DOJ Takes Aim at Collusion in Government Procurement with New Strike Force

security-600On November 5, 2019, the Department of Justice (DOJ) announced the creation of a new Procurement Collusion Strike Force (PCSF) focused on deterring, detecting, investigating, and prosecuting antitrust crimes, especially bid-rigging, in government procurement at the federal, state, and local levels.  This follows several criminal indictments in the past year of bid rigging among government contractors, as well as recent statements by senior DOJ Antitrust Division (Division) officials that the DOJ intends to aggressively pursue anti-competitive conduct impacting government purchasers.  Companies who contract with the U.S. government should be aware of this development and several related considerations, including the Division’s recent change of policy incentivizing antitrust compliance programs.

Procurement Collusion Strike Force

The PCSF will be composed of investigators across the federal government, including the FBI, and prosecutors from the Division and 13 participating U.S. Attorneys’ Offices.  The strike force will take the lead on investigation and prosecution efforts.  The stated geographic areas of initial focus will be, among others, Chicago, New York, Los Angeles, Miami, and Washington, D.C.  As part of the announcement, Assistant Attorney General Delrahim (AAG Delrahim) stated that, “The investigation and prosecution of individuals and organizations that cheat, collude and seek to undermine the integrity of government procurement are priorities for this administration . . . [and] we will aggressively investigate and prosecute those who violate our antitrust laws to cheat the American taxpayer.”

Creation of PCSF Follows on Recent Emphasis on Prosecutions in Government Procurement

 This is a significant move that represents an extension of, and increased focus on, the work that the Division has done in recent years related to big rigging in government contracting.

First, in November of last year, Assistant Attorney General Makan Delrahim announced a renewed use by the Division of its authority under Section 4A of the Clayton Act to seek civil treble damages when the government is a victim of antitrust crimes.  Until 2018, the Division has rarely invoked this authority to seek increased financial penalties.  This reinvigorated use of Section 4A significantly increases the financial risk of antitrust violations by government contractors.

Second, the Division has several active investigations into government procurement, bringing criminal charges against companies and individuals in three over the past year.  Last November (simultaneous with the Division’s public statement regarding Section 4A), the Division announced settlements with three South Korea-based fuel companies for their role in a decade-long bid-rigging conspiracy targeting fuel-supply contracts to U.S. military forces in South Korea imposing treble damages on the companies.  In addition to obtaining $82 million in criminal fines, the DOJ recovered $154 million in civil fines, the largest ever recorded since the enactment of Section 4A.  In that investigation, DOJ has secured five corporate guilty pleas and indicted seven individuals (all South Korean nationals).  In addition to military fuel supply, the Division has active investigations in government insulation installation contracts and online auctions for surplus government equipment and has reached multiple criminal pleas with individuals in both.

Takeaways

First, these developments, along with continued recent public statements by Division leadership that investigations, and prosecutions, in this space are a priority, signal that government procurement will continue to be a strong focus of enforcement moving forward.  Indeed, the announcement states that the PCSF will conduct outreach and training of procurement officials on antitrust risk of the procurement process, which will likely include training officials on spotting red flags of bid-rigging and other fraudulent schemes.  The PCSF will likely face pressure from leadership to bring cases in this space to demonstrate real results from this newly created partnership.

Second, in order to mitigate potential antitrust risk, companies who do business with the U.S. government – domestically and abroad – will want to take a fresh look at their antitrust compliance programs.  This is more important now than ever before given the Division’s recent policy change that it will now consider the effectiveness of a violating company’s antitrust compliance when making charging decisions and sentencing recommendations.  Notably, a company could obtain a deferred prosecution agreement (avoiding criminal charges and penalty in exchange for cooperation) or a more lenient financial penalty.  To benefit, companies will want to make sure their compliance programs meet the hallmarks of the Guidelines.  Finally, an added potential advantage of a comprehensive antitrust compliance program could be early detection of a violation, allowing a company to consider reporting its conduct to the Division as part of the Leniency Program.