A global pandemic and economic disruption make effective deterrence, detection, and prosecution of cartels more important than ever. While COVID-19 is a novel virus, the United States has a long track record of consistent enforcement of the antitrust laws even in times of great crises. Today, the United States has and is using even more tools to address pressing public needs arising from COVID-19. Chief among those tools is the U.S. Department of Justice’s Procurement Collusion Strike Force. The Procurement Collusion Strike Force is designed as an inter-agency, virtual force multiplier that not only educates both buyers and sellers to deter antitrust crimes, but also uses traditional investigative tools and cutting-edge data analytics to detect and actively investigate allegations of criminal conduct.
A once-in-a-century pandemic sweeps across country. Televisions and news feeds are filled with stories of human suffering amid shortages of critical supplies. Medical professionals and first responders leap into action. The federal government responds with significant appropriations to provide personal protective equipment and medical supplies, as well as additional stimulus funds to address the economic devastation wrought by the pandemic. During a time of twin crises, does antitrust law matter? Government contractors and vendors may ask, will the government be closely scrutinizing the flood of contracts awarded in response to the COVID-19 emergency? Is there a role for criminal antitrust enforcement? To all three questions, the Department of Justice (the “Department”) responded quickly and clearly with an emphatic yes.
II. A RECENT HISTORICAL PERSPECTIVE
COVID-19 isn’t the first crisis the United States has faced in recent memory, and it certainly isn’t the first time the Department of Justice, Antitrust Division (the “Division”) has played a role in responding during times of economic upheaval and uncertainty. Indeed, the Division’s prioritization of COVID-related conduct is consistent with its historical focus on protecting taxpayer dollars through criminal prosecutions following natural disasters, wars, and other national emergencies. For instance, in 2008, the Division, working with the Department of Justice’s Criminal Division, obtained convictions of a former U.S. Army contracting officer and several of his family members for participating in a bribery- and money-laundering scheme related to contracts awarded in support of the Iraq war.2 The ringleader of the scheme, a former Army contracting officer in Kuwait, accepted more than $9 million in bribes from Army contractors in exchange for awarding contracts for goods and services, including bottled water, delivered to troops in Iraq. The ringleader was sentenced to 210 months in prison, and was ordered to pay $9.6 million in restitution.
Similarly, the Division and the U.S. Attorney’s Office for the Eastern District of Louisiana, working together through the Hurricane Katrina Fraud Task Force (now the Disaster Fraud Task Force), convicted a former sand and gravel sub-contractor and two former contract employees of the U.S. Army Corps of Engineers on conspiracy and bribery charges.3 The sub-contractor paid bribes to the two former U.S. Army Corps of Engineers contractors in exchange for their attempt to steer dirt, sand, and gravel subcontracts to the defendant sub-contractor related to a $16 million project involving the Lake Cataouatche Levee, located south of New Orleans. The defendants received prison sentences ranging from 60 to 70 months. The Division continues to conduct training to various audiences — law enforcement; federal, state, and local procurement officials; and auditors — in identifying procurement collusion and fraud in the wake of hurricanes, tornadoes, wild fires and other natural disasters through the Disaster Fraud Task Force.4
Moreover, in response to the last major economic crisis in 2009, the Division launched an initiative dedicating significant resources to assisting federal, state, and local agencies receiving stimulus funds through the American Recovery and Reinvestment Act (the “ARRA”) in detecting and deterring criminal antitrust offenses.5 The ARRA, signed into law on February 17, 2009, provided billions of dollars of stimulus funds to government agencies to make investments in infrastructure, education, health care, and renewable energy. Through this initiative, from 2009 to 2013, the Division conducted more than 250 training sessions on detecting antitrust crimes for more than 25,000 individuals in 20 federal agencies, 36 states, and two U.S. Territories receiving ARRA funds.6 A decade later, the Division’s work continued with the conviction of two individuals on charges stemming from bribery and fraud in connection with the U.S. Department of Treasury’s Blight Elimination Program.7 There, the Division, the U.S. Attorney’s Office for the Eastern District of Michigan, the Special Inspector General of the Troubled Asset Relief Program, and the FBI worked jointly to investigate and prosecute the Detroit city official who disclosed competitors’ bids to a contractor, and the contractor who paid the bribe. As a result of their scheme to subvert the competitive process, both defendants were sentenced to 12 months in prison.8
Thus, consistent with Department-wide policy and the Division’s history of protecting taxpayer dollars in times of emergency, government contractors should expect to see close scrutiny and prosecutions for many years to come from the Division for any COVID-19 related collusion and fraud.
