Criminal Justice News

Wednesday, November 14, 2018

Three South Korean Companies Agree to Plead Guilty and to Enter Into Civil Settlements for Rigging Bids on United States Department of Defense Fuel Supply Contracts


Three Companies Agree to Plead Guilty and Pay a Total of $236 Million in Criminal Fines and Civil Damages

South Korea-based companies SK Energy Co. Ltd., GS Caltex Corporation, and Hanjin Transportation Co. Ltd. have agreed to plead guilty to criminal charges and pay a total of approximately $82 million in criminal fines for their involvement in a decade-long bid-rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea, the Department of Justice announced today.

“These charges are the first to be announced in this investigation into bid rigging and price fixing of fuel supply services to the Department of Defense in this critical region,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division.  “Section 4A of the Clayton Act is a powerful yet historically underused enforcement tool that empowers the United States to obtain treble damages for anticompetitive conduct when the government is itself the victim.  The Antitrust Division has a long history of vigilantly protecting the interests of American consumers through civil and criminal antitrust enforcement.  Going forward, it is my goal to apply that same vigilance to protect the interests of American taxpayers.  When a firm cheats the United States by rigging bids, the Division will insist on robust civil settlements like those announced today.” 

“Those who subvert the open-bidding process to supply services to the United States by conspiring to fix prices will be found out and prosecuted,” said U.S. Attorney of the Southern District of Ohio Benjamin C. Glassman. “Such a conspiracy is no less illegal for being hatched in South Korea, and as this case shows, federal law enforcement authorities can bridge the distance.”

In separate civil resolutions, SK Energy, GS Caltex, and Hanjin have agreed to pay a total of approximately $154 million to the United States for civil antitrust and False Claims Act violations related to the bid-rigging conspiracy.  These settlements reflect the important role of both Section 4A of the Clayton Act and the False Claims Act to ensure that the United States is fully compensated when it is the victim of anticompetitive conduct.

“We depend on companies like SK Energy, GS Caltex, and Hanjin to provide valuable services to our military,” said Assistant Attorney General Joseph H. Hunt for the Department of Justice’s Civil Division.  “We will continue to ensure that fuel suppliers who contract with the federal government do not engage in corrupt practices at the expense of our nation’s military and the American taxpayer.”

The Criminal Case:  

According to three felony charges filed today in the U.S. District Court for the Southern District of Ohio in Columbus, the Defense Logistics Agency and the Army and Air Force Exchange Service are two U.S. Defense Department agencies that contract with South Korean companies to supply fuel to the numerous U.S. military bases throughout South Korea.  Beginning at least in or around March 2005 and continuing into 2016, South Korean petroleum and refinery companies and their agents, including the defendants and their co-conspirators, participated in a combination and conspiracy to suppress and eliminate competition during the bidding process for these fuel supply contracts.  SK Energy, GS Caltex, and Hanjin have agreed to cooperate with the department’s ongoing criminal investigation.  The plea agreements are subject to court approval.

“Protecting the integrity of the Department of Defense acquisition process and delivery of fair-priced resources to the U.S. military are among our highest priorities,” said Director Dermot F. O’Reilly of the Department of Defense, Defense Criminal Investigative Service (DCIS).  “These guilty pleas and significant fines demonstrate the heavy consequences that come to those who enrich themselves through collusion in order to defraud the American taxpayer.  This exhaustive investigation was a multi-year endeavor by DCIS, its investigative partners, and the Department of Justice.  DCIS will continue to identify, disrupt, and bring to justice those who threaten U.S. military readiness through fraud and corruption.”

“These guilty pleas clearly demonstrate our organization’s steadfast commitment to hold corporations, foreign and domestic, accountable for engaging in anticompetitive conduct,” said Brigadier General Duane R. Miller, deputy commander of the U.S. Army Criminal Investigation Command (Army CID). “The highly trained special agents from our Major Procurement Fraud Unit, along with our federal law enforcement partners, will continue to aggressively investigate organizations that participate in illegal conspiracies and do harm to the readiness of our Army.”

