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DEPARTMENT OF JUSTICE
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THE ANTITRUST DIVISION'S
INTERNATIONAL ANTI-CARTEL ENFORCEMENT PROGRAM
By:
JOEL I. KLEIN
Assistant Attorney General
Antitrust Division
U.S. Department of Justice
at the
American Bar Association Antitrust Section Spring Meeting
Omni Shoreham Hotel
Washington, D.C.
April 6, 2000
- It is a pleasure to be here today. In a few minutes, you are going to witness what I
believe is the single greatest antitrust compliance tool ever created -- undercover FBI
tapes of the lysine cartel at work. This highlight tape, which is being made publicly
available today, will give you and your clients a ringside seat at international cartel
meetings where competitors fix prices and carve up the world's sales of the feed additive,
lysine. Of course, what makes these tapes such an effective deterrent is not just the
unnerving notion that the FBI might be watching but the fact that high-level executives
went to jail and their companies paid heavy fines as result of their cartel activity.
- Antitrust Compliance Programs. We are making these materials
available because the
antitrust private bar has always played an important role in deterring antitrust offenses.
For example, you are largely responsible for the current prevalence and success of
corporate compliance programs. Even when compliance programs fail to prevent
antitrust offenses from occurring, they have proven to be very effective in terms of
identifying violations. In fact, many of the Division's recent Corporate Amnesty
applications were initiated as a result of early detection by the firm's antitrust compliance
programs. Which, in the final analysis, ended up saving these companies tens of millions
of dollars and, quite possibly, kept their top executives out of jail.
- Misguided Observers. It is also important that your business clients
see these tapes to
dispel any notion that cartel activity is innocuous and that no one is really harmed by it.
I say that because, remarkably, there are still those who continue to attempt to justify or
excuse cartel behavior and to argue that it is of no real economic consequence. As
recently as last month, one columnist referred to price fixing as a "figmentary crime,"
which should be treated as an "information exchange between [consenting] adults." In
essence, the columnist's view was that the Division should not bother prosecuting
criminal antitrust violations because no one is harmed.
- The reality is that price fixing, like bid-rigging and market allocation schemes, are
anything but victimless crimes. The perpetrators of these conspiracies are, quite literally,
stealing money out of the pockets of American businesses and consumers. Let me give
you just a few examples from our recent cases.
- Graphite. We can start with the graphite electrodes conspiracy
where the producers
agreed to fix prices and allocate markets around the world. I can guarantee you that
steelmakers in the United States and abroad did not consider that conspiracy to be a
victimless crime. Before the cartel was cracked by the Division, it affected nearly $2
billion dollars in U.S. commerce alone. As a result of the conspiracy, cartel members
eliminated competition and were able to force prices up by over 60 percent during
the
existence of the conspiracy. Now, were these the acts of "consenting adults?" You bet.
In this conspiracy the value of the stocks and options held by individual conspirators
soared with the passing of each agreed-upon price increase, so that some of the
conspirators personally pocketed millions of dollars as a direct result of their criminal
activity.
- Vitamins. Or, consider the vitamin cartel, dubbed "Vitamins, Inc."
by one of the cartel
members. It lasted for nearly a decade before it was cracked by the Division. During
that time, the cartel members reached agreements on everything from how much product
each company would produce to how much they would charge to which customers they
would sell. The victims who purchased directly from the cartel members included
companies with household names such as General Mills, Kellogg, Coca-Cola, Purina
Mills, and Proctor and Gamble. However, these companies were just the first to feel the
impact of this conspiracy. In the end, every American consumer took a hit so that these
conspirators could reap hundreds of millions of dollars in illicit revenues.
- Lysine. And, lastly, you might ask American farmers if they think
the lysine conspiracy
caused any harm. Prices for lysine, which is used as a feed additive for livestock, were
falling before Archer Daniels Midland and its European and Asian competitors got
together and agreed to carve up the market. Then, in the first six months of the
conspiracy, prices went up 70 percent and actually doubled over the entire
course of the
conspiracy.
- Cartels Are Not Short-Lived. Another great myth, perpetrated by
some of the theoretical
thinkers is that cartels, where they exist, are unstable and short-lived. Our experience
proves otherwise. The Division has uncovered a number of conspiracies that operated
for a decade or more, and the majority of the international cartels that we have
prosecuted or that are currently under investigation are believed to have already existed
continuously for 5-10 years or longer. In each of the cases that I just mentioned, you can
bet that the cartels would still exist today if they had not been detected and prosecuted by
the Division.
