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Understanding, Detecting & Reporting Antitrust Violations

John Terzaken, Assistant ChiefU.S. Department of Justice,

Antitrust DivisionNat’l Criminal Enforcement Section

(202) 307-0719 / john.terzaken@usdoj.gov

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Procurement Fraud & The Building Block Principle

TITLE 15

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The Sherman Act (15 U.S.C. §1)

• “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

• Prohibits agreements among competitors in restraint of trade or commerce

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Sherman Act Elements• Agreement• Unreasonable restraint of

trade– Price-Fixing– Customer/Market Allocation– Bid-Rigging

• Interstate commerce• Statute of Limitations: 5

years from the last act in furtherance of the conspiracy

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Penalties Are Significant• Corporation

– Up to $100 million

• Individual– $1,000,000; and/or– 10 years incarceration

• Corporation or Individual– Twice gain to defendant; or– Twice loss to victim

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Companion Violations

• Bribery/Gratuities (18 U.S.C § 201)• False & Fictitious Claims (18 U.S.C. § 287)• Conspiracy to Defraud U.S. (18 U.S.C. § 371)• False Statements (18 U.S.C. § 1001)• Mail/Wire Fraud (18 U.S.C. §§ 1341, 1343)• Obstruction of Justice (18 U.S.C. § 1519)

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Evolution of Collusion

Motive 1

2Means

3Opportunity

4Agreement

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PRE-AWARD COLLUSIONSee the Signs

M.A.P.S.• Market

• Application

• Patterns

• Suspicious Behavior

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MARKETAre Conditions Conducive to Collusion?

• There are few sellers in an industry, or a small group of major vendors controls a large percentage of the market

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T-37 Nose Wheel F-5 Main Wheel

Estimate $275 $1000

2009 Bids Smith & Smith

$465 Jay-Em $1416

HYPOTHETICAL

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MARKET Other Indicators

• The product is standardized and other competitive factors, such as design, quality, or service are not prevalent

• Repeat competing vendors • Competitors frequently interact through

social conventions, trade association meetings, shifting employment, etc.

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APPLICATIONThe Dumb Crook

• Similar applications – handwriting; typeface; stationery; typos; mathematical errors

• Last-minute changes – white-outs or physical alterations to prices

• Vendor picks up an extra bid package for another vendor OR submits a competing vendor’s bid

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Paper v. Electronic

• Same basic fraudulent conduct • Other M.A.P.S. factors to look for:

– Metadata (hidden data)– Cover e-mail header info. incorrect– Same math errors, typos, etc.

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PATTERNSStudy History

• The same vendors submit bids and each one seems to take a turn as the winning bidder (bid rotation)

• A winning bidder subcontracts work to competitors that submitted unsuccessful bids or withdrew bids

• All bidding companies end up winning the same amount of work over a series of bids

• Same company always wins a particular bid• Fewer than normal number of bidders

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PATTERNSBid Rotation

• Bid 1: Company A wins• Bid 2: Company B wins• Bid 3: Company C wins• Bid 4: Company A wins• Bid 5: Company B wins• Bid 6: Company C wins

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PATTERNSBid Suppression

• Bid 1: Companies A, B, C, and D bid• Bid 2: Companies B, C, and D bid• Bid 3: Companies A, C, and D bid• Bid 4: Companies A, B, and D bid• Bid 5: Companies A, B, and C bid

Also watch for subcontracts to the company that sits out!

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PATTERNSWho Is Getting What

• Bid 1: A wins a $3 million contract• Bid 2: B wins a $5 million contract• Bid 3: C wins a $1 million contract• Bid 4: C wins a $4 million contract• Bid 5: A wins a $2 million contract

Everyone = $5 million

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HYPOTHETICAL

T-37 Nose Wheel F-5 Main Wheel

2007 Smith & Smith

$275 Jay-Em $1000

2008 Jay-Em $455 Smith & Smith

$1390

2009 Smith & Smith

$465 Jay-Em $1416

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SUSPICIOUS BEHAVIORItching to Get Caught

• No Chance Bidder – Bids submitted by vendor known to lack the ability to perform the contract

• Betting Bidder – Vendor brings multiple bids to an opening or submits bid once other bidders are determined

• Loud Mouth Bidder – Suspicious statements indicating advance notice of a competitor’s prices or that vendors have discussed bids

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HYPOTHETICAL

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WHAT YOU CAN DODiscourage Collusion

• Expand the list of bidders/applicants• Require sealed bids/applications to be delivered

by a specified time and to a specified location and date and time stamp the packages when they are received

• Require a certification of independent price determination to be submitted with all bids/applications

• Ask questions

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WHAT YOU CAN DODetect Collusion

• Use a highlighter to mark typos, errors, etc.• Retain bids, envelopes, Federal Express slips, fax

transmittal sheets, e-mail messages, etc.• Keep a chart of competition over time for products

and services you purchase• Keep your eyes and ears open• Ensure your whole team is familiar with M.A.P.S.

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Prevention Enforcement

Best Practices

Use Us As A Resource

EFFECTIVE DETERRENCE

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PARTING WORDS• Remember M.A.P.S. • Use us as a resource• Find more information at: www.usdoj.gov/atr/public/criminal/recovery_

initiative.htm

John Terzaken, Assistant ChiefU.S. Department of Justice, Antitrust Division

Nat’l Criminal Enforcement Section(202) 307-0719 / john.terzaken@usdoj.gov