Fuel Supply Bid-Rigging Prosecution Highlights Interplay of Whistleblower Statute and Antitrust Division’s Leniency Program

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On April 8, the Department of Justice (DOJ) Antitrust Division (Division), the DOJ Civil Division and the U.S. Attorney’s Office for the Southern District of Ohio (collectively, the Government) announced a civil antitrust and False Claims Act (FCA) complaint and concurrent settlement regarding a bid-rigging conspiracy that targeted fuel supply contracts for U.S. military installations in South Korea.[1] A continuation of the larger line of cases involving South Korean fuel contract bid-rigging,[2] this final settlement with Jier Shin Korea Co. Ltd (Jier Shin) and its president, Sang Joo Lee (Lee) (together, the Defendants), demonstrates the DOJ’s commitment to using Section 4A of the Clayton Act[3] and the FCA to regulate anticompetitive conduct in which the U.S. is the victim.

Case Background and Defendants’ Conduct

Jier Shin is a small Korean logistics company privately held by Lee and his family as majority owners. As mentioned above, the DOJ alleged that Jier Shin agreed with five Korean transportation and oil refinery companies to fix prices and rig bids for U.S. military fuel supply contracts. Interestingly, this case arose out of a FCA qui tam whistleblower claim alleging the Defendants made false claims regarding their involvement in the conspiracy. This indicates that someone either inside the company or with significant knowledge of the company’s operations possessed the evidence necessary to convince the Government to initiate an enforcement action.

The April 8 complaint, filed the same day as the settlement, specifies that the conspiracy occurred from at least March 2005 to October 2016, during which time the Defendants and their coconspirators engaged in a series of meetings, telephone conversations, emails and other communications to rig bids and fix prices for the U.S. military contracts. On multiple occasions, members of the conspiracy, including the Defendants, either did not bid or bid high on contracts to guarantee that a contract went to the company to which it was allocated.[4] In one surprise instance, Jier Shin and another company accidentally won a line item that the conspirators had intended for another company.[5] To remedy that misallocation, the company that accidentally won with Jier Shin stepped aside, allowing the intended company to provide the service.[6] Ultimately, the conspiracy yielded a few small line-item wins for Jier Shin, while the coconspirators generally were granted higher-dollar-value contracts.[7]

Settlement Terms and Cooperation

According to the Division, based on financial statements filed by the Defendants in which they demonstrated their inability to pay, the Defendants’ cooperation and the DOJ’s assessment of litigation costs, Jier Shin and Lee will pay $2 million to resolve these civil allegations. The FCA’s qui tam provisions allow the whistleblower to share in the recovery.

The Defendants entered into a cooperation agreement while the DOJ’s investigation was in its early stages.[8] The cooperation aided the DOJ in obtaining settlements from the conspirators in excess of $200 million. As a condition of the settlement, the Defendants must continue to cooperate with the DOJ regarding any matter related to the allegations in the complaint.

The Defendants also are required to institute an antitrust compliance program and to appoint an antitrust compliance officer within 30 days of entry of the final judgment. The compliance officer will be responsible for creating and implementing the antitrust compliance program, conducting two hours of training annually and creating a culture of compliance in which Jier Shin’s employees feel comfortable “disclos[ing] to the Antitrust Compliance Officer, without reprisal, information concerning any potential violation of the United States antitrust laws.”[9]

Takeaway

Regardless of the size of a company or its ability to pay large fines and penalties, the DOJ is taking price fixing and bid-rigging seriously. As mentioned in our November client alert regarding the Division’s new Procurement Collusion Strike Force, given the amount of federal money involved in public procurement, any amount of overcharge caused by bid-rigging or other anticompetitive conduct will cause economic harm and in turn garner the government’s attention. And preventing this economic harm has motivated the Division to use the Clayton Act and to shine a light on all government contractors, large and small.

A key lesson here is to note that significant cooperation, like that offered by the Defendants, does not guarantee a complete pass under the Division’s Leniency Program. The DOJ Antitrust Division’s Leniency Program allows companies to avoid criminal convictions based on when they report antitrust violations to the DOJ. Type A is available only before the Division has received any information about the activity being reported, while Type B is available even after the Division has received information about the activity. As this matter commenced with a qui tam relator, Jier Shin could not benefit from Type A leniency. Here it appears that several “Filip Factors” in addition to cooperation led to the Division’s filing of a civil action.[10] Jier Shin was a small player in the conspiracy, is closely held and private, and had agreed to remediate and hire a compliance officer. Furthermore, Jier Shin and Lee were unable to pay a large penalty; thus, a civil settlement was sufficient to punish and deter them.

Regardless, civil actions can lead to large penalties. Therefore, companies should take the time to review and strengthen their compliance programs and assess their conduct with competitors in the public procurement space. 

[1] https://www.justice.gov/opa/pr/doj-agrees-civil-settlement-additional-firm-involved-bid-rigging-and-fraud-targeting-defense.
[2] https://www.justice.gov/opa/pr/more-charges-announced-ongoing-investigation-bid-rigging-and-fraud-targeting-defense.
[3]  In a November 2018 speech at the ABA Antitrust Section Fall Forum, Assistant Attorney General Makan Delrahim committed to applying “all authorities Congress has granted . . . to remedy antitrust injuries to the American taxpayer.” This includes Section 4A of the Clayton Act. His intention was that parallel civil investigations and the threat of treble damages under Section 4A will increase the “incentive for co-conspirators in cartel cases to come forward.” Assistant Attorney General Makan Delrahim Remarks at the American Bar Association Antitrust Section Fall Forum, https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-remarks-american-bar-association-antitrust.
[4] United States v. Jier Shin Korea Co, Ltd and Sang Joo Lee, CASE NO. 2:20-cv-1778 (S.D.OH.), Complaint, https://www.justice.gov/opa/press-release/file/1267451/download.
[5] Id.
[6] Id.
[7] Id.
[8] United States v. Jier Shin Korea Co, Ltd and Sang Joo Lee, CASE NO. 2:20-cv-1778 (S.D.OH.), Competitive Impact Statement, https://www.justice.gov/opa/press-release/file/1267461/download.
[9] Proposed Final Judgment as to Defendants Jier Shin Korea Co, Ltd and Sang Joo Lee, Para. 5D, https://www.justice.gov/opa/press-release/file/1267471/download.
[10] See Department of Justice Principles of Federal Prosecution of Business Organizations, Justice Manual 9-28.200, https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations#9-28.300

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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