On 4 April 2014, the Antitrust Division of the US Department of Justice (DOJ) announced that it had extradited an Italian national to the United States from Germany on a charge of participating in a criminal bid rigging, price fixing, and market allocation cartel involving marine hose. This marks the first time the DOJ has successfully obtained extradition on an antitrust charge.
The Marine Hose Investigation Extended to Parties Outside the U.S.
The defendant, an Italian national who was initially arrested in Germany in June 2013, is a former executive of a manufacturer of marine hose. Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities.
According to the DOJ, the defendant participated in a cartel to rig bids, fix prices, and allocate customers in the marine hose market. To effect the cartel, the conspirators (including the defendant) allegedly met with each other and allocated shares of the marine hose market amongst themselves. The conspirators allegedly then used a price list for marine hose to implement the cartel and agreed not to compete for each others’ customers either “by not submitting prices or bids or by submitting intentionally high prices or bids” in accordance with their agreement. Furthermore, the DOJ alleged that the conspirators engaged a third party to act as a coordinator of the cartel and “clearinghouse” for bidding information, who would then share that information amongst the conspirators. The defendant is charged with joining and participating in the conspiracy from at least as early as 1999 until at least November 2006.
These charges are part of the DOJ’s ongoing marine hose cartel investigation, which so far has resulted in five companies and nine individuals pleading guilty. According to the DOJ, the marine hose cartel “affected prices for hundreds of millions of dollars in sales of marine hose and related products worldwide.” Notably, this is the DOJ’s first publicly-announced activity in this investigation in over five years.
Implications for Companies
- As a general matter, it is clear from the ongoing auto parts investigations that the DOJ will continue to vigorously prosecute criminal cartel activity that affects United States commerce, even where the conduct at issue occurred outside or the individual is outside the United States.
- The DOJ’s pursuit of extradition reinforces its view that prosecuting individuals for their cartel activity is an important means of punishment and deterrence of future cartel activity. While eye-popping corporate fines grab the headlines, there is a belief that individual fines and jail time are the most effective means of deterring individuals from engaging in cartels. For example, the UK has recently changed its legislation with respect to the ‘criminal cartel offence’ with the express purpose of increasing the number of criminal prosecutions against individuals. Now, the increased threat of extradition should serve as an additional deterrent for those who are considering engaging in cartel activity outside of the United States.
- Following the United States’ lead, countries are increasingly adopting criminal antitrust penalties, which include jail sentences for individuals who participate in cartels. In Germany, bid rigging is a crime which is punishable with a prison sentence of up to 5 years. Other antitrust law violations, such as price fixing, however, can only be sentenced with administrative fines. Generally, extraditions are not allowed unless there is “double criminality”—i.e., where the conduct is considered a crime in both jurisdictions. Many other countries within the European Union have criminalized antitrust infringements. For example, in the UK, individuals guilty of the criminal cartel offence can face up to five years in prison, unlimited fines and be disqualified as directors for up to fifteen years. In Ireland, individuals who enter into cartels can be jailed for up to ten years, and in Denmark people can be imprisoned for up to eighteen months for participating in serious cartel infringements. As the criminalization of antitrust violations becomes more prevalent and accepted around the world (see map at the end of this Alert showing which countries have criminal sanctions for antitrust violations), it becomes more likely that countries will agree to extradite individuals to the United States for antitrust violations (and vice versa).
- This announcement serves as a reminder that the DOJ continues to seek extradition where it deems it appropriate. In fact, for years the DOJ has sought to place indicted individuals on Interpol’s “Red Notice” list, which authorizes Interpol’s 190 member countries to make an arrest if the individual crosses their borders. In addition, the DOJ has successfully extradited a British national from the UK on obstruction of justice charges (after failing to obtain extradition on the antitrust charges), is nearing the successful extradition of a Canadian national, and has pursued the extradition of others in the past, including a Japanese executive who was arrested after trying to enter India and a US executive who fled to Spain.
- It is important to note that the individual in this case was not a German national. Due to a special guarantee in the German constitution, German citizens cannot be extradited to countries outside the European Union without the individual’s express consent - but this guarantee does not extend to Italian nationals in Germany. There have been discussions about whether this German practice discriminates against citizens of EU member states but this issue had not been addressed until now. In this case, the individual petitioned the Higher Regional Court of Frankfurt/Main to stop the extradition, which the court refused to do. The individual then applied to the German Federal Constitutional Court, which denied that the extradition would be discriminatory and allowed it to proceed. The individual has turned to the European Court of Human Rights for help, claiming that Germany has infringed his basic freedoms: discriminatory treatment on the basis of nationality, and the right to move freely between countries and provide business services. However, a ruling from the European Court could take several years. The individual has made a complaint to the European Commission alleging such discrimination but, according to press reports, the European Commission is of the view that Germany did not break the EU discrimination rules because the individual was not providing services in Germany and was merely passing though in transit. The European Commission is still examining the complaint.
- On 24 April 2014, the extradited individual pled guilty and was sentenced to pay a $50,000 fine and serve 24 months in prison. The individual is expected to request to serve his prison sentence in Italy under the DOJ’s International Prisoner Transfer Program, where federal prisoners can serve their sentences in their home country. Although slightly different, the US has been receptive to similar arrangements – three British executives involved in the marine hose cartel pled guilty both in the US and UK and were permitted to return to the UK to serve their prison sentences.
- In the auto parts investigations alone, at least 22 foreign nationals from countries that would not have extradited them to the United States have nevertheless voluntarily surrendered to serve prison sentences in the United States. The thinking in general is that it is better to “get it over with” than worry about not being able to travel to the United States, where they would certainly be arrested, or to third countries which have an extradition treaty with the US for fear of being arrested and extradited to the US.
- Lastly, individuals who are extradited and convicted can be barred from traveling to the United States for 15 years after serving jail time following a successful US prosecution in the United States. However, under a Memorandum of Understanding between the DOJ and the Immigration and Naturalization Service (“INS”), foreign nationals can obtain assurances that they will be allowed to continue traveling to the United States after serving their sentence in exchange for a guilty plea—an important inducement for business executives who want to continue traveling to the United States following jail time.
This announcement serves as an important reminder that companies and individuals that engage in commerce with the United States—even if they are located outside of the United States—can be subject to its antitrust laws and punished in the United States. Although this development is not likely to lead to a flood of extraditions in the near future, companies and individuals should be on notice that the DOJ may attempt to seek extradition where it deems this appropriate. And with the growing acceptance of criminal antitrust fines and jail sentences around the world, the likelihood of extradition appears to be increasing.
The map below shows countries with criminal sanctions for antitrust violations.
Click here to view map.