The U.S. Department of Justice’s Antitrust Division announced on 5 November 2019 that it has established the Procurement Collusion Strike Force (PCFS), a new task force designed to detect criminal anticompetitive behavior in government procurements. This comes off the back of recent statements from senior DOJ officials that the Division had plans to be more aggressive in pressing criminal charges against companies and individuals that have rigged U.S. government contract bids, both domestically and internationally. Several indictments this year show the government making good on that promise, and scrutiny will heat up even further with the dawn of the PCFS. These developments raise several considerations for companies around the globe that contract with U.S. government agencies.
Procurement Collusion Task Force
The PCFS will be an interagency partnership consisting of Division prosecutors, as well as prosecutors from 13 U.S. Attorneys’ Offices and investigators from the FBI, the Department of Defense Office of Inspector General, the U.S. Postal Service Office of Inspector General, as well as other federal Offices of Inspector General. Assistant Attorney General Makan Delrahim stated that “the PCSF will train and educate procurement officials nationwide to recognize and report suspicious conduct in procurement, grant and program funding processes. We will aggressively investigate and prosecute those who violate our antitrust laws to cheat the American taxpayer.” The PCSF will focus on 13 districts to start with, covering parts of California, Colorado, Washington D.C., Florida, Georgia, Illinois, Michigan, New York, Ohio, Pennsylvania, Texas and Virginia.
Prosecutors from the PCFS will be conducting outreach and training for procurement officials and government contractors on antitrust risks in the procurement process. The Division has set up an informational website for the new PCFS: https://www.justice.gov/procurement-collusion-strike-force.
Recent Government Contractor Criminal Cases
The establishment of the PCSF marks an increased focus on an area already attracting significant government resources. In November of last year, Assistant Attorney General Makan Delrahim announced the Division’s intention not only to aggressively prosecute criminally “companies who cheat the United States government and the American taxpayer,” but also to pursue parallel civil actions for damages pursuant to Section 4A of the Clayton Act. Section 4A allows the government to recover treble damages for antitrust violations when the government itself is the victim.
Several recent cases since then have confirmed the Division’s increased focus:
- Military fuel supply: The DOJ has been investigating a bid-rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea. To date, DOJ has secured five corporate guilty pleas and indicted seven individuals, all South Korean nationals. In November 2018, three South Korean companies agreed to plead guilty and enter into civil settlements for their involvement the conspiracy. In addition to USD82 million in criminal fines, the DOJ recovered a USD154 million civil settlement pursuant to Section 4A and the False Claims Act, the largest ever recorded since the enactment of Section 4A. DOJ announced in March 2019 two additional corporate guilty pleas and indictments of seven individuals. The two corporations paid USD75 million in criminal fines and an additional $52 million in civil damages. The investigation remains ongoing.
- Insulation installation contracts: The DOJ has also been investigating a bid-rigging conspiracy and fraudulent conduct targeting insulation installation contracts of more than USD45 million for facilities including public universities, hospitals, and schools. To date, DOJ has secured three individual guilty pleas, two of whom were senior executives.
- Online auctions for surplus government equipment: Government Services Administration auctions have also come under scrutiny. DOJ has been investigating agreements among co-conspirators on who would submit bids for particular items and which co-conspirator would be designated to win the particular bid. DOJ has announced two individual guilty pleas to date, and AAG Delrahim has stated that these pleas “will not be the last in this investigation.”
As these guilty pleas and indictments make clear, DOJ has been focused on identifying and prosecuting collusive conduct that affects federal, state, and local government agencies. The penalties for violating criminal antitrust laws in the United States are significant. Companies face maximum fines of USD 100 million, as well as treble damages under both Section 4a of the Clayton Act and the False Claims Act when the government is the victim of criminal conduct. The penalties for individuals are also severe, who face fines up to USD 1 million and imprisonment of up to 10 years. These penalties can reach foreign nationals, as was the case in the South Korean military fuel supply conspiracy.
First, as the military fuel supply guilty pleas and indictments of South Korean companies and individuals make clear, DOJ is not focused on purely domestic U.S. conduct. Companies around the world that are found to have engaged in anticompetitive conduct that affects U.S. government contracts are at risk.
Second, with the increased focus on the government contractor market, we recommend that companies thoroughly review their compliance programs to ensure they meet the Division’s recent guidelines. Enhanced training and audits of key sales and pricing individuals involved in securing government contracts to ensure there is no conduct that might raise concerns is also recommended.
Third, companies should ensure that employees have a clear and protected whistleblower hotline. Ensuring early identification of any potential misconduct—either through targeted audits or whistleblower complaints—will allow companies to take advantage of the DOJ Leniency Program through self-reporting or, at the very least, be well placed to secure benefits under the new guidance on criminal antitrust compliance.