Filled with drug dealers, gang members, and bedbugs, the Lompoc Federal Prison Camp in Lompoc California would appear to be an unlikely retreat for respected foreign executives from around the world. Yet every year, more and more senior foreign executives voluntarily leave their homes in Asia, Europe and South America and travel to Lompoc for an extended prison stay due to their violations of the United State’s primary antitrust law, the Sherman Act.
Why do foreign executives make this trek to the U.S. to serve out prison sentences? How often are these sentences meted out, and how does the U.S. Department of Justice ("DOJ") discover overseas cartels? To answer this question, we start with a brief description of the Sherman Act. The Sherman Act prohibits all agreements between competitors to limit competition. Examples of such illegal agreements include agreements to fix prices, assign market share, control production/supply and even, in some circumstances, to share market information. The Act also provides for extraterritorial application. Simply stated, the Act’s criminal and civil penalties will apply to any agreement undertaken outside of the United States so long as the agreement is intended to and does directly impact trade and commerce in the United States. So if two companies manufacturing products in China agree to set prices to their U.S. based customers, a U.S. Court will have jurisdiction over criminal and civil lawsuits against the two companies, even if they have never set foot within the U.S.
The result of this broad reach is that the DOJ and private civil plaintiffs have initiated scores of cartel cases over the last decade. Just last year, the DOJ initiated 60 new criminal cartel cases and imposed over $555 million dollars in criminal fines for illegal conduct under the Sherman Act. Average prison sentences rose to 30 months, with sentences against foreign executives averaging around 10 months. Even more civil actions were initiated last year, in part due to the fact that civil liability under the Sherman Act arises for a much broader array of agreements than does criminal liability. For example, an effort to allocate market share as between a parent and a non-wholly owned subsidiary has often arisen as a basis for civil suites under the Sherman Act.
The DOJ’s ability to discover and prosecute anticompetitive conduct overseas stems largely from the establishment of its Leniency program. Under the program, a company involved in an international cartel can obtain amnesty from U.S. criminal prosecution if it is the first to report the cartel to the DOJ. This program has often prompted a race to cooperate among co-conspirators in Asia and Europe and has generated a torrent of new civil and criminal prosecutions over the last decade and a half.
This pressure to cooperate is compounded by the DOJ’s use of Interpol. When the DOJ charges a foreign national who is unwilling to come to the U.S. to face charges, the DOJ will pass the individuals name to Interpol. When the individual then attempts to cross into any of the 140-plus Interpol member states, he or she can face the possibility of detention, pending extradition. Once in the United States, the specter of a thousand and one nights in prison becomes a very real possibility.
Collette Erickson has represented numerous individuals and companies in criminal and civil cartel cases brought in the United States and in other jurisdictions. Our antitrust practice is headed by William Farmer, a former DOJ prosecutor and a former Assistant Chief of the DOJ’s Antitrust Division, San Francisco Office.