Supply Chain Under Scrutiny: DOJ to Step Up Investigation of Collusive Activity Relating to Supply Chain Disruptions

On February 17, 2022, the Antitrust Division of the US Department of Justice announced an initiative to “deter, detect and prosecute those who would exploit supply chain disruptions to engage in collusive conduct.” DOJ’s announcement comes in the wake of supply reduction seen throughout the COVID-19 pandemic. 

The global pandemic has disrupted business operations, tightened the labor market, constrained transportation, and delayed the procurement of raw materials. DOJ has made clear that the economic realities of the pandemic cannot be used as justification to circumvent the antitrust laws.  DOJ identified price and wage fixing, bid rigging, and market allocation schemes as ongoing areas of prosecution, including criminal investigations related to the supply chain.

“Temporary supply chain disruptions should not be allowed to conceal illegal conduct,” said Assistant Attorney General Jonathan Kanter of the Antitrust Division. “The Antitrust Division will not allow companies to collude in order to overcharge consumers under the guise of supply chain disruptions.”

Recent international and cross-agency partnerships have signaled the intent of the Biden Administration to promote and enforce competition vigorously across many sectors. DOJ has formed a working group with global competition partners in Australia, Canada, New Zealand, and the United Kingdom to share intelligence and combat anticompetitive schemes. In July 2021, DOJ also signed a Memorandum of Understanding with the Federal Maritime Commission to collaborate in enforcing competition in the maritime industry. 

Cartel enforcement related to the supply chain is not an entirely new area of interest for the federal government. For more than a decade, DOJ has actively investigated and prosecuted cartel activity in supply chains. 

For example, from 2006 until 2011, DOJ prosecuted global airlines and their executives for fixing rates and surcharges on international air cargo shipments. At least 22 airlines and 21 executives were charged, and more than $1.8 billion in criminal fines were assessed against the defendants.

Between 2008 and 2013, DOJ also prosecuted US shipping executives in the coastal water freight industry for rigging bids, fixing prices, and allocating the market for customers transporting goods between the continental United States and Puerto Rico. As a result, the water freight carriers were ordered to pay more than $46 million in criminal fines.  Several executives were convicted and sentenced to prison.

DOJ prosecuted ocean shippers and their executives between 2014 and 2017 for fixing prices, rigging bids, and allocating customers in the international ocean shipping industry for roll-on, roll-off cargo, a method used to ship vehicles and agricultural equipment. The shippers were ordered to pay more than $136 million in criminal fines, and several executives received prison sentences.

DOJ has also prosecuted companies and executives in the freight forwarding industry, which involved coordinating and managing the shipment of goods between destinations. In 2010 and 2011, DOJ prosecuted several international freight forwarders for a price fixing conspiracy, leading to imposition of more than $100 million in criminal fines. Again in 2018 and 2019, DOJ prosecuted freight forwarders for a conspiracy to fix prices.  Several executives were sentenced to prison for this conduct.

In light of DOJ’s history in prosecuting anticompetitive conduct in the supply chain—as well as the recently announced enforcement initiative—business leaders should be vigilant about avoiding and detecting any conduct that could invite scrutiny, as well as recognize signs that their businesses could be potential victims of collusive activity. As such, one should undertake a thorough review of their antitrust compliance policies and training, monitor developments closely, and seek legal guidance before entering into any agreements with competitors. 

The antitrust team at Hunton has been involved in several of the past criminal antitrust investigations related to the supply chain and advises companies about compliance and antitrust risks throughout the industry.