Kapoor and Rosenthal -- US criminal antitrust implicating Japanese at alarming rate
Recently, the U.S. Department of Justice Antitrust Division announced that its long-running prosecution of autoparts companies for price fixing was far from over, and that what remains under investigation would by itself be "one of the largest investigations" in the Antitrust Division's history. That is despite the prosecution already having resulted in over $2.6 billion in fines and dozens of jail sentences.
No other country in the world jails anywhere near as many people for competition-law violations as does the U.S. New analysis shows that, in recent years, it is mostly Japanese nationals who have felt the wrath of U.S. antitrust law. We wonder about this trend and consider what can be done by Japanese businesses to reduce it.
Jail and time trending up
A review of DOJ Antitrust Division press releases suggests that perhaps as many as 80% of those jailed for price fixing or bid rigging in the last five years were not U.S. nationals. Approximately 75% of those foreigners were Japanese, representing approximately 60% of all individuals jailed for price fixing in the U.S. in the last five years, and over 30 Japanese nationals in total. There were also five Taiwanese and four South Korean nationals imprisoned.
Prior to 1999, no foreign nationals were jailed in the U.S. for participation in an international cartel. From July 1999 to September 2011, a total of 47 non-U.S. citizens were jailed, but this was still less than a third of the Americans jailed. In the last five years, the percentage of foreigners jailed in the U.S. for antitrust violations has more than doubled, and Japanese nationals particularly seem to have become targets.
The global autoparts cartel did involve many Japanese autoparts suppliers and accounts for many of these jail sentences. But the cartel also included U.S. and European suppliers. Also, no members of a major U.S. and European financial services cartel -- who actually called themselves "The Cartel" in electronic chat rooms -- have yet been imprisoned despite corporate fines having been imposed in May 2015.
Jail sentences are also getting longer. DOJ statistics indicate that the average jail sentence for price fixing has increased, from 8 months in the 1990s to 20 months in the 2000s and now 25 months over the last five years. In December 2013, the longest sentence to date was imposed: 60 months for the former president of a shipping line -- unusually, in this case, an American.
Moreover, since 2004 the maximum sentence for criminal price fixing has been 10 years. So sentences may yet grow even longer under existing law, and there is discussion of new legislation for increasing jail sentences still further.
Are the punishments apt?
New academic research published in 2015 shows that members of the public do not think price fixing should be criminalized, even in the U.S. and Europe. Only 36% of survey respondents in the U.S., and 29% in the U.K., thought jail sentences should ever be imposed for price fixing by competitors. Attitudes elsewhere in Europe were similar, with only 28% of Germans and 26% of Italians supporting imprisonment. In the U.K., a jury recently refused to convict two executives who admitted to price fixing because the jurors did not think the executives had acted dishonestly.
Notwithstanding data suggesting that the majority of the American public does not believe that price fixing should be a criminal offense, and notwithstanding that non-U.S. jurisdictions have rarely imprisoned anyone for price fixing, individual U.S. jail sentences have been increasing in number and length. In addition, jail sentences are imposed along with federal criminal fines on businesses amounting to tens or hundreds of millions of dollars, and hundreds of thousands on individuals. The fine for price fixing will usually be at least twice the company's gross gain from the price fixing. The same conduct may also give rise to U.S. state punishments and fines in many other countries. Fines and jail sentences can be imposed even if an attempted cartel was wholly unsuccessful and caused no actual loss.
Furthermore, there will be U.S. class-action lawsuits for three times actual damages, plus attorneys' fees. Even those who have already paid government fines are potentially liable for triple the damages caused by the entire alleged cartel -- not just the damages caused by that defendant. Other jurisdictions, notably the U.K., are increasingly permitting private actions.
Businesspeople might quite reasonably think that multiyear jail sentences on top of quintuple monetary penalties and damages represent punishments that do not fit the crime. The public in America and Europe appears to agree, at least with respect to jail time.
Japanese businesspeople have also received harsher treatment compared to other perpetrators of similar or worse misconduct, starkly illustrated by recent events in the international auto industry. Contrast, for example, how prosecutors have responded to various autoparts cartels, with what has happened in relation to General Motors' faulty ignition switches.
For autoparts cartels, the DOJ antitrust investigations have so far resulted in 29 jail sentences for various executives, mostly Japanese. There have also been many corporate and individual fines and civil actions. The only harm to the public -- if any -- was financial.
In the case of GM's scandal, the automaker's faulty ignition switches resulted in at least 107 deaths and 199 injuries. GM apparently knew of the fault for over a decade and failed to disclose it. No one from GM has yet been criminally prosecuted for fraud, misrepresentation or gross negligence, even though such conduct can rise to the criminal level in the U.S. Furthermore, the GM bankruptcy court has held that the U.S. government's $50 billion bailout of GM extinguished many pre-bailout civil claims against the new GM.
The overriding impression is that antitrust infringements are being prosecuted far more harshly in the U.S. than other, more serious, examples of business misconduct. This, in turn, is disproportionately affecting non-U.S. citizens -- and Japanese businesspeople in particular.
There is also unfairness in the current U.S. system that blocks civil claims in U.S. courts by many foreign victims of international cartels, while simultaneously allowing U.S. enforcers to punish foreign antitrust misconduct that may have only the most tenuous connection with the U.S. Non-U.S. businesses are subject to serious criminal and economic punishment under U.S. antitrust law if they breach it, but cannot obtain that law's benefits if they suffer anti-competitive harm.
Redressing the balance
In the interests of international comity, U.S. prosecutors should pull back from such aggressive international criminal enforcement. Many non-U.S. jurisdictions now have their own antitrust regimes, including of course Japan, that are attuned to those jurisdictions' economies and business customs. So there is now less justification for aggressive intervention by U.S. authorities. It also restricts other nations' ability to seek fairness for their own citizens through diplomacy.
Japanese companies should make the imbalance in U.S. antitrust enforcement a policy issue in trade discussions between the Japanese and U.S. governments. The situation risks distorting cross-border trade if the U.S. routinely subjects Japanese businesspeople to harsh punishments for actions that may not even have much effect on U.S. citizens, especially when neither the Japanese nor overseas enforcers are taking similarly tough action against U.S. businesses.
The imbalance in U.S. criminal antitrust enforcement also will tend to undermine the public's perception of its fairness -- a public that already questions whether violations of antitrust law should be criminal offenses. Business leaders and government officials should begin to encourage multinational discussion and debate about the fairness of present criminal antitrust enforcement in the United States. The existing inequities within and between nations should be better reported and addressed. That will build public confidence in antitrust enforcement and, by doing so, make it more effective.
Ankur Kapoor and Douglas E. Rosenthal are lawyers with New York-based Constantine Cannon LLP. Lawyers Richard Pike and James Ashe-Taylor of Constantine Cannon and Yoshitaka Kato of Anderson, Mori & Tomotsune also contributed to this commentary.