POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

ORIGINAL IDEAS. UNCOMMON SOLUTIONS.

U.S. INTERNATIONAL CARTEL ENFORCEMENT

Presented by

Neil R. EllisVienna, Austria

October 13, 2000

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Expansion of U.S. enforcement against cartels

Enormous increase in criminal fines and prison terms

Increase in percentage of investigations of cartels with international participants

Expansion of U.S. enforcement against cartels

Enormous increase in criminal fines and prison terms

Increase in percentage of investigations of cartels with international participants

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

U.S. anti-cartel enforcement based on Section 1 of the Sherman Act

Declares every “conspiracy in restraint of trade” to be illegal

Imposes stiff penalties:

Up to $10,000,000 fine on corporations

Up to $350,000 fine and 3 years in prison for individuals

U.S. anti-cartel enforcement based on Section 1 of the Sherman Act

Declares every “conspiracy in restraint of trade” to be illegal

Imposes stiff penalties:

Up to $10,000,000 fine on corporations

Up to $350,000 fine and 3 years in prison for individuals

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Another U.S. statute authorizes far larger criminal penalties:

Up to twice the unlawful gain obtained by the conspirators or the losses imposed on victims

Also, U.S. law permits private suits for treble damages

Criminal conviction and evidence can be used in “follow-on” private suits

Another U.S. statute authorizes far larger criminal penalties:

Up to twice the unlawful gain obtained by the conspirators or the losses imposed on victims

Also, U.S. law permits private suits for treble damages

Criminal conviction and evidence can be used in “follow-on” private suits

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

“Effects” test: Conduct outside U.S. that has “effects” in U.S. can be subject to U.S. antitrust laws

Extremely controversial with foreign governments

“Comity” principles limit extraterritorial application of U.S. antitrust law

“Effects” test: Conduct outside U.S. that has “effects” in U.S. can be subject to U.S. antitrust laws

Extremely controversial with foreign governments

“Comity” principles limit extraterritorial application of U.S. antitrust law

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

U.S. Supreme Court severely limited application of comity in 1993 Hartford Fire Insurance decision

Held U.S. courts should exercise jurisdiction unless “there is in fact a true conflict” between U.S. and foreign law

Question is whether conduct that violates the U.S. antitrust laws is compelled by a foreign sovereign

U.S. Supreme Court severely limited application of comity in 1993 Hartford Fire Insurance decision

Held U.S. courts should exercise jurisdiction unless “there is in fact a true conflict” between U.S. and foreign law

Question is whether conduct that violates the U.S. antitrust laws is compelled by a foreign sovereign

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Three major reasons for increased cooperation despite Hartford Fire:

Increasing international acceptance of basic competition principles

Development of new vehicles for cooperation

1993 revisions to the Antitrust Division’s Leniency Program

Three major reasons for increased cooperation despite Hartford Fire:

Increasing international acceptance of basic competition principles

Development of new vehicles for cooperation

1993 revisions to the Antitrust Division’s Leniency Program

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Increasing international acceptance of competition principles

In 1990s, large number of governments enacted competition laws for the first time

Some have coordinated with U.S. to enforce existing laws more rigorously and consistently

International organizations (OECD, WTO) have encouraged adoption of competition laws

Increasing international acceptance of competition principles

In 1990s, large number of governments enacted competition laws for the first time

Some have coordinated with U.S. to enforce existing laws more rigorously and consistently

International organizations (OECD, WTO) have encouraged adoption of competition laws

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Development of new vehicles for cooperation:

Agreements between competition authorities

Enactment of International Antitrust Enforcement Assistance Act of 1994 (“IAEAA”)

Mutual legal assistance treaties (“MLATs”)

Development of new vehicles for cooperation:

Agreements between competition authorities

Enactment of International Antitrust Enforcement Assistance Act of 1994 (“IAEAA”)

Mutual legal assistance treaties (“MLATs”)

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

IAEAA

Grants authority to U.S. enforcement agencies to enter into “antitrust mutual assistance agreements” with foreign governments

U.S. agencies may request from, or provide assistance to, foreign competition authorities

First agreement under IAEAA entered into with Australia in 1999

IAEAA

Grants authority to U.S. enforcement agencies to enter into “antitrust mutual assistance agreements” with foreign governments

U.S. agencies may request from, or provide assistance to, foreign competition authorities

First agreement under IAEAA entered into with Australia in 1999

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

MLATs

Authorize assistance by one government in the other government’s criminal investigations

U.S. currently has 36 MLATs in effect

MLATs

Authorize assistance by one government in the other government’s criminal investigations

U.S. currently has 36 MLATs in effect

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

1993 Revisions to Antitrust Division’s Leniency Program

Result has been an increase in amnesty applications from 1-2 per year to over 20 per year

First party in a cartel that voluntarily cooperates with the Division is immunized from criminal prosecution

1993 Revisions to Antitrust Division’s Leniency Program

Result has been an increase in amnesty applications from 1-2 per year to over 20 per year

First party in a cartel that voluntarily cooperates with the Division is immunized from criminal prosecution

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

1993 revisions:

Amnesty automatic if the party volunteers before investigation launched

Amnesty available (though not automatic) even after investigation already commenced

Amnesty granted to all cooperating officers, directors, and employees

1993 revisions:

Amnesty automatic if the party volunteers before investigation launched

Amnesty available (though not automatic) even after investigation already commenced

Amnesty granted to all cooperating officers, directors, and employees

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Amnesty agreements require commitment to make personnel and documents available, even if outside the U.S.

