Law360, New York (June 04, 2014, 10:25 AM ET) -- In what the Antitrust Division of the U.S. Department of Justice recently announced as the “first of its kind extradition on an antitrust charge,” Romano Pisciotti, an Italian national who was allegedly at the center of the global conspiracy to fix prices in the marine hose market, was taken into custody upon his arrival in Miami from Germany. It is not clear if this victory for the division is an outlier or the beginning of a trend, but it has caught the attention of the antitrust defense bar. Pisciotti’s arrest raises the question of what a more aggressive approach toward extradition for criminal antitrust offenses would mean for international companies and their non-U.S. executives caught in the crosshairs of a criminal antitrust investigation in the United States.
Background: The Marine Hose Investigation
Marine hose is a flexible rubber hose used to transfer oil between tankers and oil storage facilities. The investigation into price-fixing in the marine hose market started sometime around 2006, after one participant, Yokohama Rubber, applied to the division for amnesty. According to the various informations and indictments filed in connection with the investigation, the companies involved engaged in a global conspiracy to allocate portions of the marine hose market among themselves using a price list, and agreed not to compete for business by either not submitting bids or submitting intentionally high bids for orders allocated to other companies. The DOJ alleges that the conspiracy lasted from 1986 through 2007.
To date, five companies have pleaded guilty for their involvement in the conspiracy, including Parker ITR SRL of Italy, Bridgestone Corporation of Japan, Manuli SPa of Italy, Trelleborg of France, and Dunlop Marine and Oil Ltd. of the United Kingdom. In addition to these five companies, nine individuals have pleaded guilty for their involvement in the conspiracy. Three individuals declined to plead guilty and were publicly indicted. Two of the three (two Manuli sales managers), proceeded to trial and were acquitted by a jury in the U.S. District Court for the Southern District of Florida. The third indicted individual, Uwe Bangert, a former executive of Dunlop Marine & Oil, remains at large as a fugitive.
In addition to the three indictments mentioned above, Pisciotti, a former executive with Parker ITR SRl, was indicted under seal in August 2010. Pisciotti is charged with violating the Sherman Act and could be sentenced to a maximum of 10 years in prison and $1 million in fines, or up to twice the amount gained by the conspirators or lost by the victims as result of the conspiracy. The DOJ alleges that as the head of Parker ITR’s marine hose division from 1985 through 2006 Pisciotti coordinated with other marine hose companies to allocate bids and share information about bidding opportunities.
Having avoided U.S. jurisdiction since his indictment, Pisciotti was arrested in June 2013 in Germany, during a layover at the Frankfurt airport while returning to Italy from Nigeria. Because Germany also has individual criminal liability for cartel violations, and because Pisciotti was not a German citizen, the German government agreed to extradite Pisciotti to the United States pursuant to its 1978 extradition treaty with the United States. After months of fighting his extradition to the United States in German courts, Pisciotti was flown from Frankfurt to Miami and appeared in court in the U.S. District Court for the Southern District of Florida on April 4.
Two weeks after his initial appearance in Miami, Pisciotti pleaded guilty to one count of conspiracy and sentenced to two years of imprisonment (with credit for the nine months he was held in German custody pending resolution of his extradition challenge). He also received a criminal fine of $50,000.
Pisciotti’s extradition was the first by the division for a criminal violation of the Sherman Act, but it is not the first time the division obtained extradition of a foreign national to face criminal charges arising from one of its investigations. In March 2010, the division won extradition of Ian Norris after a seven-year battle at all levels of the British judiciary. Norris, a retired Morgan Crucible executive residing in the United Kingdom, was wanted in connection with the division’s investigation of price-fixing in the carbon products industry.
However, the ultimate basis for Norris’ extradition was two counts of obstructing justice (one for tampering with witnesses and the other for destroying documents). The division had been unable to extradite Norris for criminal violations of the Sherman Act because, like most others, the extradition treaty between the United States and the United Kingdom requires that the subject offense for which extradition is being sought is also a crime in the United Kingdom (i.e., the “dual criminality” principle). At the time of Norris’s alleged cartel-related conduct, the United Kingdom had not yet enacted Section 188 of the Enterprise Act of 2002, which criminalized price-fixing under U.K. law. Norris ultimately was convicted by a jury in Philadelphia and sentenced to 18 months in prison.
What Pisciotti’s Extradition Means (and Doesn’t Mean)
While Pisciotti may not have been the first foreign national successfully extradited to face criminal charges brought by the division, his extradition for an antitrust offense is certainly a milestone in the division’s historical efforts to hold foreign nationals accountable for criminal violations of U.S. antitrust law. Pisciotti’s extradition comes in the wake of recent messages from the division that it intends to tighten enforcement in this area. For example, the division touted in its 2014 spring update, released last February, that it “remains committed to ensuring that culpable foreign nationals, just like US co-conspirators, serve prison sentences for violating the US antitrust laws and to using all appropriate tools to find and arrest or extradite international fugitives.”
