On November 5, 2019, the United States Department of Justice (DOJ) announced the creation of a strike force, consisting of federal and state investigators and prosecutors, designed to target collusion in government procurement. This is the most recent joint law enforcement effort to combat antitrust crimes and related fraudulent practices, including violations of the False Claims Act (FCA), the Foreign Corrupt Practices Act (FCPA) and other relevant statutes.
The Procurement Collusion Strike Force (Strike Force) represents an interagency partnership comprised of prosecutors from the Antitrust Division and 13 US Attorneys’ Offices across the country, as well as investigators from the FBI and four agencies’ Inspectors General (DOJ, Department of Defense, US Postal Service and General Services Administration). The Strike Force has a broad mandate to investigate all types of procurement collusion and related misconduct at the federal, state and local level.
Additionally, the Strike Force plans to provide training and education to procurement officials and government contractors to help identify and report suspicious or anticompetitive conduct related to government procurement. The DOJ has designed these training programs to bolster its efforts to identify potentially illegal conduct in procurement including bid-rigging, market allocations and suspicious pricing practices.
The establishment of a new government strike force is not always perceived as novel or as a significant threat. In some instances, initiatives such as the Health Care Fraud Strike Force or international FBI squads targeting bribery have led to increased enforcement in specifically targeted areas. This latest initiative, however, poses the potential for a significant enhancement of current enforcement, as its mandate covers multiple overlapping key risk areas including the Federal Acquisition Regulation, FCA, FCPA, and criminal/civil antitrust statutes. Now companies with antitrust issues may face potentially greater consequences not only for significant antitrust fines but the collateral consequences of prosecutions under other statutes, reputational damage and debarment. And, this initiative increases the prospect of whistleblowers from government contractors, competitors and others.
Procurement and collusion go hand-in-hand with FCA violations when the government is defrauded as a result of anticompetitive behavior. Recently, several South Korean petroleum companies agreed to plead guilty to a bid-rigging conspiracy involving contracts to supply fuel to US military bases. In addition to criminal penalties imposed for the antitrust crimes, the DOJ also imposed civil penalties for FCA violations. The government will likely continue to leverage the FCA in procurement investigations due to its significant overlap with collusion.
Additionally, the Strike Force will dovetail with recent statements from the DOJ’s leadership to renew the Government’s use of Section 4A of the Clayton Act, which allows the Government to recover treble damages where it is the victim of an antitrust violation. The Assistant Attorney General (AAG) for the Antitrust Division, Makan Delrahim, in announcing this initiative explained that “[t]he American Taxpayer deserves to see a revitalization of the government’s Section 4A authority” and noted that this provision was used in the South Korean fuel supply contracts case mentioned above, alongside the antitrust and FCA provisions. Certainly, the Strike Force will seek to add in these FCA and Section 4A claims to further recover damages from any potential antitrust conspiracies that may be detected.
Combined antitrust and FCA violations are certainly not uncommon. In May 2019, a pharmaceutical company agreed to pay more than $7 million to resolve price-fixing, bid-rigging, and customer allocation charges related to the sale of generic drugs. The criminal antitrust penalties amounted to only $225,000, while the remainder of the more than $7 million fine came from the FCA charges, brought under the Anti-Kickback Statute. Accordingly, liability for any antitrust violations uncovered by the Strike Force could easily exceed the criminal antitrust penalty, sometimes by a significant amount.
Competition and corruption issues also often overlap. For instance, in some cases, employees have obtained competitor information through bribery, or paid government officials to favor a company during the bidding process. Foreign corruption issues might also arise in international cartel investigations when US authorities share information with other international enforcers. Evidence of bribery or other corrupt acts can be discovered in the course of investigating anticompetitive behavior (or vice versa) and shared between the foreign authorities and the Antitrust and Fraud Divisions of the DOJ. Alternatively, the Antitrust Division may, on its own initiative, refer a case to the Fraud Section for a foreign bribery investigation. For example, a DOJ investigation of FCPA violations in Nigeria and a number of other countries by a global logistics company led to the discovery and prosecution of a price-fixing conspiracy involving a number of freight-forwarding companies.
One of the most prominent issues often encountered in emerging markets is collusion in state tenders. Investigations into these violations often result in follow-on corruption cases. Therefore, with the current global enforcement environment, the Strike Force’s investigations will likely prompt further cross-border investigations, not only into potential antitrust violations, but also violations of the FCPA. Relatedly, the Health Care Fraud Unit has announced its recent partnership with the FCPA Unit for purposes of developing a greater focus on corruption and fraud in the health care sector, thus increasing the prospect of the detection of antitrust issues in such companies.
What To Do Next
According to AAG Delrahim, the Strike Force has two main objectives. The first is to detect, investigate, and prosecute collusion and related crimes. The second is to deter anticompetitive behavior, which follows the Antitrust Division’s new policy to incentivize corporate compliance. Under this policy, the Antitrust Division will consider the adequacy and effectiveness of a company’s compliance program at the charging and sentencing stages of criminal antitrust violations. In light of these developments, we recommend that companies should:
- Review their government procurement policies and activities to assess antitrust risks
- Evaluate compliance programs to ensure they sufficiently safeguard against illegal collusion in procurement
- Develop antitrust training materials and resources to educate employees about criminal and civil antitrust violations and illegal anticompetitive behaviors in procurement
- Provide comprehensive training to company employees and third parties on antitrust “red flags” and track who has received these trainings
- Create various internal communication channels, including an anonymous tip line, for employees and third parties to report suspicious anticompetitive behaviors, potential procurement fraud, and bribery
- Carefully review all reports related to potential anticompetitive and other fraudulent activities in procurement; and
- Ensure that M&A due diligence checklists and questionnaires cover a target’s potential involvement in anticompetitive conduct, particularly if the target participates in government procurement
A company engaged in government contracting should be sober-minded about the broad range of conduct the new Strike Force has within its wide-ranging mandate. It should also serve as a useful reminder to ensure that all relevant employees have been trained on FCA, antitrust and corruption risks, and confirm the efficacy of the company’s internal compliance policy. A robust compliance program will mitigate these risks, and position the company to detect and avoid such risks going forward. Given the severity of the consequences for violations of these offenses in the aggregate—both for the company and its employees—this new initiative serves as a timely reminder of the critical importance of awareness and the implementation of an effective compliance and controls environment.