“The FBI remains committed to holding corporations—both foreign and domestic—accountable for anticompetitive conduct and fraudulent practices toward the United States,” said FBI Executive Assistant Director Amy Hess. “The conduct by the corporations in this case is particularly egregious, as they targeted the U.S. military in a critically strategic region, defrauded the U.S. government, and ultimately, cheated the American taxpayers of millions of dollars.”

“The FBI is committed to investigating companies and individuals around the world who engage in bid rigging and other forms of corruption to defraud the U.S. Government,” said Assistant Director in Charge Paul D. Delacourt of the FBI’s Los Angeles Field Office. “True competition is an economic bedrock of our democratic society.  These criminal and civil charges demonstrate the ability of the FBI, our federal law enforcement partners, and the Department of Justice to bring to justice those who choose not to follow the rule of law, and to ensure they are not enriched by their illegal conduct.”

A criminal violation of Section 1 of the Sherman Act carries a maximum fine of $100 million for corporations.  The maximum fines may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s charges are the result of an ongoing federal investigation into bid rigging, price fixing and other anticompetitive conduct targeting U.S. Department of Defense fuel supply contracts in South Korea.  The criminal case is being prosecuted by the Antitrust Division’s Washington Criminal I Section and the United States Attorney’s Office of the Southern District of Ohio in conjunction with the DCIS, the Federal Bureau of Investigation, the Army CID, the Defense Logistics Agency Office of the Inspector General, and the Air Force Office of Special Investigations.  Anyone with information in connection with this investigation is urged to call the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit www.justice.gov/atr/contact/newcase.html.

The Civil Case:

The Department’s Antitrust Division today filed a civil antitrust complaint in the U.S. District Court for the Southern District of Ohio, and at the same time filed proposed settlements that, if approved by the court, would resolve the lawsuit against SK Energy, GS Caltex, and Hanjin for their anticompetitive conduct targeting the U.S. military in South Korea.

As a result of this conduct, the United States Department of Defense paid substantially more for fuel supply services in South Korea than it would have had SK Energy, GS Caltex, and Hanjin competed for the fuel supply contracts.  Under Section 4A of the Clayton Act, the United States may obtain treble damages when it has been injured by an antitrust violation.  The proposed settlement provides that SK Energy pay $90,384,872, GS Caltex pay $57,500,000, and Hanjin pay $6,182,000 to the United States to resolve the civil antitrust violations.  In addition to the payments, SK Energy, GS Caltex, and Hanjin have agreed to cooperate with the ongoing civil investigation of the conduct and to abide by antitrust compliance program requirements.  The amount paid by each defendant exceeds the amount of the individual overcharge and reflects the value of defendants’ cooperation commitments and the cost savings realized by avoiding extended litigation.

The payments will also resolve civil claims that the United States has under the False Claims Act against SK Energy, GS Caltex, and Hanjin for making false statements to the government in connection with their agreement not to compete.  The Civil Division has entered into separate settlement agreements with the companies to resolve these claims.

Except where based on admissions by defendants in the criminal pleas, the claims resolved by the civil agreements are allegations only.

The civil settlements were handled by the Antitrust Division’s Transportation, Energy, and Agriculture Section, by the Civil Division’s Fraud Section, and by the United States Attorney’s Office in the Southern District of Ohio.        

The United States’ False Claims Act civil investigation resulted from a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act.  Those provisions allow for private parties to sue on behalf of the United States and to share in any recovery.

The proposed civil antitrust settlement, along with the department’s competitive impact statement, will be published in The Federal Register, as required by the Antitrust Procedures and Penalties Act.  Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Kathleen O’Neill, Chief, Transportation, Energy, and Agriculture Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8000, Washington, D.C. 20530.  At the conclusion of the 60-day comment period, the court may enter the civil antitrust settlement upon a finding that it serves the public interest.

