Criminal Antitrust Update

Criminal Antitrust Update Cartel and Criminal Practice Committee Friday, October 26, 2012 A. Paul Victor, Seth C. Farber, Peter Crowther, Eva W. Cole & Molly M. Donovan Moderator: Anne Marie Cushmac, McGuireWoods LLP

Criminal Antitrust Update: U.S. Updates & Developments A. Paul Victor & Molly Donovan Winston & Strawn LLP, New York 2

Introduction We will review the following topics from the last year of criminal enforcement by the Department of Justice, Antitrust Division: Criminal Fines & Monetary Assessments Criminal Sentencing for Individuals Industry Investigations Auto Parts Optical Disk Drives Municipal Bonds TFT LCD Panels Real Estate Auctions Freight Forwarding U.S. v. Florida West International Airways (S.D. Fla.) 3

Criminal Fines & Monetary Assessments Over $810 million in criminal fines in Fiscal Year 2012 Eclipses $523 million collected in Fiscal Year 2011 The $500 million fine against AU Optronics equals largest criminal fine in Division history 4

Sherman Act Violations Yielding a Corporate Fine of $10 Million or More in Fiscal Year 2012* Company Investigation Criminal Fine ($M) AU Optronics Corporation Liquid Crystal Display (LCD) Panels $500 Yazaki Corporation Automotive Wire Harnesses $470 Furukawa Electric Co. Ltd. Automotive Wire Harnesses & Related Products $200 DENSO Corporation Automotive Electric and Heater Control Units $78 Maxzone Vehicle Lighting Corp. Aftermarket replacement automotive lighting $43 Bridgestone Corporation Marine Hose and other industrial products $28 Hitachi LG Data Storage, Inc. Optical Disk Drives $21.1 Fujikura Ltd. Automotive Wire Harnesses $20 Bax Global Inc. Air Transportation (Cargo) $19.7 Crowley Liner Services, Inc. Coastal Water Freight Transportation $17 Autoliv Inc. Automotive Safety Devices $14.5 Sea Star Line LLC Puerto Rico Coastal Water Freight Transportation $14.2 Panalpina World Transport (Holding) Ltd. Air Transportation (Cargo) $11.9 *http://www.justice.gov/atr/public/criminal/sherman10.html 5

Sentencing There has been an increase from 2011 in the average length of incarceration and the total length of prison sentences. Foreign nationals are facing increased prosecution and longer jail terms. The longest prison sentence ever imposed on a cartel participant occurred in 2012 in connection with the ready mix concrete investigation. In the automotive parts investigation alone, mid level managers have been receiving sentences in the 12 to 24 month range. 6

Automotive Parts The ongoing cartel investigation of price fixing and bid rigging in the automotive parts industry has yielded charges against eight companies and a number of individuals. More than $828 million in criminal fines have been imposed thus far. Notable fines include: Yazaki Corporation: $470 million (the second largest criminal antitrust fine ever) and 7 carve outs; Furukawa Electric Company Ltd: $200 million and 4 carve outs; and DENSO Corporation: $78 million and 7 carve outs. There were additional guilty pleas in the aftermarket auto lights investigation: Maxzone Vehicle Lighting Corp. and Eagle Eyes Traffic Industrial Co. Ltd. 7

Real Estate Auctions During 2012, real estate foreclosure investigations resulted in charges against 14 defendants for bidrigging. To date, more than 40 individuals and companies have pled guilty. The Division is investigating anticompetitive conduct at foreclosure auctions in multiple states and has stated its commitment to investigating and prosecuting similar conduct if detected in other parts of the country. 8

Ready Mix Concrete United States v. VandeBrake No. 11 1390 (8th Cir. Apr. 27, 2012) Government agreed that Steven VandeBrake should be sentenced to 19 months in prison and fined $100,000. Trial judge rejected the plea agreement and sentenced VandeBrake to 48 months of imprisonment followed by 3 years of supervised release, and imposed a fine of $829,715.85. The Eighth Circuit affirmed. This is the longest prison sentence ever imposed on a cartel participant. 9