- Financial Incentives. The members of these cartels, of course,
commit these crimes
because of the financial rewards associated with anticompetitive schemes. It is simply
not serious for anyone to argue that conspirators, such as the Vitamins conspirators,
which are large, sophisticated firms, would spend millions to implement and hide their
cartel, would risk paying many hundreds of millions in fines to the U.S. and Canada,
would risk seeing their executives go to jail, and would be exposed to the serious
prospect of paying very large additional sums in civil damages to the customers they
have cheated, for activities that had no real economic consequences, for activities that
reaped no financial rewards for them.
- A Fraud On Consumers. When you see these tapes you will be left
with the unshakeable
conclusion that you are witnessing a serious crime. Price fixing is a flat out fraud on
consumers and businesses -- it is nothing more than theft by well-dressed thieves and
should be met with unequivocal public condemnation. We should not view any
individual, company or industry as above the law merely because the theft involved is
accomplished via business meetings among high-level executives. Nor should price
fixing be excused when companies fall on difficult economic times any more than bank
robbery should be viewed as a legitimate answer to unemployment.
- Global Movement. I'm pleased to report that this strong
enforcement message is
beginning to take hold globally. It used to be that the United States stood almost alone in
the world in our commitment to antitrust enforcement. Until the 1990's, a not infrequent
reaction of foreign governments to news that the Antitrust Division was investigating the
activities of international cartels that had extracted money from U.S. consumers' and
businesses' pockets was to leap to the defense of "their" firms, accuse the U.S. of
"extraterritorial" tendencies in defending our consumers, threaten to invoke blocking
statutes, and express astonishment that any country should even want to have pro-competitive
laws, much less enforce them. Happily, the global environment in which we
work today is radically different. In the past decade, a strong interest in having free
markets defended by sound antitrust laws and sound antitrust enforcement has spread
throughout the world. Over 80 countries now have antitrust laws -- most of them enacted
during the past decade -- and another 25 countries are in the process of drafting such
laws. There are many differences in the purposes and details of these laws, some of them
quite significant. But one thing on which just about everyone agrees is that "hard core"
cartels are pernicious and should be uncovered and stopped.
- International Anti-Cartel Efforts. We have been working with our
counterparts abroad to
assist them in strengthening their anti-cartel enforcement efforts. For example, last fall
an unprecedented gathering of over 80 anti-cartel enforcers from nearly 30 countries on
six continents met in Washington for the first International Anti-Cartel Enforcement
Workshop to share information about the nuts and bolts of cartel enforcement and to
foster the development of cooperation on cartel issues among antitrust authorities around
the world. In addition, we have made presentations to antitrust enforcers abroad using
the materials that you will see today to educate them on the common characteristics of
international cartels and how they can be detected.
- No Safe Harbors. Finally, there is a growing appreciation among
international business
persons who engage in cartel activity that governments are stepping up their efforts to
combat cartel activity and that safe harbors for international cartel activity are rapidly
shrinking. This last point was dramatically made again today with the announcement
that four more foreign nationals have agreed to plead guilty and serve time in a U.S.
prison for their participation in the vitamin conspiracy. Together with the two Swiss
Hoffmann-La Roche executives who went to jail last year, the cases announced today
represent a clean sweep for the Division in this investigation -- with all of the high-level
Hoffmann La-Roche and BASF business executives responsible for the conspiracy
pleading guilty and facing jail sentences. What is particularly remarkable about these
cases is that all of these defendants agreed to travel here, submit to U.S. jurisdiction, and
go to prison even though they resided outside of the United States. A few years ago
these results would have been unimaginable. However, these defendants came to realize
that the world is changing and that the risks associated with living their lives as
international fugitives in a world growing increasingly intolerant of price fixers was too
great.
- Conclusion. Let me conclude by saying that I think the working
relationship between the
Antitrust Division and the private bar has always been very productive. In making these
materials available, we hope to work with you in strengthening and continuing the
success of antitrust compliance programs to assist you and your clients in deterring and
detecting antitrust violations. This common objective is not only in both of our interests,
it is in the best interests of American businesses and consumers as well.
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