Detroit Clinic Owner Sentenced to Over 13 Years in Prison for $8.9 Million Health Care Fraud Scheme


The owner of two Detroit-area clinics was sentenced to 160 months in prison today for her role in a scheme involving approximately $8.9 million in fraudulent Medicare claims for home health care and other physician services that were procured through the payment of kickbacks, were not medically necessary, were not actually provided, or were provided by an unlicensed physician.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Matthew Schneider of the Eastern District of Michigan, Special Agent in Charge Timothy Slater of the FBI’s Detroit Division and Special Agent in Charge Lamont Pugh III of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Chicago Regional Office made the announcement.

Jacklyn Price, 34, of Shelby, Michigan, was sentenced by U.S. District Judge Robert Cleland of the Eastern District of Michigan.  Judge Cleland also ordered Price to pay $6,350,332 in restitution, jointly and severally with her co-conspirators, and to forfeit the same amount.  Price pleaded guilty in April 2017 to one count of conspiracy to commit health care fraud and one count of health care fraud.

Price’s co-defendant, Millicent Traylor, M.D., 47, of Detroit, Michigan, was sentenced to serve 135 months in prison on Sept. 27; her co-defendant Muhammad Qazi, 48, of Oakland Township, Michigan, was sentenced to serve 42 months in prison on Aug. 27; and her other co-defendant, Christina Kimbrough, M.D., 39, of Canton, Michigan, was sentenced to serve 27 months in prison on Sept. 26.  Qazi and Kimbrough each pleaded guilty to one count of conspiracy to commit health care fraud.  Traylor was convicted in May 2018 of one count of conspiracy to commit health care fraud, one count of conspiracy to pay and receive health care kickbacks, and five counts of health care fraud following a four-day trial.

The FBI and HHS-OIG investigated the case, which was brought as part of the Medicare Fraud Strike Force, under the supervision by the Criminal Division’s Fraud Section and U.S. Attorney’s Office for Eastern District of Michigan.  Trial Attorneys Stephen Cincotta and Steve Scott of the Criminal Division’s Fraud Section are prosecuting the case.

The Criminal Division’s Fraud Section leads the Medicare Fraud Strike Force.  Since its inception in March 2007, the Medicare Fraud Strike Force, which maintains 14 strike forces operating in 23 districts, has charged nearly 4,000 defendants who have collectively billed the Medicare program for more than $14 billion.

Deputy Assistant Attorney General Roger Alford Delivers Remarks at the LeadershIP EU 2018 Annual Conference in Brussels


Designing a System to Secure the Fair Administration of Competition Laws

I am delighted to be with you today to discuss how competition authorities can promote fundamental due process in competition investigation and enforcement.  Ten years ago this topic would not have been high on the agenda for competition enforcers.  Today, in a globalized economy with over 130 competition enforcers, almost everyone agrees that convergence on due process is an important aspect of competition enforcement.  So the question is not whether we should promote due process, but how best to do so.  While guidelines, recommendations, and best practices are useful and important, the international competition community is ready to do more.  We should actively promote effective compliance to fundamental due process through a multilateral framework on procedures through which parties commit to basic fundamental norms, and that framework should be open for signature by all competition authorities.

To ensure due process for all, it is essential to have a system in place to promote compliance.  Former Irish Foreign Minister Se├ín MacBride, a Nobel Peace Prize Laureate and a founder of the European Convention on Human Rights, noted that guarantees such as the “right to the fair administration of justice” will “never be adequately or efficiently protected without a system of machinery to enforce their application, a system of implementation for the rights declared.”  Today, I would like to discuss recent international efforts to design a system to secure the administration of competition laws according to due process principles.     

For years, many jurisdictions, including the United States, have promoted due process in competition investigations and enforcement at home and abroad.  Former Assistant Attorney General Bill Baer emphasized that “in a global economy, competition and consumers are best served where corporations and individuals have confidence that they will be treated fairly wherever they do business.”  Adherence to due process principles helps agencies reach the right decision and improves the quality of antitrust enforcement overall.  Due process also enhances the reputation of competition authorities.

Many competition authorities around the world have joined in this effort to promote due process, including initiatives to promote due process at the ICN and OECD, leading to the current proposal, the Multilateral Framework on Procedures.