Optical Disk Drives Four executives of Hitachi LG Data Storage, Inc., have agreed to plead guilty to conspiring to fix prices of optical disk drives. Y.K. Park: 8 months imprisonment, $25,000 fine S.H. Kim: 8 months imprisonment, $25,000 fine Sik Hur: 7 months imprisonment, $25,000 fine Woo Jin Yang: 6 months imprisonment, $25,000 fine 10

TFT LCD Panels U.S. v. AU Optronics Corp. No. 09 CR 00110 (N.D. Cal. Sept. 20, 2012) AU Optronics, a large Taiwanese manufacturer of LCD screens, and five of its executives, decided to fight the Division s allegations of criminal price fixing before a jury. It was the first time in 10 years that a corporate defendant has litigated an international criminal cartel case in a U.S. court. This September, a federal judge imposed a $500 million fine on the company, equaling the largest criminal antitrust fine in history. 11

Municipal Bonds The investigation has resulted in charges against 20 individuals and one company, and 19 convictions (with one awaiting trial). Overall, the municipal bond investigation has produced resolutions with large financial institutions implicated in the conspiracies which have agreed to pay a total of nearly $745 million in restitution, penalties, and disgorgement to Federal and State agencies as follows: UBS AG: $160 million Wachovia Bank, N.A.: $148 million JP Morgan Chase & Co.: $228 million GE Funding Capital Market Services Inc.: $70 million Bank of America: $137.3 million 12

Freight Forwarding To date, 14 companies have either pled guilty or agreed to plead guilty and to pay more than $100 million in criminal fines in connection with the Antitrust Division s investigation. Notable fines include: Vantec Corporation: $3.3 million Nissin Corporation: $2.6 million Nishi Nippon Railroad Co. Ltd.: $4.7 million Nippon Express Co. Ltd.: $21.1 million Kintetsu World Express Inc.: $10.5 million Hankyu Hanshin Express Co. Ltd.: $4.5 million MOL Logistics (Japan) Co. Ltd.: $1.8 million Yamoto Global Logistics Japan Co. Ltd.: $2.3 million 13

U.S. v. Florida West International Airways, Inc. No. 10 20864 CR (S.D. Fla.) In 2010, the Antitrust Division charged Florida West and executive Rodrigo Hidalgo with participating in a conspiracy to fix and coordinate air cargo rates for shipments from Colombia to Miami. In early 2012, the court dismissed the indictment against Hidalgo, who was an executive at both LAN Cargo and Florida West, holding that he had been carved into LAN Cargo SA s plea agreement and therefore could not be charged by the government. However, the court rejected Florida West s similar contention that the minor ownership interest of LAN Cargo in Florida West extended the plea agreement to cover Florida West. In July, the court granted Florida West s request to enter a plea of nolo contendere, a plea that has become exceedingly rare in price fixing cases. 14

Criminal Antitrust Update: United States v. AU Optronics Seth C. Farber Winston & Strawn LLP, New York 15

Introduction United States v. AU Optronics Department of Justice, Antitrust Division, prosecution that culminated in an eight week trial (January to March 2012) U.S. District Court Judge Susan Illston, Northern District of California Agenda: Investigation Background Pre Trial Arguments: Alternative Fine Statute/Southern Union Defense Arguments at Trial Verdict Sentencing Going to Trial: Is It Worth It? 16

Investigation Background: Facts AU Optronics (AUO) is a Taiwan based thin film transistor liquid crystal display panels (TFT LCD) manufacturer. Display products: computer monitors, laptop computers, cell phones and televisions. Worldwide TFT LCD market (2006): $70 billion annually. Alleged conspiracy to fix TFT LCD prices from Sept. 2001 to Dec. 2006 at 60 covert gatherings called Crystal Meetings. June 2010 indictment included AUO, AUO America, and 6 AUO executives. Also included 3 executives at AUO competitors. 17

Investigation Background: Prior Dispositions Antitrust Division s investigation into the TFT LCD industry started in 2006 as a result of an amnesty application by Samsung Electronics. Company Plea Announced Carve outs Fine Amount LG Display Co. Ltd. November 2008 4 $400 million Sharp Corp. November 2008 4 $120 million Chunghwa Picture Tubes Ltd. November 2008 7 $65 million Hitachi Displays Ltd. March 2010 2 $31 million Chi Mei Optoelectronics December 2009 5 $220 million HannStar Display Corp June 2010 2 $30 million 18

