Criminal Enforcement of State and Federal Antitrust Laws
| Jurisdiction | United States,Federal |
| Citation | Vol. 43 No. 10 Pg. 59 |
| Pages | 59 |
| Publication year | 2014 |
Articles
Criminal Enforcement of State and Federal Antitrust Laws
By Kathleen Alt, Mary Sue Greenleaf
About the Authors
Kathleen T. Alt is a partner at Berg Hill Greenleaf & Ruscitti LLP (BHGR)—kta@bhgrlaw.com. She thanks Mary Sue Greenleaf, recent graduate of University of Colorado School of Law and associate at BHGR, for her significant research and writing assistance in the preparation of this article.
Although many businesses and individuals may be aware of the civil implications of engaging in anticompetitive conduct, they may not be aware that violation of state and federal antitrust laws creates the potential for criminal liability. This article provides an overview of the statutory framework and discusses the trends and priorities of the federal and state agencies that prosecute these cases.
The Antitrust Division of the U.S. Department of Justice (DOJ) has articulated time and again that " [h]olding culpable individuals accountable is the most effective way to deter and punish cartel activity."[1] Although state and federal antitrust laws provide for civil suits as an enforcement mechanism for individuals and agencies, antitrust violations also constitute economic crimes that can subject corporations and individuals to harsh criminal penalties, such as fines or imprisonment. While many businesses and individuals may be aware of the civil implications of engaging in anticompetitive conduct, they may not be aware of the potential for criminal liability and the trends and priorities of the federal and state agencies that prosecute these cases.
Background and Introduction to Criminal Penalties
For companies and individuals choosing to do business in Colorado, both the Colorado Antitrust Act of 1992 and the federal Sherman Act are vehicles by which federal and state agencies may choose to prosecute those engaged in anticompetitive conduct. Federal and state penalties are discussed below.
Federal Penalties
Anticompetitive conduct is illegal under state and federal law and can be enforced criminally by the Colorado Attorney General and the DOJ Antitrust Division. Federal enforcement authority is shared by the Antitrust Division with the Federal Trade Commission (FTC), but "the FTC has civil enforcement powers only."[2] Therefore, the Antitrust Division is the sole agency tasked with criminal enforcement of federal antitrust law.
Under federal law, anticompetitive conduct is prohibited by three main statutes. The Sherman Act criminalizes various forms of anticompetitive conduct by outlawing unreasonable restraints of trade. Section 1 of the Sherman Act is the primary mechanism for federal criminal enforcement,[3] and makes illegal any agreement that unreasonably hinders or restrains competition, such as price fixing, bid rigging, or market allocation.[4] These activities are considered to be per se illegal by the Antitrust Division because
they have been found to be unambiguously harmful . . . [by] defraud[ing] consumers and unquestionably rais[ing] prices or restricting] output without creating any plausible offsetting benefit to consumers, unlike other business conduct that may be the subject of civil lawsuits by the federal government.[5]
Section 2 of the Sherman Act also criminalizes monopolies or attempts to monopolize.[6] However, most Section 2 violations are not prosecuted criminally unless they involve violence or threats of violence.[7]
Violations of Section 1 and Section 2 of the Sherman Act are prosecuted as felonies and may subject individuals to fines of up to $1 million, a maximum jail term of ten years, or both.[8] Corporations can be held criminally liable and may be punished by fines of up to $100 million.[9] These harsh criminal sanctions may be imposed on corporations even if the conduct of their employees that constitutes the violation is done without approval or contrary to the instructions of senior management personnel.[10]
To prosecute a criminal offense of the Sherman Act, the Antitrust Division must prove only the existence of concerted action to fix prices, rig bids, allocate markets, or otherwise restrain trade, which can be established through direct or circumstantial evidence.[11] The Clayton Act and the FTC Act are enforced by the Antitrust Division and the FTC, but both are primarily civil statutes that do not carry criminal penalties.[12]
Although there are criminal penalties for violations expressly laid out in Sections 1 and 2 of the Sherman Act, individuals or corporations convicted of antitrust violations may be subject to significantly harsher sanctions under the federal Criminal Fine Enforcement Act. The statute provides that individuals or corporations convicted of a crime, such as an antitrust violation, may be fined the greater of: (1) the amount specified in the statute creating the offense—here $1 million for individuals and $100 million for corporations under Sections 1 and 2 of the Sherman Act; or (2) twice the gross amount gained by the individual or corporation from the violation, or twice the gross amount of the loss suffered by the victims.[13] Therefore, individual companies have been forced to pay criminal fines of up to $500 million for Sherman Act violations in the past several years.[14]