As many of you know, in early June 2018, Assistant Attorney General Makan Delrahim discussed publicly our months-long cooperation with leading antitrust agencies on an initiative to craft the Multilateral Framework on Procedures in Competition Law Investigation and Enforcement (“MFP”).  The MFP’s goal is to promote global due process in antitrust enforcement and thereby further improve cooperation among antitrust agencies around the world.  The United States and our partners around the world agree that basic minimal due process protections are of fundamental importance in antitrust enforcement.

The goal of the MFP is to establish minimal procedural norms that are truly universal.  The MFP is animated by fundamental norms, which are accepted widely across the globe and that most competition agencies already recognize.  The MFP will combine this set of universal procedural norms with an adherence and review mechanism, under which the participants commit to these norms and agree to cooperate with each other regarding their compliance.

The fundamental principles set forth in the MFP were derived from the texts of competition chapters in several existing bilateral and regional agreements, as well as from the work related to due process conducted by international organizations such as the OECD and the ICN, in conjunction with an examination of procedures and practices of competition authorities around the world.

The draft text captures universal principles, using language that is versatile enough to cover both common as well as civil law jurisdictions, administrative as well as prosecutorial systems, and older as well as younger competition agencies.

The core principles identified in the MFP include basic commitments regarding non-discrimination, transparency, meaningful engagement, timely resolution, confidentiality protections, avoidance of conflicts of interest, proper notice, opportunity to defend, access to counsel, and independent judicial review of enforcement decisions.

The adherence and review mechanism under the MFP includes bilateral discussions and consultations between participating agencies, reporting by participants on the working of the MFP principles, as well as a proposed mechanism to review periodically any changes as may be needed.  The adherence and review mechanisms under the MFP are an important step forward towards a mutual commitment amongst agency partners.  The MFP also represents a substantial positive effort towards global respect for competition enforcement and the overall culture of competition we collectively have sought to promote.

The MFP is not a binding agreement in the international sense, but adhering to the framework is important, because breaches of a promise can have reputational consequences.  As Assistant Attorney General Makan Delrahim said in June, “The rich network of relationships ensures that reputation matters, and that the promise to abide by an obligation becomes a potent means of enhancing compliance.”

Dozens of competition agencies from around the world have been spending countless hours and many months working on the MFP.  The initial discussions culminated in the “Paris Draft” of the MFP, a remarkable document that reflects the current practices of many leading competition authorities around the world.

Over the summer, further discussions ensued among all interested antitrust agencies worldwide, including discussions with agencies on the sidelines of the Fordham Conference in New York in early September.  A revised draft of the MFP was circulated recently, reflecting suggestions made at New York and since.  We look forward to meeting with those interested in joining the MFP on the margins of the OECD in late November.

There has been widespread support for the MFP from numerous agencies around the world.  We are delighted that so many countries are committed to the MFP and recognize its value, and will continue efforts to further improve it and move toward its enactment.

To date, the vast majority of agencies have expressed strong support for the MFP.  A few agencies, however, have expressed some concerns with respect to the MFP structure and review mechanism.  Let me address the more salient concerns.

First, a few agencies had raised questions about the need for mandatory review mechanisms.  In general, a review mechanism is a key component of any agreement such as the MFP.  The goal of the MFP is to strike a constructive path, promoting incremental progress through an acceptable implementation mechanism.

In light of these concerns, the review mechanisms in the MFP have been calibrated so that they are meaningful, but not burdensome.  For example, unlike certain treaties, there are no mechanisms for binding dispute settlement, third-party mediation, independent expert reports, or private complaint procedures.  Instead, there are modest proposals that include mechanisms for dialogue, agency self-reporting on adherence, and periodic assessments of the functioning of the framework, only as needed.  This will allow for advancing the shared goals towards due process norms.

It is important to note that although meaningful review mechanisms of agreements relating to due process may appear novel in the antitrust context, they are routine in other contexts.  For example, meaningful review of a country’s compliance with fundamental due process norms is common in the context of investment protections, human rights, anti-corruption, trade, tax, and development assistance. 

