades sanctions imposed in cartel cases brought by the Antitrust Division have increased exponentially. This increase is attributable to a number of factors, including increases in maximum penalties for antitrust crimes, the Antitrust Division鈥檚 reallocation of resources to focus on international cases involving larger volumes of commerce, and the change in perception by judges as to the seriousness of antitrust crimes. These factors came together in the 1990s to produce record fines, and this trend has continued in the 21st Century.

The Antitrust Division鈥檚 sentencing statistics over the last two decades show a steady trend toward higher corporate fines for cartel offenses and longer jail sentences for individuals. For example, in Fiscal Year 1991 the average corporate fine for an antitrust offense in the United States was a little less than $320,000 and the largest corporate fine ever imposed for a single Sherman Act count was $2 million. In the mid-1990鈥檚 the amount of corporate fines began to grow steadily, with multimillion dollar fines becoming more commonplace. In 1996, corporate fines reached a new order of magnitude when the Archer Daniels Midland Company (鈥淎DM鈥) paid a $100 million fine for its participation in two international antitrust conspiracies (lysine and citric acid) in the food and feed additives industry. Then-Deputy Assistant Attorney General of the Antitrust Division Gary Spratling predicted that the historic ADM fine was not an aberration, and that we would see more corporate fines in criminal antitrust cases above $100 million. This prediction quickly proved to be accurate. In April 1998, UCAR International agreed to pay a $110 million fine for its participation in the graphite electrodes conspiracy and in 1999, SGL agreed to pay a $135 million for its role in the graphite electrodes conspiracy. These record fines were quickly eclipsed in May 1999 when the worldwide vitamin cartel was exposed and pharmaceutical giant F. Hoffmann-La Roche Ltd agreed to plead guilty and pay a record $500 million criminal fine for leading the conspiracy and BASF AG agreed to pay a $225 million fine for its role.

The ADM fine truly was the tip of the iceberg for large corporate antitrust fines. The Antitrust Division鈥檚 record of cracking large international cartels affecting huge amounts of commerce and obtaining nine-figure fines has continued in the new millennium with the Antitrust Division鈥檚 prosecutions of cartels in the air transportation (more than $1.6 billion in criminal fines obtained to date), liquid crystal display (more than $860 million in criminal fines obtained to date), and dynamic random access memory (more than $730 million in criminal fines obtained to date) industries, among others. To date, the Antitrust Division has obtained 18 fines above $100 million and this trend shows no signs of decline, with the Antitrust Division obtaining just over $1 billion in fines in Fiscal Year 2009.

This is not 鈥渃onstructive resolution of conflicts.鈥 It鈥檚 destructive generation of conflict that removes valuable capital from the marketplace 鈥 remember, all that fine money goes straight to the U.S. Treasury 鈥 while raising business costs as firms struggle to keep up with the Division鈥檚 exponentially increasing aggression.

Of course, I suppose this addresses the third ECQ 鈥 鈥淩esults Driven鈥 鈥 in that the Division is 100 percent driven by results. That said, this ECQ also says managers must 鈥渕ake decisions that produce high-quality results by applying technical knowledge, analyzing problems, and calculating risks.鈥 There鈥檚 no real risk-calculation in antitrust, because there鈥檚 no consequences for failure. Sure, you might have a case go to trial and lose 鈥 it happens, albeit rarely 鈥 but no manager will be disciplined and the Division won鈥檛 face a lost of customer support because, hello, there are no customers.

As far as the Antitrust Division is concerned, 鈥,鈥 as Christine Varney, the current head of the Division, said, and thus no risk a decision will have any negative costs. Whether a department head carefully analyzes his decisions or simply throws darts at a board to pick his targets, it really doesn鈥檛 matter.

This also speaks to the fourth ECQ, 鈥淏usiness Acumen.鈥 While even government offices have limited budgets and resources to manage, there鈥檚 no incentive to do so 鈥渟trategically,鈥 since there鈥檚 no possibility of failure.

The final ECQ 鈥 鈥淏uilding Coalitions鈥 鈥 may sound innocuous but, in many respects, is the most disturbing of all. What we鈥檙e really talking about here is bureaucratic turf-building. The more domestic and foreign agencies you ally yourself with, the more insulated you become from the 鈥渃ustomers鈥 you claim to serve. I noted this in my earlier post on the International Competition Network, and I鈥檒l cite another section here from the Antitrust Division speech I referred to above:

The Antitrust Division鈥檚 detection and prosecution of the worldwide vitamin cartel was important not only because it resulted in record fines, but because for the first time a foreign executive agreed to serve time in U.S. prison for his participation in an international cartel. The historic plea agreement the Antitrust Division entered into in May 1999 with a Swiss vitamin executive was the first that called for the imposition of jail time for a foreign national who had participated in an international cartel. This plea agreement marked a watershed in the Antitrust Division鈥檚 prosecution of international cartels. Before the filing of this case, foreign defendants prosecuted for their participation in international cartels, such as the lysine and citric acid cartels, had pled guilty but the Division did not seek a jail sentence in return for their admission of guilt, cooperation, and submission to U.S. jurisdiction. When the Division began prosecuting international cartels, just convincing a foreign national to submit to U.S. jurisdiction and plead guilty was a major achievement. At that time, a no-jail deal was necessary for the Division to secure access to an important foreign witness or key foreign-located documents.

However, by 1999, the Antitrust Division鈥檚 ability to successfully investigate and prosecute foreign nationals who violate U.S. antitrust laws had significantly advanced, with enhanced investigative tools and increased international cooperation. Thus, 鈥渘o-jail鈥 deals became a relic of the past. Division practice now is to insist on jail sentences for all defendants domestic and foreign. The Division will not agree to a 鈥渘o-jail鈥 sentence for any defendant, and our practice is not to remain silent at sentencing if a defendant argues for a no-jail sentence.

Since May 1999, more than 40 foreign defendants have served, or are serving, prison sentences in the United States for participating in an international cartel or for obstructing an investigation of an international cartel. Foreign nationals from France, Germany, Japan, Korea, Norway, the Netherlands, Sweden, Switzerland, Taiwan and the United Kingdom are among those defendants. The antitrust bar and business community understand that the Division is serious about its policy of insisting on jail sentences for both U.S. and foreign defendants. This realization provides further incentive for corporations to apply for leniency so that their cooperating executives will receive non-prosecution coverage. And if leniency is no longer available in an investigation, the Division鈥檚 insistence on jail terms encourages executives to come in early to cooperate to minimize their jail time and companies to come in early to minimize the number of individual carve outs who could be subject to jail sentences.

So 鈥渂uilding coalitions鈥 means colluding with foreign governments to help imprison more of their own citizens 鈥 in a hostile foreign country 鈥 which further increases the burden on the Antitrust Division鈥檚 鈥渃ustomers鈥 to support these extended criminal prosecutions and incarcerations.

If the Antitrust Division were held to any sort of truth-in-advertising standard, it would define the qualifications for its new bureau chief more succinctly: 鈥淲e seek a borderline sociopath with a law degree who enjoys prosecuting people for fun 鈥 especially foreigners.鈥 You might actually get more applicants with that ad.

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