Antitrust Concerns in Government Contracting: When the Strike Force Comes Knocking

Lindsey, who in addition to her work at V&E is co-chair of the Cartel and Criminal Practice Committee of the ABA Section of Antitrust Law, set the stage by pointing out that criminal violations of antitrust laws can have staggering consequences. Guilty companies can be fined up to $100 million, and the government can seek even more than that if twice the gain or loss for the conspiracy exceeds $100 million. Individuals face fines of up to $1 million and up to 10 years of imprisonment. According to Lindsey, “The government feels very strongly that prosecuting individuals is a very effective deterrent.”

Craig, who has 30 years of experience with the nation’s most prominent cartel investigations and is co-chair of V&E’s Complex Commercial Litigation practice, conducted the Zoom fireside chat with Dan Glad. He kicked off the discussion by asking Dan to provide a recap of the Strike Force’s accomplishments over the past year and for an update on their current activities.

The Strike Force’s Objectives

Dan began by describing the Strike Force’s two objectives. The first is deterrence through training, education, and outreach on the front-end of the procurement process. Dan detailed how the Strike Force provides training to those he describes as the buy-side, i.e., those who are the government procurement people or at user-government agency. The Strike Force’s mission to provide education to help spot the red flags and indicators that something is amiss. The Strike Force is also focusing on sharing those same red flag warnings with the sell-side, those vendors who are supplying goods and services to the government.

The second objective is the detection, investigation and prosecution of those situations that arise regarding antitrust violations, through the work brought about by coordination among the various law enforcement agencies that are part of the organization.

Growth of the Strike Force

The Strike Force has grown tremendously over the past year. As Dan remarked, “When we started, we had 13 districts, and there were six to eight members in each district. Now we have over 450 federal, state, and local members spread across the US.” The organization is a virtual model designed to harness and align existing resources to efficiently collaborate in support of this initiative. Today, the Strike Force has more than two dozen open grand jury investigations in progress, and they run the gamut from regional to international and impact industries from big defense contracts to local infrastructure projects.

But because no two federal districts are exactly alike, the approach and players will be distinct in different parts of the country. According to Dan, “These are laboratories of enforcement.” In any given district, the core members will be an Antitrust Division prosecutor, and an Assistant U.S. Attorney or two, and representatives from other agencies such as the FBI, Postal Service, Department of Defense (“DOD”), or Department of Homeland Security. In places with Naval bases, the Naval Criminal Investigative Service (“NCIS”) may be involved. In Colorado, where the Department of the Interior has a strong presence, members of that agency’s Office of the Inspector General are involved. The Strike Force is succeeding due to the talent and expertise of its individual members across federal, state and local governments, and the unique combination and collaboration of those individuals. As Dan pointed out, “We are making sure that the whole is greater than the sum of its parts.”

Lessons from the Strike Force

Craig asked about the educational element of the Strike Force’s approach. Dan explained that the Strike Force is training procurement officials, special agents, auditors and data analysts to detect warning signs of collusion. He also said that everyone involved is paying close attention to training, particularly in geographic and industry areas where the government is spending money with outside providers. Craig and Dan spoke about the belief that with awareness, opportunity and the right incentives, people will do the right thing. As Lindsey had pointed out earlier, potential individual liability is a powerful incentive.

Craig queried whether any recent enforcement actions serve as instructive lessons as to what the Strike Force is focused on. Dan discussed three recent significant cases that pre-date the Strike Force, but which reflect the Strike Force’s process and focus.