Similarly, Scott Hammond, then-deputy assistant attorney general of the division’s criminal enforcement program, stated in connection with the indictment of two Japanese nationals arising from the auto parts investigation: “The Antitrust Division is working with competition enforcers abroad to ensure that there are no safe harbors for executives who engage in international cartel crimes.”
With the recent indictment of three Japanese executives from Bridgestone alleging bid-rigging in the anti-vibration auto parts market, and another from Tokai Rika alleging bid-rigging in connection with the automobile heater control panel market, one must assume that the division will be stepping up its efforts to extradite individuals from Japan in particular, a country that criminalized certain forms of cartel conduct in 2006, and increased the maximum penalty for criminal antitrust violations to five years in 2009.
However, it is also important to highlight the unique circumstances underlying the Pisciotti indictment. Pisciotti was not extradited from Italy and could not have been, since Italy is among the majority of countries that do not treat bid-rigging as a crime. Moreover, Germany granted the United States’ extradition request only because the subject was not a German citizen, as the German Constitution generally forbids the extradition of its own nationals to any country outside Europe, where the European Convention on Human Rights applies.
Yet the antitrust defense bar cannot ignore the division’s decision to expend the significant resources necessary to extradite Pisciotti. To the extent that the Pisciotti extradition marks the beginning of a new, more aggressive approach by the division, there are a number of potential implications companies that individuals and their counsel should consider as they interact with the division.
Heightened Risk of Non-U.S. International Travel
Foreign nationals who forego negotiating a guilty plea and who are subsequently indicted (or might be indicted under seal) may no longer rest easy simply by avoiding entry into the United States. Even if their resident countries do not establish dual criminality, Pisciotti’s extradition demonstrates that the division is moving beyond “border watch” lists, which monitor individuals’ entry into and exit from the United States, to using Interpol “Red Notices” to secure the extradition of foreign nationals who may not be subject to extradition from their home country when they travel to another country that does permit it.
Sales executives operating in international markets who find themselves, as many do, traveling to different countries for customer visits and other business reasons may do so at significantly more peril than before. This is particularly the case if the visiting country, like Germany, offers less protection from extradition to foreign visitors than to its own citizens. And Pisciotti’s case demonstrates that even transiting such a country can be risky.
More Cooperation From Foreign Nationals
Foreign nationals at risk of prosecution for antitrust crimes often opt not to cooperate and remain in their country of residence indefinitely, under the assumption that extradition is extremely unlikely. A new mindset at the Antitrust Division will make avoiding U.S. jurisdiction a less viable option and ultimately incentivize such individuals to cooperate in US investigations. Indeed, we could see not only more frequent cooperation, but also a greater degree of cooperation, including the staging of telephone calls and the wearing of recording devices during discussions with co-conspirators (where permitted by local law), as the Antitrust Division begins to follow other law enforcement agencies in using more sophisticated means of gathering evidence.
Less Leverage in Plea Negotiations
Counsel for foreign nationals have historically enjoyed significant leverage in securing for their clients relatively generous plea deals involving no or at least short terms of imprisonment in exchange for relinquishing their “fugitive” status and submitting to U.S. jurisdiction. If the Pisciotti extradition serves to embolden the division to seek extradition more often and more aggressively in the future, this bargaining chip could decrease significantly in value. Moreover, in an enforcement environment in which foreign nationals have a significant risk of extradition and prosecution, prosecutors can more credibly incentivize clients to consent to extradition with a downward adjustment under FSG 3E1.1 (Acceptance of Responsibility), and possibly even penalize noncooperation with an upward adjustment under FSG 3C1.1 (Obstructing or Impeding the Administration of Justice), as a threat against avoiding arrest or arraignment by remaining out of U.S. jurisdiction.
Part and parcel of all plea negotiations between a cooperating company and the division is the issue of how many individuals will be excluded, or “carved out” from the release set forth in the company’s plea agreement. Although the identity and number of carveouts are (at least in principle), a function of the merits as to each individual (e.g., the nature of the individual’s conduct, level of supervisory authority, etc.), how many carveouts (and, in turn, which individuals are carved-out) in the plea agreement is inevitably subject to at least some degree of negotiation.
To the extent that some companies have made “carving in” their foreign executives less of a priority on the theory that the foreign nationals could protect themselves by avoiding U.S. jursidiction, a more aggressive approach toward extradition by the division could very well call that strategy into question.
Only time will tell whether the Pisciotti extradition does signal a more determined approach toward extradition by the Antitrust Division, or whether it is much ado about nothing. The division’s more recent indictments arising out of the auto parts investigation may reveal the extent of the division’s appetite for more extraditions, particularly of individuals residing in Japan.
In the meantime, international companies and their executives residing abroad (and their counsel), would do well to assume, out of an abundance of caution and until future developments prove otherwise, that extradition of foreign nationals to face enforcement of federal antitrust laws is becoming a top priority of the Antitrust Division, and to consider carefully the potential impact the aggressive use of extradition could have on defense strategy during a criminal antitrust investigation.