Investigation Background: Prior Dispositions 10 plea agreements with individuals from participant companies. Name Company Plea Announced Fine Amount Prison Sentence Chang Suk "C.S." Chung LG Display January 2009 $25,000 7 months Chieng Hon "Frank" Lin Chunghwa January 2009 $50,000 9 months Chih Chun "C.C." Liu Chunghwa January 2009 $30,000 7 months Hsueh Lung "Brian" Lee Chunghwa January 2009 $20,000 6 months Bock Kwon LG Display April 2009 $30,000 1 year and 1 day Jau Yang J.Y. Ho Chi Mei April 2010 $50,000 14 months Chu Hsiang James Yang Chi Mei April 2010 $25,000 9 months Wen Hung "Amigo" Huang Chi Mei July 2010 $25,000 9 months Chen Lung Kuo Chi Mei September 2010 $35,000 9 months Jui Hung "Sam" Wu HannStar Display October 2010 $20,000 7 months 19

Alternative Fine Statute 18 U.S.C. 3571(d) : Alternative Fine Based on Gain or Loss If any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss, unless imposition of a fine under this subsection would unduly complicate or prolong the sentencing process. 20

Alternative Fine Statute: Jury Issue Apprendi v. New Jersey, 500 U.S. 466 (2000): Sixth Amendment requires any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury. Government argued Apprendi did not apply to criminal fines. Circuit split at the time: United States v. Southern Union Co., 630 F.3d 17 (1st Cir. 2010): Fines not subject to Apprendi because traditionally at judge s discretion. United States v. Pfaff, 619 F.3d 172 (2d Cir. 2010): Vacated defendant s fine because the jury had made no finding as to the pecuniary gain or loss. July 2011 Order: Judge Illston rejected the government s argument. Ruled that the government must prove loss or gain to a jury beyond a reasonable doubt. 21

Alternative Fine Statute: Southern Union Co. v. United States First Circuit s Southern Union Co. decision (relied on by government) was on appeal to the Supreme Court during AUO trial. Southern Union Co. v. United States, 132 S. Ct. 2344 (2012): On June 21, 2012, Supreme Court held that Apprendi applies to criminal fines and any fact that increases the maximum punishment must be proven to a jury beyond a reasonable doubt. Judge Illston s July 2011 order is consistent with the Supreme Court s decision. 22

Alternative Fine Statute: Measuring the Gain Antitrust Division s All Conspirators Theory. Division has consistently argued in plea negotiations that the computation of gross gains or losses under 3571(d) applies to the aggregate gains or losses caused by the actions of all the participants to the cartel, not just to the individual defendant being prosecuted. Judge Illston accepted Antitrust Division s approach. July 2011 order held that the gross gains question would be put to the jury in terms of the aggregate amount of gains realized by all members of the conspiracy, not just AUO. 23

Trial: Defense Arguments AUO argued that it and its executives had been bluffing competitors at the Crystal Meetings. Instead of fixing prices, AUO claimed it set its prices below the agreed to price. AUO argued that it had not conspired with its competitors, but had used information from the Crystal Meetings to gain a competitive advantage over them. AUO presented expert testimony that AUO itself had not realized any pecuniary gain as a result of its participation in the Crystal Meetings. 24

Verdicts Guilty: AU Optronics AU Optronics America HsuanBin Chin, AUO President/CEO Hui Hsiung, AUO America President Not Guilty: Lai Juh Chen, former Director, Desktop Display Business Group Tsannrong Lee, former Senior Manager, Notebooks Business Group Deadlocked/Mistrial: Shiu Lung Steven Leung, former Senior Manager, Desktop Display Business Group 25

Verdicts: Gain or Loss Jury considered whether the combined gross gains from the conspiracy exceeded $500 million. The government presented expert testimony that the volume of TFT LCD sales during the conspiracy realized by all members of the conspiracy was, conservatively, more than $500 million. Verdict form asked: Was the amount of combined gross gains derived from the conspiracy by all participants in the conspiracy, including [AUO, AUO America, and all of their coconspirators], $500 million or more? The jury answered: Yes. 26