III. CRIMINAL ANTITRUST ENFORCEMENT REMAINS CRITICAL DURING COVID
On March 16, 2020, Attorney General William Barr issued a memo directing prosecutors to prioritize the investigation and prosecution of COVID-19 related fraud.9 Shortly thereafter, the Department announced the creation of the COVID-19 Hoarding and Price Gouging Task Force, which was tasked to work closely with the U.S. Department of Health and Human Services to identify medical supplies and equipment that were scarce or in need, and therefore covered by the Defense Production Act (“DPA”). This would allow federal prosecutors to prosecute companies and individuals for hoarding or price gouging of these items under the DPA. The Division was directed to provide assistance as needed, and each United States Attorney’s Office, as well as relevant Department components, designated an experienced attorney to serve as a member of the task force.10 A little more than a week later, on March 24, 2020, Deputy Attorney General Rosen directed all federal prosecutors, including Division prosecutors and U.S. Attorneys’ Offices, to focus their attention on, among other offenses, conspiracies to fix prices, rig bids, or allocate markets with respect to COVID-19 materials; monopolization or anticompetitive conduct related to critical materials needed to respond to COVID-19; and all other fraudulent or illegal schemes related to COVID-19.11 The Department and several U.S. Attorney’s Offices have already charged several cases alleging price gouging, hoarding, and fraud related to COVID-19.12 The Department has also focused on prosecuting those who exploit federal relief programs, with a total loss amount in charged cases exceeding $227 million.13
On the same day as Deputy Attorney General Rosen’s directive, the Division and the Federal Trade Commission (the “FTC”) issued a joint statement providing guidance for businesses working to protect the health and safety of Americans during the COVID-19 pandemic. In the statement, the agencies recognized that individuals and businesses would need to act quickly and collaboratively to meet the demands of the COVID-19 pandemic, and that some of these collaborations may provide pro-competitive benefits and be consistent with antitrust laws. The agencies also committed to providing businesses and individuals expedited review of their joint collaborative efforts in response to the COVID-19 pandemic to ensure their efforts comply with federal antitrust laws. However, the statement makes clear that any effort to subvert competition or cheat the American consumer would not be tolerated, and that the Division will criminally prosecute businesses and individuals for conspiracies and agreements to fix prices and wages, rig bids, or allocate markets. Finally, consistent with the Department of Justice’s overall COVID-19 guidance, the Division’s criminal sections have prioritized the investigation and prosecution of antirust crimes and fraud related to COVID-19.
IV. THE ROLE OF THE PCSF IN THE DIVISION’S COVID RESPONSE
The Department’s increased scrutiny on procurement collusion and related fraud in response to the COVID-19 pandemic coincided with the Department of Justice’s creation of the Procurement Collusion Strike Force (“PCSF”), in which the Division has a lead role.14 Officially launched in November 2019, after two years of planning and design, the PCSF is an interagency partnership formed among the Antitrust Division, 13 United States Attorneys’ Offices, the FBI, and four federal Offices of Inspectors General. Leveraging the combined capacity and expertise of the partners, the PCSF has two core objectives. The first is to deter and prevent antitrust and related crimes on the front end of the procurement process through outreach and training. This includes providing training to the “buy side” of the procurement, i.e. federal, state, and local procurement officials, on spotting the “red flags” of collusion and fraud, as well as to the “sell side,” i.e. general contractors, trade associations, and the procurement bar, on antitrust criminal violations and potential penalties. The second objective is to effectively detect, investigate, and prosecute procurement collusion and fraud through better coordination and partnership in the law enforcement and inspector general communities.
