The U.S. Department of Justice (“DOJ”) ended 2020 and started 2021 off with its own fireworks, announcing two significant resolutions in two weeks involving procurement crimes and government contractors. First, on December 21, 2020, DOJ announced that Schneider Electric Buildings Americas Inc. (“Schneider Electric”) would pay $11 million to resolve criminal and civil matters arising out of overcharges and kickbacks on eight federal energy savings performance contracts across the country. DOJ’s second announcement came on January 4, 2020, after it obtained a $20 million criminal penalty from Argos USA LLC (“Argos”), a ready-mix concrete supplier, for fixing prices and rigging construction bids on commercial and government projects in southern Georgia.
After a four-year investigation involving the United States Attorney’s Office for the District of Vermont, the DOJ Civil Division Fraud Section, the Naval Criminal Investigative Service, and the Offices of Inspector General for the VA, USDA, and GSA, Schneider Electric admitted that it defrauded the United States by hiding and charging for approximately $1.7 million in costs not allowable under the terms of its government contracts. In addition, it admitted that one of its employees (who pleaded guilty to bribery and kickback charges) collected over $2.5 million in kickbacks and bribes from subcontractors. Schneider Electric entered into a non-prosecution agreement that required it to cooperate with the US Attorney’s office, continue to implement a compliance and ethics program, and to pay $1.63 million in criminal forfeiture. In addition, Schneider Electric entered into a civil settlement agreement that resolved Anti-Kickback Statute and False Claims Act liability and provided for a payment of $9.369 million.
Argos was charged with one felony count as a result of a still-ongoing investigation—conducted by DOJ, the Department of Transpiration, and the United States Postal Service—into antitrust violations in the ready-mix concrete industry. The criminal Information alleged that Argos LLC, Evans Concrete, LLC, two unnamed rivals, and various individuals conspired to engage in a range of conduct that violated Section 1 of the Sherman Act between 2010 and July 2016. This included coordinating the issuance of price increase letters, submitting rigged bids at artificially high prices, allocating specific customer jobs in coastal Georgia, and imposing collusive fuel surcharges and environmental fees. In September 2020, a federal grand jury returned an indictment against Evans Concrete and four individuals for their participation in the same conspiracy. Unlike Evans Concrete, Argos entered into a deferred prosecution agreement (“DPA”) through which it agreed to fully cooperate with the ongoing criminal investigation, as well as to pay a $20 million penalty and maintain a corporate compliance program designed to prevent and detect antitrust violations.
DOJ’s announcements punctuate its ongoing focus on rooting out fraudulent and anticompetitive conduct by entities and individuals doing business with the government. Among other efforts, in late 2019, DOJ formed a cross-agency Procurement Collusion Strike Force. In November 2020, DOJ announced that the Strike Force had been successful in its efforts to combat antitrust and related procurement violations, and that it currently includes the Antitrust Division, 22 US Attorney’s Offices, and seven federal investigative partners.
The Argos fine adds an exclamation point to a series of procurement-related enforcement efforts. Though much of its efforts remain non-public, DOJ has reportedly initiated dozens of investigations since the formation of the Strike Force that continue to yield results. In the fall of 2020, the Antitrust Division announced the indictment of North Carolina company Contech Engineered Solutions LLC for participating in conspiracies to rig bids and defraud the North Carolina Department of Transportation.
Likewise, during the summer and fall of 2020, the Criminal Division announced guilty pleas from one of the largest engineering firms in the Republic of Korea, SK Engineering & Construction Co. Ltd, for defrauding the U.S. Army, and obtained more than $60 million in criminal fines, restitution, and civil penalties. Louisiana company Cajan Welding & Rentals, Ltd., similarly pleaded guilty to defrauding the United States and violating the Procurement Integrity Act by obtaining non-public information to win subcontracting awards from the Department of Energy. See more on our reviews of this activity here, here and here.
In November 2020, the Antitrust Division named Daniel Glad as the first permanent Director of the Strike Force. DOJ has continued to tout the success of the initiative to both domestic and international competition law officials.
Clients doing business with U.S. federal, state, and local government agencies should continue to be attentive in ensuring their compliance with the antitrust and government procurement laws. We can expect additional procurement indictments or guilty pleas in the near term. DOJ has stated in the past that over a third of the Antitrust Division’s open investigations relate to public procurement in some way. Assistant Attorney General Makan Delrahim recently promoted the Strike Force on its first anniversary, stating: “The premise and promise of the PCSF was to increase collaboration among federal prosecutors and law enforcement agencies to protect the public purse and hold accountable those who corrupt the competitive process to rob taxpayers of the benefits of free competition. We’ve proven the concept and with opening more than two dozen active grand jury investigations in the past year, we have made good on our promise to go after cartels that cheat the government.” The Strike Force aims to work across jurisdictions, and, according to DOJ, at least 8,000 government employees in over 500 federal, state and local agencies have now received training from the project.
We anticipate that the Criminal Division will amplify the work of the Antitrust Division’s Strike Force. The Strike Force shares a similar mission with the Criminal Division’s Market Integrity and Major Frauds (“MIMF”) Unit—both seek to combat criminal violations in the public procurement space. The MIFM was recently renamed and reorganized to reflect its focus on prosecuting government procurement fraud, among other concentrations.
Procurement fraud is a significant source of False Claims Act recoveries. In the last four years, DOJ’s False Claims Act recoveries have totaled $11.4 billion. Although recoveries in health care fraud matters totaled approximately 80% of that amount, procurement fraud was one of the top three categories of False Claims Act recoveries.
The DOJ remains focused on COVID-19-related procurement fraud. The Antitrust Division has stated repeatedly that the Strike Force “remains on high-alert” to the possibility of big rigging and other forms of collusion by government contractors related to the COVID-19 pandemic. Similarly, Civil Division Deputy Assistant Attorney General Michael Granston, recently predicted that “going forward the False Claims Act will play a central role in the Department’s pursuit of Covid-19 related fraud.” Last year, the DOJ Office of Inspector General warned its own employees responsible for the agency’s procurement efforts to be aware of the increased risk of COVID-19-related fraud, including substandard or mislabeled protective equipment and price gouging.
Companies should remain vigilant of this enforcement scrutiny. Now more than ever, companies that do business with local, state, and federal agencies should be aware of DOJ’s heightened scrutiny on public procurement, which has only intensified during the COVID-19 pandemic. Corporate fines for fraud or antitrust violations routinely top tens of millions of dollars. Given the special focuses of the Antitrust, Criminal, and Civil Divisions on government contracting, companies should assess their risks in that area and ensure their internal controls are effective. We advise any client involved in public procurement to evaluate its compliance programs now, before DOJ comes knocking at its door.
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