Sentencing: Government s Argument Antitrust Division sought $1 billion fine for AUO and 5 years of probation for AUO and AUO America. Division argued Sentencing Guidelines provide for a fine range of $936 million to $1.872 billion, based on a volume of commerce of $2.34 billion. Guidelines fine limited to alternative fine statute maximum of $1 billion (twice $500 million gain proved to jury). Division sought 10 year prison terms and $1 million fines for each executive. Division argued Guidelines sentence between 121 and 151 months, but Sherman Act maximum is 120 months. Thus, proposed Guidelines sentence was 10 years. Division also argued that AUO and executives deserved harsher sentences for not cooperating as other TFT LCD suppliers did. 27

Sentencing: Defense Requests AUO argued that the highest permissible fine it should face was $285 million. AUO argued that volume of commerce should be as low as $150 million. AUO also argued that the government s requested fine was wildly disproportionate to those imposed on antitrust defendants in other cases. Individual defendants sought sentences in line with other individuals who pled guilty. Also, agreed with AUO that the government s volume of commerce calculation was inflated. 28

Sentencing AUO sentenced to $500 million criminal fine and 3 years of probation. AUO America also sentenced to 3 years of probation. HsuanBin Chin and Hui Hsiung each sentenced to serve 3 years in prison and to pay $200,000 criminal fines. Record Setting Sentences: AUO fine tied with largest fine ever imposed in U.S. antitrust case (F. Hoffmann La Roche). Prison sentences exceed the longest period any foreign national has served for violating U.S. antitrust laws. 29

Sentencing Judge Illston adopted $2.34 billion volume of affected commerce and the Guidelines ranges proposed by Antitrust Division. However, she exercised her discretion to impose significantly lower sentences. Judge Illston said $1 billion fine requested was substantially excessive. For individuals, Judge Illston noted that individuals were not personally motivated and were acting for benefit of company. 30

Going to Trial: Is It Worth It? For individual defendants, trial resulted in acquittal for 2 of 5 individuals and a mistrial for a 3rd. For 2 guilty individuals, the sentences are not significantly larger than some plea agreements from other recent Antitrust Division investigations. Name Company Investigation Fine Amounts Prison Sentence Hsuan Bin Chin AUO TFT LCD $200,000 36 months Hui Hsiung AUO TFT LCD $200,000 36 months Peter Whittle PW Consulting Marine Hose $100,000 30 months Bryan Allison Dunlop Oil & Marine Ltd Marine Hose $100,000 24 months Misao Hioki Bridgestone Corp Marine Hose $80,000 24 months Ryoji Kawai Yazaki Corp. Auto Parts $20,000 24 months Tsuneaki Hanamura Yazaki Corp. Auto Parts $20,000 24 months David Brammar Dunlop Oil & Marine Ltd Marine Hose $75,000 20 months 31

Going to Trial: Is It Worth It? AUO criminal fine tied with largest ever imposed. F. Hoffmann La Roche fine was part of plea agreement. Company Investigation Carve outs Fine Amount AU Optronics TFT LCD n/a $500 million F. Hoffmann La Roche Vitamin 4 $500 million Yazaki Corp. Auto Parts 7 $470 million LG Display Co. TFT LCD 4 $400 million Air France KLM Air Cargo 5 $350 million Korean Air Lines Air Cargo 7 $300 million Samsung Electronics Ltd. DRAM 7 $300 million 32

Going to Trial: Is It Worth It? Collateral Estoppel Effects? In re TFT LCD (Flat Panel) Antitrust Litigation (parallel civil class action) Plaintiff, Dell Inc., moved for partial summary judgment, arguing that AUO should be collaterally estopped on the following issues: (1) the duration of the conspiracy; (2) the gains derived from the conspiracy; and (3) the identity of the participants in the conspiracy. Judge Illston denied Dell s motion on the grounds that the jury verdict did not necessarily include a finding on any of these issues. Dell Inc. v. AU Optronics Corp (In re TFT LCD Antitrust Litig.), No. C 10 1064, 2012 WL 4858836 (N.D. Cal. Oct. 11 2012). Would the result have been different had AUO pled guilty and agreed to a statement of facts? 33

Criminal Antitrust Update: UK Criminal Cartel Offence Peter Crowther Winston & Strawn LLP, London 34