The launch of the PCSF has been welcomed by federal, state, and local agencies and the law enforcement community. Indeed, all 13 PCSF district teams have expanded to include additional law enforcement partners active in the USAO district and several PCSF district teams have more than 10 federal law enforcement partners; together, there are more than 45 different agencies engaged in this effort at the district level, and the average cohort of each district team is 15 different agencies. Furthermore, the PCSF expects to make announcements on its first anniversary in November 2020 about its composition and planning for its second year.
The PCSF’s formation is a recognition of the importance in protecting federal spending, and ultimately the American taxpayer, from fraud and collusion. Roughly one out of every 10 dollars of federal spending is allocated to government contracting.15 In fiscal year 2019, more than $586 billion, or about 40 percent of all discretionary spending, was spent on contracts for goods and services, and more than $721 billion was spent on grants to state and local governments.16 And 63.5 percent of government-wide spending was awarded competitively during fiscal year 2019.17 The OECD estimates that eliminating bid rigging and other forms of collusion could reduce procurement costs by 20 percent or more.18 Thus, creating a more coordinated and effective enforcement model to combat procurement collusion and fraud could potentially save the American taxpayer tens of billions of dollars per year. Indeed, as is often seen after the disruption of a cartel that targets public spending, prices drop as real competition is restored.19 Finally, the need for effective deterrence of potential bad actors, and successful detection and prosecution of actual bad actors, during and after the pandemic is particularly acute. As of August 2020, the United States government had spent more than $100 billion on goods and services in response to COVID-19.20
When the PCSF launched, roughly one-third of the Division’s open investigations related to procurement or government victims, making the Division a natural leader for this initiative. And in 2018 and 2019, the Division prosecuted and obtained convictions of five South Korean suppliers that conspired to rig bids on fuel supply contracts to U.S. military bases in South Korea. In total, the companies agreed to pay $156 million in criminal fines and over $205 million in separate civil settlements. The Division also indicted seven individuals in this case for conspiring to rig bids and to defraud the government, and one executive was also charged with obstruction of justice.21
The PCSF’s mission to combat procurement collusion and fraud is not a new enforcement priority. The Division’s mission has always prioritized public procurement, and requires it to seek redress for any criminal antitrust conspiracy that victimizes the federal government and, therefore, injures American taxpayers.22 What is particularly notable about the prosecutions of the Korean fuel suppliers is that the Division obtained the civil fines pursuant to Section 4A of the Clayton Act, which allows the United States to obtain treble damages when it is the victim of an antitrust violation.23 In commenting on the civil settlements, Assistant Attorney General Makan Delrahim warned that the settlements “will serve as a blueprint for future cooperation efforts within the Department as it expands its Section 4A recovery efforts. Where antitrust violators target the United States Government — and, by extension, the U.S. taxpayer — we will not hesitate to bring civil and criminal charges and seek damages using these tools.”24
Thus, contractors that provide goods and services to government agencies in the current environment should keep in mind the following: (1) they face increased scrutiny in the era of COVID-19 relief and with the formation of the PCSF; (2) the Division is committed to a more coordinated, collaborative, and effective enforcement model with our U.S. Attorney partners, the FBI, and Inspector General community in order to combat procurement collusion and fraud through the PCSF; and (3) in addition to criminal fines and potential incarceration of culpable employees, the Division will continue to seek treble damages where the United States is the victim of an antitrust crime. All of this should further deter contractors from engaging in collusion and fraud in government procurement, or, at very least, incentivize contractors to self-report violations as quickly as possible in order to seek leniency or the benefits of early cooperation.25
V. THE PCSF IN ACTION
Since its launch in late 2019, the PCSF has been active in both of its core objectives. With respect to the first objective — education, training, and awareness — the PCSF has been particularly successful. More than 60 federal, state, and local government agencies sought training and assistance from the PCSF thus far. The PCSF — and more to the point, the prosecutors and agents that make up the PCSF — has led over two dozen interactive virtual training programs for more than 6,000 criminal investigators, data scientists, and procurement officials; just since the start of the pandemic. The PCSF is also bringing together data scientists with federal agents and economists to discuss best practices and blue-sky ideas for identifying red flags of collusion in the federal government’s vast procurement datasets. The PCSF is also working with the Pandemic Response Accountability Committee (“PRAC”)26 and the federal OIGs responsible for oversight of COVID spending to ensure the COVID data analytics models are designed to identify the red flags of collusion affecting these critical contract awards. Indeed, PRAC’s first goal is to work with federal oversight partners to identify cross-agency risks using data analytics.27
