National | ANALYSIS

Fines, snitching fuel U.S. antitrust blitz against Japan firms

Culprits incentivized to inform on each other, so probe may drag on

by Jody Godoy

Kyodo

Since 2011, the U.S. Department of Justice has charged two dozen Japanese auto parts companies and 32 of their employees with rigging bids or fixing the prices for their products in what it calls its largest such investigation to date.

The onslaught continued in April with charges against four executives at Tokyo-based Bridgestone Corp. The DOJ says it is not limiting its investigation to Japan, but only two non-Japanese companies and one of their employees have been charged so far.

Many of the cartels were formed in Japan and largely affected Japanese automakers, yet Attorney General Eric Holder said they “targeted U.S. manufacturing, U.S. businesses and U.S. consumers.”

Driven by incentives for companies to snitch on each other, the investigation could be only halfway through.

Most of the individuals charged have agreed to plead guilty and serve from several months to two years in federal prison. And 26 companies have agreed to over ¥230 billion in fines.

Beyond those already charged, the DOJ has listed 49 more employees at Japanese auto parts makers as subject to charges, including some at Mitsubishi Electric Corp. and Mitsuba Corp. who allegedly destroyed evidence on learning of the U.S. probe.

The Japan Fair Trade Commission has also conducted an investigation and issued cease and desist orders and administrative fines against some of the companies.

Japanese, European and U.S. authorities have been investigating since 2010 when carmakers complained to European competition officials about the lack of attractive bids for a particular car part, according to filings in a civil suit.

One reason the DOJ has netted so many Japanese companies is that once caught, the offender can receive leniency for revealing other conspiracies.

This has created a “domino effect,” said Stuart M. Chemtob, a 33-year veteran of the Department of Justice’s Antitrust Division. Chemtob now works in private practice and currently represents several Japanese companies and individuals in an ongoing antitrust investigation.

The leniency policy, known as “amnesty plus,” was first announced in 1999, around the same time the DOJ started to intensify its focus on international cartels.

But the effects on Japanese companies have been somewhat limited until recently. Since 2011, the DOJ has filed over 60 antitrust cases against Japanese companies and their employees, compared to only around 40 cases in the prior 16 years combined.

This has come up in court. In one case, a lawyer asked the judge to note during sentencing that when his client was involved in the deals from 2005-2011, “the seriousness with which the United States treats its antitrust laws” “was not as well-known as it should have been” in Japan.

To which the judge replied, “Does the phrase ‘ignorance of the law is no defense’ not apply to noncitizens or what?” In other words, they should have seen it coming.

There are various reasons why so many Japanese car parts makers didn’t. One explanation is a lack of company programs to review practices and educate employees on regulations.

“There have not been very robust antitrust compliance programs adopted by Japanese companies in the past, particularly the smaller companies which are not involved in much international trade,” Chemtob said.

The companies that faced charges expressed remorse. A representative of Yamashita Rubber Corp. said in the company’s sentencing hearing that it takes the matter “very seriously” and has implemented a “vigorous compliance program,” including manuals for all staff, periodic antitrust training for sales staff and managers, and internal audits.

Another factor is the mutual shareholding culture of keiretsu in Japan. Companies have been driven to use cheaper suppliers outside their network, though some Japanese car manufacturers still maintain informal preferential relationships with certain suppliers.

This contributes to carmakers being tolerant of price-fixing. The Wall Street Journal quoted an anonymous executive at a major Japanese carmaker as saying about the practices in 2013: “We don’t feel victimized. . . . Different suppliers work hand in hand and divide up large lot orders in a way that assures a steady flow of parts.”

In the 1990s when the U.S. Federal Trade Commission first looked into whether keiretsu relationships themselves were anti-competitive, it found no evidence they were.

But antitrust experts at the time also noted that gathering evidence in a foreign jurisdiction was difficult and many of the arrangements in question were informal and therefore hard to prosecute.

Some companies relied on these difficulties to cover their tracks. Managers at Mitsubishi Electric involved in price-fixing used code words and continued colluding with competitors even after a company directive to follow antitrust regulations in 2007, according to court documents.

But price-fixing has become riskier. Plea deals for auto parts companies have generally obligated them not only to cooperate in the original and other investigations, but to provide English translations of damning documents.

The DOJ now seeks stiffer penalties. One violator got a sentence of five years in 2013, the longest ever on antitrust charges. In April, the DOJ extradited a foreign national on antitrust charges for the first time.

In addition, “the DOJ is being more and more aggressive in how they are defining the appropriate extraterritorial reach of their laws,” Chemtob said.

Under U.S. law, the DOJ can prosecute anti-competitive deals made on products — like auto parts — that are not directly imported to the U.S. if the effects on U.S. commerce are “direct, substantial, and reasonably foreseeable.”

The DOJ argues that price-fixing on car parts like wheel bearings or rubber engine mounts, which make up a small fraction of the car’s final price, substantially hurt U.S. consumers.

And instead of calculating fines as a percentage of profit from U.S. sales as they usually would, the DOJ has found ways to “bump up” the fines, Chemtob said.

“I think there are some real questions about how appropriate and fair that is, particularly depending on how significant the component is to the whole product,” said Chemtob.

But the industry has not seen the last of the DOJ. In September, Joaquin Almunia, vice president of the European Commission responsible for competition policy, stated that over 100 parts and 70 companies are involved in the European investigation. If the U.S. probe goes as far, the number of companies charged could double.