Provides access to foreign information that the Antitrust Division would have difficulty obtaining

Has enabled the Division to successfully prosecute foreign cartel members

Amnesty agreements require commitment to make personnel and documents available, even if outside the U.S.

Provides access to foreign information that the Antitrust Division would have difficulty obtaining

Has enabled the Division to successfully prosecute foreign cartel members

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Currently, over 30 grand juries are investigating cartel activities in 100 cities in 35 countries

Since late 1997, approximately half of all corporate defendants in criminal cases were foreign-based

In most instances involving fines of $10 million or more, corporate defendants included foreign-based companies

Currently, over 30 grand juries are investigating cartel activities in 100 cities in 35 countries

Since late 1997, approximately half of all corporate defendants in criminal cases were foreign-based

In most instances involving fines of $10 million or more, corporate defendants included foreign-based companies

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Penalties have increased enormously each year:

In 1992, largest fine to this point was $2 million

In 1997, $100 million fine on ADM in lysine case

And in 1999, record was broken again

$500 million fine on F. Hoffmann-La Roche in vitamins case

$225 million fine on BASF in vitamins case

Penalties have increased enormously each year:

In 1992, largest fine to this point was $2 million

In 1997, $100 million fine on ADM in lysine case

And in 1999, record was broken again

$500 million fine on F. Hoffmann-La Roche in vitamins case

$225 million fine on BASF in vitamins case

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

-

200

400

600

800

1,000

1,200

Crim

inal

Fine

s

($ M

illio

ns)

1992 1993 1994 1995 1996 1997 1998 1999

Fiscal Year

Total fines have increased dramatically

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Substantial penalties on foreign individuals:

$10 million fine on the CEO of a German company in vitamins case

Prison terms imposed on the executives of Swiss and German companies in vitamins case

Substantial penalties on foreign individuals:

$10 million fine on the CEO of a German company in vitamins case

Prison terms imposed on the executives of Swiss and German companies in vitamins case

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCMENT

Developments have dramatically changed the atmosphere at the Antitrust Division

Success has led to higher goals

The FBI is taking antitrust more seriously

Officials are willing to devote more resources to criminal antitrust investigations

Developments have dramatically changed the atmosphere at the Antitrust Division

Success has led to higher goals

The FBI is taking antitrust more seriously

Officials are willing to devote more resources to criminal antitrust investigations

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Appropriate response: Take antitrust seriously if you do business in the United States

Even if your U.S. business consists just of shipping merchandise to that market

Even if you do not have an office or personnel in the U.S.

Appropriate response: Take antitrust seriously if you do business in the United States

Even if your U.S. business consists just of shipping merchandise to that market

Even if you do not have an office or personnel in the U.S.

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Two basic means of taking antitrust seriously

Antitrust audit

Antitrust compliance program

Two basic means of taking antitrust seriously

Antitrust audit

Antitrust compliance program

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Antitrust audit should include:

Evaluation of knowledge of antitrust rules by personnel in sensitive positions, such as:

Positions of authority

Positions with regular contact with your competitors and trade associations

Antitrust audit should include:

Evaluation of knowledge of antitrust rules by personnel in sensitive positions, such as:

Positions of authority

Positions with regular contact with your competitors and trade associations

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Antitrust audit (cont.)

Review of participation in trade associations

Review of documents

Review of rules by which documents are retained or destroyed

Antitrust audit (cont.)

Review of participation in trade associations

Review of documents

Review of rules by which documents are retained or destroyed

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U.S. CARTEL ENFORCEMENT

Antitrust compliance program:

Establish on-going program before authorities come knocking

Will not immunize the company or personnel, BUT --

It is a factor considered in reducing penalties

Antitrust Division considers it in deciding how aggressively to pursue a target

Antitrust compliance program:

Establish on-going program before authorities come knocking

Will not immunize the company or personnel, BUT --

It is a factor considered in reducing penalties

Antitrust Division considers it in deciding how aggressively to pursue a target

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Antitrust compliance program should include:

Education sessions for new employees

Regular updates, particularly for officers and personnel in sensitive positions

“Surprise” interviews and reviews of document

Antitrust compliance program should include:

Education sessions for new employees

Regular updates, particularly for officers and personnel in sensitive positions

“Surprise” interviews and reviews of document

U.S. CARTEL ENFORCEMENT

POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Antitrust compliance program (cont.)

Review of the company’s document retention and destruction programs

Review of the company’s participation in trade associations and standard setting organizations

Processes to ensure that antitrust issues are handled on a “real time” basis

Antitrust compliance program (cont.)

Review of the company’s document retention and destruction programs

Review of the company’s participation in trade associations and standard setting organizations

Processes to ensure that antitrust issues are handled on a “real time” basis

U.S. CARTEL ENFORCEMENT