While the PCSF’s 13 districts are all obviously in the United States, its focus is not exclusive to government contracts awarded in the United States and several PCSF partners including the Antitrust Division, the FBI, and the Department of Defense’s Office of Inspector General Defense Criminal Investigative Service have a track record of successful cartel investigations affecting U.S. purchases made abroad. Indeed, the FBI stood up its International Corruption Unit (the “ICU”) in 2008 to address concerns about fraud against the U.S. government around the globe.28 These concerns stemmed from overseas U.S. government spending during the wars in Afghanistan and Iraq. These cases typically involve bid rigging, collusion, conflicts of interest, bribery, contract extortion, and corporate and individual conspiracies at various levels of U.S. government operations. Misuse of U.S. funds overseas poses a threat to the United States and other countries by promoting corruption within the host nation, damaging diplomatic relations, inadvertently supporting insurgent activity, and potentially strengthening criminal and terrorist organizations. Entering into its second year, the PCSF anticipates expanding its international reach and the Assistant Attorney General for the Antitrust Division has showcased this partnership in recent presentations delivered to our international counterparts at the OECD29 and the ICN.30
Turning to the second objective of the PCSF — the detection, investigation, and prosecution of procurement collusion and fraud — the PCSF’s work has resulted in the opening of nearly two dozen grand jury investigations across the United States. Further details regarding these investigations cannot be provided at this time, naturally, but the PCSF expects this work to result in criminal charges. When that time comes, the PCSF expects to use all of the available tools to fight fraud and collusion, including Title 15 charges, Title 18 charges, criminal fines, restitution, civil actions for treble damages under Section 4A of the Clayton Act, and, where appropriate, terms of incarceration for convicted individuals.
A recent prosecution, which predates the PCSF model, is instructive of what to expect from the inter-agency model in the future. The Division, the U.S. Attorney’s Office for the Eastern District of Louisiana, and the U.S. Department of Energy Office of Inspector General recently teamed up to investigate and charge a company for conspiring to corrupt and impair the procurement process.31 There, the company, a subcontractor working on the U.S. Strategic Petroleum Reserve, obtained non-public pricing and cost information in order to get an unfair advantage and win awards and payments, and in exchange provided financial benefits to the prime contractor.32 The company agreed to plead guilty33 to conspiring to violate the Procurement Integrity Act.34
In the past several months, the novel coronavirus has presented seemingly novel challenges. In the field of antitrust law, however, the economic disruption the pandemic has wrought presents parallels to past crises. The Division has drawn on its past experience enforcing antitrust laws in times of great challenges and has deepened its relationships with agencies throughout the federal government. Together, the Division and its partners have developed a plan to make clear that antitrust laws still matter — and will be enforced — during the pandemic. And the PCSF is a large part of that plan. In less than a year, the PCSF has delivered the message that the government will not tolerate criminal activity that seeks to profit unfairly at the expense of the taxpayers, and especially now during the COVID-19 pandemic. The PCSF has also been active in building an inter-agency infrastructure to combat this activity. In the coming year, the PCSF expects to make good on its foundational promise — going after cartels that cheat the government like never before.
1 Chester C. Choi is a trial attorney in the Chicago Office of the U.S. Department of Justice, Antitrust Division. Mr. Choi is also the Antitrust Division representative to the PCSF’s team in the Southern District of Ohio. Prior to joining the Department of Justice, Mr. Choi worked in private practice in Washington, D.C., and at the Federal Trade Commission. Daniel W. Glad is the Director of the Procurement Collusion Strike Force. Previously, Mr. Glad was an assistant chief in the Chicago Office of the U.S. Department of Justice, Antitrust Division, and the Antitrust Division representative to the PCSF’s team in the Northern District of Illinois. Prior to joining the Department of Justice, Mr. Glad worked in private practice in Chicago, Illinois, and Washington, D.C., and was an assistant inspector general for the City of Chicago Office of Inspector General.