The Story So Far Criminal Cartel Offence introduced in 2003. Applies to specific hardcore cartel activity. First conviction came in June 2008 (marine hose). Sentences between 2.5 to 3 years (later reduced). Only trial has been in BA/Virgin (fuel surcharges on long haul flights). June 2006, investigation announced; 7 August 2008, 4 employees charged. Trial commenced April 2010. May 2010 OFT withdrew and trial collapsed. Reason for lack of cases? Too difficult to prove that the suspect was dishonest. 35

Current Reform Enterprise and Regulatory Reform Bill introduced on 23 May 2012. Creation of new CMA; abolition of OFT and CC. Amendments to current enforcement regime, including the criminal cartel offence. 36

Main Changes Latest changes as at 17 October 2012: Removal of the requirement of dishonesty; Circumstances in which cartel offence is not committed; and Specific statutory defences. 37

The Draft Amended Criminal Cartel Offence Applies to agreements etc. to fix prices, limit supply, limit production, divide customers, divide products, engage in bidrigging. Offence not committed where customers are informed before the arrangements are entered into. Defences: Did not intend that the arrangements would be concealed from customers. Did not intend that the arrangements would be concealed from the CMA. Took steps to ensure that legal advice would be obtained. 38

Criminal Antitrust Update: Overview of Other International Developments Eva W. Cole Winston & Strawn LLP, New York 39

Introduction Antitrust enforcement continues to ramp up across the globe. Brief synopsis of recent activity in: Brazil Korea Taiwan Canada Mexico Japan 40

Brazil Brazil s new antitrust law came into effect on May 29, 2012. The impact of the new law is still uncertain. Changes in penalties: Companies face fines between 0.1 and 20 percent of the company s gross revenues in the relevant business segment in the financial year preceding the start of the investigation. Individuals face imprisonment of up to 5 years AND are subject to fines that can range from 1 to 20 percent of the company s fine. New rules for leniency program. 41

Korea In March 2012, South Korea made several amendments to its competition law. Criminalization of interference with an investigation by the KFTC. Trade and industry associations now also face 10 percent fines for cartel conduct. The statute of limitations was extended from 5 to 7 years. Changes to leniency benefits for cooperators that are not first in. 42

Taiwan In January 2012, Taiwan s Fair Trade Act was amended. The amendments raised the maximum fines on companies for cartel conduct to 10 percent of the company s annual turnover or TWD 10 billion, whichever is greater. Taiwan s Fair Trade Commission also established a new leniency program that grants full immunity to the first leniency applicant and a reduction in cartel fines for up to four additional applicants. Leniency is not available to the company that initiated the cartel. 43

Mexico Mexican authorities are currently drafting new regulations and guidelines regarding how monopolistic practices will be detected, determined, analyzed and sanctioned under the new law, which came into effect in May of 2011. Under the new law, multi firm conspiracies were criminalized and individuals became subject to prison sentences of up to 10 years. Companies may be fined up to 8 percent of the company s income if the company engages in any relative monopolistic activities and up to 10 percent of the company s income if the company engages in absolute monopolistic activities. Individuals can be fined up to 180,000 times the daily minimum wage of the Federal District (a little under US $1 million) for anticompetitive activities. 44

Canada In January 2012, the Canadian Competition Bureau secured its first guilty pleas under the new Competition Act, which came into effect in March of 2010. Domfoam International, Inc. and its affiliate, Valle Foam Industries, Inc., pled guilty to participating in a cartel to fix prices in the polyurethane foam industry over a period of 11 years. The companies were fined a total of CAD 12.5 million ($12.2 million). 45

Japan In June 2012, the JFTC brought a criminal accusation against three industrial machinery and automotive bearing manufacturers, NSK Ltd., NTN Corp. and Nachi Fujikoshi Corp., as well as various employees of the three companies, alleging that the companies worked together to fix prices for their merchandise in violation of Japanese antitrust law. Under Japan s Antimonopoly Act, the Japan Fair Trade Commission is empowered to investigate cartel activity and, if it determines that criminal sanctions are appropriate, it may file a criminal accusation with the Public Prosecutor s Office. Companies may be fined up to 500 million yen and individuals may face a prison term of up to five years and/or a fine of 5 million yen. 46