• The Korean fuel case was considered by many to be the spark that gave rise to the Strike Force model. It was a team effort lead by the DOD inspectors general and the Air Force Office of Special Investigation. The investigation involved uncovering a decade-long conspiracy to rig bids and fix prices on contracts to supply fuel to U.S. military installations in South Korea. Over the course of 2018 and 2019, five companies agreed to plead guilty and paid over $150 million in criminal fines, and seven individuals were indicted. The Korea fuel case exemplifies the Strike Force’s intentions to prosecute conduct that transpires abroad.
• The North Carolina drainage case was indicative of the domestic side of public works collusion. It involved an investigation by the Postal Service’s Inspector General, Department of Transportation Inspector General and several other arms of government. The investigation resulted in the indictment of an engineering company and its former executive on bid-rigging. This case illustrates that the Strike Force will throw its might against local and regional cases, as well as national and international conduct.
• The recent investigation into Argos’ participation in an illegal scheme in the concrete industry shows this type of crime happens with companies of all sizes. Despite being granted a deferred prosecution agreement (rare in antitrust investigations), Argos forked over $20 million in criminal penalties for its role in a conspiracy to fix prices, rig bids, and allocate markets for the sale of ready-mix concrete. This particular case demonstrated that violations can happen at companies large and small.

Dan pointed out, “The government is vulnerable because of its uniqueness.” Due to highly specialized needs, and supplies often manufactured by just a few vendors, there are going to be bad actors who take advantage. Add in the fact that the U.S. government spends more than $500 billion annually on public procurement, and it is not hard to see why defending the public purse is an enforcement priority. The Strike Force is concerned about both the harm to the government and to the public, by the potential misuse of tax dollars.

For the Future

“Our teams are hard at work building cases,” said Dan. “As these are white collar cases, they are document-intensive and they take time to work up.” Dan notably pointed out that the group will be looking internationally. There will be more training on the international front in 2021, and for good reason. A recent report by the Organization for Economic Cooperation and Development (OECD) estimates 20% of government procurement is lost to bid rigging. The Strike Force has a new initiative to provide training to help federal agents in various regions of the world, to leverage the combined talents of boots on the ground with agency collaboration. They will be using all of the tools in their enforcement arsenal, including, when necessary, extradition of foreign executives.

Craig asked how cases come to the attention of the Strike Force.

Leniency: Dan explained that one of the tools is leniency. The Antitrust Division’s Corporate Leniency Program provides that if a party informs and fully cooperates, it can receive leniency without a criminal charge. In every conspiracy, only the first company to apply for leniency is eligible — so as Dan pointed out, it can lead to conspirators racing to the government’s door.

Whistleblower protection: A recent whistleblower protection law, the Criminal Antitrust Anti-Retaliation Act of 2019, bolstered another method to learn about infractions. This law prohibits employers from taking punitive steps against a criminal antitrust whistleblower, and if they retaliate against a whistleblower, the whistleblower can file a complaint with the Department of Labor or file a case in district court. In Dan’s view, the new legislation may lead more companies to self-report. Craig pointed out that whistleblower protection for employees may make a big difference in antitrust prosecutions. In addition to the new whistleblower law protecting employees, there are also other reasons to keep employees who were involved in antitrust misconduct. “If you have employees engaging in felonies, your first impulse may be to let them go.” But as Craig points out, “You get credit from the government if you are cooperating, and it’s hard to cooperate if you fire someone with all of the facts. You’ve got to be very careful.”

Social Media and Analytics: The government has access to social media, consistent with the Fourth Amendment, and this may include “disappearing” messages and other forms of communications that users may (mistakenly) believe are not traceable. Dan mentioned a case where the violations were completely detailed and executed by text messages. The Strike Force also is honing its data analytics capabilities. In connection with procurement activities, federal agencies receive large quantities of data. As Dan explained, data is an asset, and the Strike Force is working on a toolkit to more effectively wield procurement data to look for patterns that may indicate collusion.

Red Flags: Craig and Dan discussed some of the red flags the Strike Force has identified to screen for potential anticompetitive conduct. While red flags are not a definitive reason to investigate, they are signs that may trigger a second look. A red flag may be that the same company always wins a bid, there are fewer than normal competitors, or bid prices drop suddenly. There are several red flags. (For details on additional red flags, click here.)

Dan summed it up by saying, “If you flip a coin a hundred times and the first time it’s 60 heads and 40 tails, that’s a red flag. So you flip it again, another hundred times, and now it’s 52 and 48. Okay there may not be anything there. I don’t want people to think that a single red flag, tripping a red flag, means a full board federal investigation. It’s really just taking a better look to be proactive.”