2 Press Release, U.S. Dep’t of Just., Army Officer, Wife and Relatives Sentenced in Bribery and Money Laundering Scheme Related to DOD Contracts in Support of Iraq War (Dec. 2, 2009), https://www.justice.gov/opa/pr/army-officer-wife-and-relatives-sentenced-bribery-and-money-laundering-scheme-related-dod.
3 Press Release, U.S. Dep’t of Just., Former Sand and Gravel Subcontractor Sentenced to 5 Years in Prison After Conspiracy and Bribery Conviction in Connection with a Levee Reconstruction Project (Aug. 26, 2009), https://www.justice.gov/opa/pr/former-sand-and-gravel-subcontractor-sentenced-5-years-prison-after-conspiracy-and-bribery.
5 Press Release, U.S. Dep’t of Just., Antitrust Division Announces Initiative to Help Protect Recovery Funds from Fraud, Waste and Abuse (May 12, 2009), https://www.justice.gov/opa/pr/antitrust-division-announces-initiative-help-protect-recovery-funds-fraud-waste-and-abuse.
6 U.S. Dep’t of Just., Criminal Program Update 2012, Division Update Spring 2012 (last updated Aug. 17, 2015), https://www.justice.gov/atr/criminal-program-update-2012.
7 Press Release, U.S. Dep’t of Just., U.S. Att’y’s Off., E.D. Mich., Former City of Detroit Building Authority Official and Former Executive at Adamo Group Plead Guilty to Bribery Conspiracy in Connection With the Detroit Demolition Program (Apr. 9, 2019), https://www.justice.gov/usao-edmi/pr/former-city-detroit-building-authority-official-and-former-executive-adamo-group-plead.
8 Press Release, U.S. Dep’t of Just., Former City of Detroit Building Authority Official Sentenced for Bribery Conspiracy in Connection with the Detroit Demolition Program (Sept. 23, 2019), https://www.justice.gov/opa/pr/former-city-detroit-building-authority-official-sentenced-bribery-conspiracy-connection; Press Release, U.S. Dep’t of Just., Former Executive at Adamo Group Sentenced for Conspiracy to Commit Honest Services Fraud in Connection With the Detroit Demolition Program (Sept. 10, 2019), https://www.justice.gov/opa/pr/former-executive-adamo-group-sentenced-conspiracy-commit-honest-services-fraud-connection.
12 See e.g. Press Release, U.S. Dep’t of Just., U.S. Att’y’s Off., E.D.N.Y., Long Island Man Charged Under Defense Production Act with Hoarding and Price-Gouging of Scarce Personal Protective Equipment (Apr. 24, 2020), https://www.justice.gov/usao-edny/pr/long-island-man-charged-under-defense-production-act-hoarding-and-price-gouging-scarc-0; Press Release, U.S. Dep’t of Just., U.S. Att’y’s Off., S.D.N.Y., Licensed Pharmacist Charged With Hoarding And Price Gouging Of N95 Masks In Violation Of Defense Production Act (May 26, 2020), https://www.justice.gov/usao-sdny/pr/licensed-pharmacist-charged-hoarding-and-price-gouging-n95-masks-violation-defense.
13 Press Release, U.S. Dep’t of Just., Department Of Justice Is Combatting COVID-19 Fraud But Reminds The Public To Remain Vigilant (Oct. 15, 2020), https://www.justice.gov/opa/pr/department-justice-combatting-covid-19-fraud-reminds-public-remain-vigilant.
14 Makan Delrahim, Assistant Att’y Gen., U.S. Dep’t of Just., Antitrust Div., Remarks as Prepared for Delivery at the at the Procurement Collusion Strike Force Press Conference (Nov 5, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-procurement-collusion-strike; Press Release, U.S. Dep’t of Just., Justice Department Announces Procurement Collusion Strike Force: a Coordinated National Response to Combat Antitrust Crimes and Related Schemes in Government Procurement, Grant and Program Funding (Nov. 5, 2020), https://www.justice.gov/opa/pr/justice-department-announces-procurement-collusion-strike-force-coordinated-national-response.