In fact, even in the antitrust context, review mechanisms are not new.  For example, in free trade agreements there are consultation provisions in various competition chapters.  Likewise, in 2006 the European Competition Network (ECN) adopted the ECN Model Leniency Programme to “harmonise the key elements of leniency policies within the ECN.”  In 2009, the ECN published an assessment report to “provide an overview of the status of convergence of the applicable provisions contained in the ECN leniency programmes.”  If a network of regional competition authorities can agree to periodically assess the state of procedural convergence of their leniency programs, it seems only reasonable to have competition authorities periodically assess the state of procedural convergence on fundamental due process.    

A second issue presented related to the possibility that the MFP can be confused to create a new international organization.  The language has been modified to make it clear that the MFP does not create a new international organization.  Instead, the MFP is a new multilateral arrangement for adherence to fundamental due process norms by the signatory agencies.

A third issue was whether certain competition agencies have the capacity to sign at the agency level.  This was a fair concern, and we are pleased to have revised the draft to make clear that agencies can either sign or join the MFP by sending a letter through ICN providing notice of adherence.  This is a common practice that has been employed previously in many contexts, including in the antitrust context.  This change should allow any competition agency interested in joining the MFP to do so.

I should also note that although all of the interested agencies working on the MFP hope that every agency adheres to these principles, that the MFP is voluntary.  Only agencies that want to join will be subject to the norms.  Also, the MFP allows an agency to take a reservation if their law allows them to comply with almost everything but prevents compliance with a specific provision.

The international community can and should seek to promote convergence on core principles, while respecting diversity on the margins.  That is what the MFP does.

Finally, let me address the issue that Commissioner Margrethe Vestager raised in her remarks at the Georgetown University conference regarding the relationship between the MFP and international organizations such as OECD and ICN.  The Antitrust Division fully supports initiatives by OECD, ICN and other international organizations to promote due process.  Indeed, the substantive principles set forth in the MFP are fully in line with – and, in fact, complement – these initiatives.

The ICN already recognizes regional competition networks like the ECN, bilateral and trilateral dialogues like those held by the North American partners last week in Mexico, competition chapters in free trade agreements such as KORUS and USMCA, and hundreds of cooperation agreements between competition authorities.  Despite these developments, the ICN is as strong as ever, and the MFP will further complement its success.  Indeed, the ICN expressly anticipates initiatives such as the MFP. The ICN Framework provides that “where the ICN reaches consensus on recommendations … it is left to its members to decide whether and how to implement the recommendations, for example, through unilateral, bilateral or multilateral arrangements.”

From the start, the MFP has been designed to go beyond mere guidance on procedural fairness.  The MFP will reflect the commitment of its participants to uphold fundamental due process norms.

There are various other reasons why we believe the MFP is needed and does not duplicate the OECD or ICN.  For example, the OECD has only 36 members, and its recommendations apply to countries rather than to competition agencies, where we would like to focus our efforts.  And while around 140 agencies are members of the ICN, not all agencies are ICN members, though we encourage all to join.

Further, as currently structured the ICN is not set up for accountability and review of its recommendations.  It has never had that role and it could dramatically change the culture of the ICN if it were to take on such a role, although at a later time the ICN may choose to change its culture.  That time is not now, however, as we don’t want to risk the consensus-based good work the ICN does.

Let me close with an historical analogy.  In 1948, the Universal Declaration of Human Rights was adopted, which included the fundamental due process commitment that “everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations….”  Yet at the very moment the U.S. delegate Eleanor Roosevelt was celebrating that victory, she said she still was not satisfied.  Why?  Because the declaration had no means for implementation.  She said that while the adoption of this declaration was a monumental achievement, we should “now move on with new courage and inspiration to the completion” of a multilateral agreement with “measures for … implementation.”  We all recognize that the time is ripe for us to join in moving forward with inspiration to implementation of a multilateral framework on fundamental due process.

We look forward to further discussions on the MFP in Paris in a few weeks.  A significant number of competition authorities have recognized the benefits of the MFP and we look forward to being a partner in working together to bring it to fruition.

Thank you.