In addition to the specific criminal penalties prescribed for antitrust violations, anticompetitive conduct may result in various other criminal charges and penalties under federal law. Offenses that often arise from conduct that otherwise violates the Sherman Act include conspiracy,[15] mail fraud or wire fraud,[16] Racketeer Influenced and Corrupt Organizations Act (RICO) violations,[17] or money laundering.[18] The Antitrust Division frequently includes these types of charges in conjunction with antitrust violations, especially "when prosecution under the antitrust laws is problematic."[19] Because anticompetitive conduct that may invoke the provisions of federal antitrust laws may constitute violations of various other criminal statutes, as well, "defense counsel need to be particularly schooled in the scope of traditional criminal statutes and aware that they provide powerful prosecution tools for antitrust enforcement."[20]
State Penalties
Since the early 1900s, anticompetitive conduct has been prohibited and criminalized under Colorado law.[21] Until 1984, a violation of Colorado's antitrust statutes constituted only a misdemeanor under state law.[22] The wide disparity between the criminal penalties available for federal antitrust violations[23] and those available under Colorado law led to a significant ratcheting up of Colorado's criminal antitrust provisions.[24] Under the 1984 amendments to Colorado's antitrust laws, violations constituted felonies punishable by fines of up to $1 million for corporations and $100,000 for individuals and/or two to four years of imprisonment, which at the time were "arguably . . . the most severe antitrust penalties in the nation."[25]
In 1992, the Colorado General Assembly again undertook a significant revamping of the state's antitrust provisions and enacted the Colorado Antitrust Act of 1992, which is the current antitrust statute in the state of Colorado. This statute, which is similar to the federal Sherman and Clayton Acts, makes the following illegal:
1. any contract, combination, or conspiracy that unreasonably restrains trade;[26]
2. any actual or attempted monopolization or combination or conspiracy to monopolize;[27] and
3. any contract, combination, or conspiracy with any person to rig any bid, or any aspect of the bidding process related to the provision of a commodity or service.[28]
A violation of any of these provisions constitutes a class 5 felony if committed by a natural person and an unclassified felony if committed by any person other than a natural person.[29]
A natural person found guilty of violating the Colorado Antitrust Act may face a fine of $1,000 to $100,000, in addition to or in lieu of a sentence of one to three years' imprisonment with a two-year mandatory period of parole.[30] In imposing a criminal sentence under this presumptive range, the court looks at additional factors such as "the nature and elements of the offense, the character and record of the offender, and all aggravating or mitigating circumstances surrounding the offense and the offender."[31] A corporation, or any person other than a natural person, can face criminal penalties for violations of the Colorado Antitrust Act of 1992. Specifically, the antitrust provisions state that any person other than a natural person found guilty of violating the Colorado Antitrust Act "is guilty of a felony and . . . shall be punished by a fine of not more than one million dollars."[32]
In addition to the Colorado-specific criminal penalties for antitrust violations, anticompetitive conduct may give rise to other criminal charges under state law, similar to those pursued by the Antitrust Division under federal law. For example, Colorado, like the federal government, has criminal statutes prohibiting electronic mail fraud,[33] money laundering,[34] racketeering,[35] and conspiracy.[36]
Federal and State Enforcement Trends
Both federal and state agencies are actively involved in investigating and prosecuting anticompetitive conduct under the statutory framework discussed above. The following section discusses some recent trends and statistics on cases filed, fines imposed, prison sentences, and settlements reached at both the federal and state level.
Federal Enforcement Trends
Criminal enforcement of the federal antitrust laws is led by the DOJ Antitrust Division. While many federal enforcement actions are civil, criminal prosecutions may be pursued, especially when dealing with "intentional and clear violations," such...
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