15 The Office of Federal Procurement Policy, Office of Management and Budget, https://www.whitehouse.gov/omb/management/office-federal-procurement-policy/#_Office_of_Federal_3 (last visited Oct. 19, 2020).
16 A Snapshot of Government-wide Contracting for FY 2019, U.S. Government Accountability Office: WatchBlog (May 26, 2020), https://blog.gao.gov/2020/05/26/a-snapshot-of-government-wide-contracting-for-fy-2019-infographic/; The Office of Federal Procurement Policy, Office of Management and Budget, Historical Tables, at 255 (2020), https://www.whitehouse.gov/wp-content/uploads/2020/02/hist_fy21.pdf.
17 U.S. Government Accountability Office, supra note 16.
18 Fighting Bid Rigging in Public Procurement, Organisation for Economic Co-Operation and Development, https://www.oecd.org/competition/cartels/fightingbidrigginginpublicprocurement.htm (last visited Oct. 19, 2020).
19 See, e.g. Robert Clark & Decio Coviello, Bid Rigging in Public Procurement (Competition Policy International 2019), https://www.competitionpolicyinternational.com/wp-content/uploads/2019/04/CPI-Clark_Coviello-.pdf.
21 Richard A. Powers, Deputy Assistant Att’y Gen., U.S. Dep’t of Just., Antitrust Div., Remarks as Prepared for Delivery at the American Bar Association Public Contract Law Section’s 2019 Procurement Symposium (Oct. 25, 2019), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-richard-powers-delivers-remarks-american-bar.
23 15 U.S.C. § 15a (2018).
24 U.S. Dep’t of Just., A Message from the AAG: Looking Back, Looking Forward, Division Update Spring 2019 (last updated Mar. 27, 2019), https://www.justice.gov/atr/division-operations/division-update-spring-2019/message-aag.
25 See U.S. Dep’t of Just., Antitrust Div., Leniency Policy (1993), https://www.justice.gov/atr/leniency-program. The Division’s Leniency Program is its most important tool for detecting cartel activity. Under the Leniency Program, corporations and individuals who report their cartel activity and cooperate in the Division’s investigation of the cartel reported can avoid criminal conviction, criminal fines, and prison sentences if they meet the requirements of the program. The Leniency Program, its policy documents, frequently asked questions, policy speeches, and model documents are available to the public at https://www.justice.gov/atr/leniency-program. Additionally, corporations that successfully apply for leniency can avoid joint and several liability and treble damages under the provisions of the Antitrust Criminal Penalty Enhancement and Reform Act, which was recently reauthorized. See Press Release, U.S. Dep’t of Just., Department Of Justice Applauds President Trump’s Authorization of the Antitrust Criminal Penalty Enhancement and Reform Permanent Extension Act (Oct. 1, 2020), https://www.justice.gov/opa/pr/department-justice-applauds-president-trump-s-authorization-antitrust-criminal-penalty.
27 Pandemic Response Accountability Committee, Strategic Plan 2020-2025, at 4 (2020), https://www.pandemicoversight.gov/sites/default/files/2020-07/PRAC-Strategic%20Plan-July-2020.pdf.
30 Press Release, U.S. Dep’t of Just., Assistant Attorney General Makan Delrahim Presents Procurement Collusion Strike Force to the International Competition Community (June 16, 2020), https://www.justice.gov/atr/page/file/1317471/download.
31 Press Release, U.S. Dep’t of Just., U.S. Att’y’s Off., E.D. La., Louisiana Company Charged With Conspiracy to Defraud Government and Violate the Procurement Integrity Act (July 2, 2020), https://www.justice.gov/usao-edla/pr/louisiana-company-charged-conspiracy-defraud-government-and-violate-procurement.
32 Factual Basis (ECF No. 23), United States v. Cajan Welding & Rentals, Ltd., E.D. La. No. 20-CR-61 (Sept. 8, 2020), https://www.justice.gov/atr/case-document/file/1316861/download.
33 Plea Agreement (ECF No. 24), United States v. Cajan Welding & Rentals, Ltd. E.D. La. No. 20-CR-61, https://www.justice.gov/atr/case-document/file/1316856/download.
34 41 U.S.C. § 2102 et seq.