Here’s today’s public service announcement: Never, ever sell stuff to the government. Because if the state’s agents decide later on that they were unhappy with the price they agreed to pay, they’ll blame you – and throw you in prison.
Yesterday, the Justice Department’s Antitrust Division announced it had successfully extorted $11 million from a Swedish company and its U.S. subsidiary. Their “crime” was selling stuff to the U.S. Department of Defense. The DOD agreed to buy the stuff and signed a contract to that end. But years later, the DOD decided it wasn’t happy with its agreement, so the DOD’s Defense Criminal Investigative Service got together with the DOJ’s National Procurement Task Force and decided to rough-up the people who sold the DOD its stuff in the first place. The result is a bunch of people going to jail and even more money flowing into the U.S. Treasury’s coffers.The latest victims were Trelleborg AB and its U.S. arm, Norfolk-based Virginia Harbor Services Inc:
According to the charges, VHS/TEPI participated in a conspiracy between December 2002 and August 2005 to allocate customers and rig bids for contracts to sell foam-filled marine fenders and buoys, and also participated in a separate conspiracy between December 2002 and May 2003 to allocate customers and rig bids for contracts to sell plastic marine pilings. Under the terms of the plea agreement, which is subject to court approval, VHS/TEPI has agreed to pay a $7.5 million criminal fine and to cooperate fully in the Department’s ongoing antitrust investigation.
“Allocate customers and rig bids” is the alleged crime. But what does that actually mean? Here’s how the DOJ defined these nefarious practices in a related criminal case:
For the purpose of forming and carrying out the charged combination and conspiracy, the defendant and co-conspirators did those things that they combined and conspired to do, including, among other things:
1. attended meetings and engaged in discussions by telephone, facsimile and electronic mail, regarding the sale of foam-filled marine fenders and buoys sold in the United States and elsewhere;
2. agreed during those meetings and discussions to allocate jobs and to create and exchange order logs in order to implement and monitor this agreement;
3. agreed during those meetings and discussions not to compete for one another’s customers either by not submitting prices or bids to certain customers, or by submitting intentionally high prices or bids to certain customers;
4. submitted bids in accordance with the agreements reached;
5. sold foam-filled marine fenders and buoys to the U.S. Coast Guard, the U.S. Navy, and others pursuant to those agreements at collusive and noncompetitive prices;
6. accepted payment for foam-filled marine fender and buoys sold at the collusive and noncompetitive prices; and
7. authorized or consented to the participation of subordinate employees and/or distributors in the conspiracy.
So to recap, it’s a criminal offense to (1) have meetings and make voluntary agreements without the prior consent of the U.S. government, (2) sell goods at prices the government agrees to at the time but later deems “collusive and noncompetitive.”
Of course, the real “crime” is making the state look foolish. According to the DOJ, these “conspiracies” went on for years before anyone at the DOD noticed. But that doesn’t mean anyone in the government is responsible – it’s all about those greedy contractors:
The cases filed today follow the prosecution of numerous other participants in these worldwide conspiracies to inflate the price of marine products critical to both the military and to industry,” said Scott D. Hammond, Acting Assistant Attorney General in charge of the Department’s Antitrust Division. “Those who harm U.S. purchasers by rigging bids will pay the price through stiff fines and jail sentences.”
“Price fixing and bid rigging are serious crimes that drain resources from the Department of Defense and the American taxpayer. The Defense Criminal Investigative Service takes very seriously all violations of U.S. antitrust laws that affect products and services procured for our soldiers, sailors, airmen and Marines. DCIS aggressively investigates those who seek to cheat the DOD and the public by conspiring to suppress competition,” said Sharon Woods, Director, DCIS.
You know what else drains resources from the American taxpayer? Taxes. And, ironically, we can’t sue the DOD or the U.S. government for years of forcing us to buy government services at “collusive and noncompetitive prices.”
The even crueler joke is that the U.S. taxpayer will now be forced to pay the costs of imprisoning some of the people caught up in the DOJ’s little rampage:
Five former executives of TISAS and VHS/TEPI previously pleaded guilty to participating in the conspiracies charged today. Former VHS/TEPI president Robert B. Taylor was sentenced in January 2008 to serve 24 months in prison and pay a $300,000 criminal fine. Former VHS/TEPI chief financial officer Donald L. Murray was sentenced in March 2008 to serve 18 months in prison and pay a $75,000 criminal fine. William Alan Potts, a former vice president of VHS/TEPI, was sentenced in June 2008 to serve six months in prison and six months in home detention, and to pay a $60,000 criminal fine. Former TISAS executives Christian Caleca and Jacques Cognard were each sentenced in December 2007 to serve 14 months in prison and to pay criminal fines of $75,000 and $100,000, respectively.
Imprisoning individuals for “bid rigging” is beyond depraved. It shows just how emotionally immature and sociopathic the people at the Justice Department are. It’s the equivalent of walking into Best Buy and beating up the manager because you learned that television you just bought there was on sale at Wal-Mart for $100 less.
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And, ironically, we can’t sue the DOD or the U.S. government for years of forcing us to buy government services at “collusive and noncompetitive prices.”
Too true. And nothing infuriates a thief more than being robbed.
kellog, brown and root – who says selling to the government can’t be good business?
trelleborg probably skimped on lobbying.
Wait a minute……this case is against a Company and it’s subsidiary? Is the DOJ saying that a subsidiary cannot take direction in how it sells to customers from the company that owns it?
I’m just trying to make sure I actually understand exactly what the DOJ is charging them with.
trelleborg probably skimped on lobbying.
‘Zackly. It’s better to pick on a foreign company without lobbyists or political connections as a way of looking like you’re busy and conscientious, rather than going after the truly monstrous abuses which are perpetrated by domestic companies with deep pockets and sterling connections.
In a totally different field, I have sometimes heard people complain about the utter frustration of trying to sell things to the gummint, and I always say to myself, “Why did you try to do business with a bunch of pirates anyways?”
This is called “defective pricing” and is not a new practice. If the company was working with the government they had to know all of the regulations and rules. Anyone can access them on line.
“Defective pricing” is when a company misrepresents a bid to the government. It is obvious even from the few facts Oliva includes with the story that management was in collusion with suppliers and competitors to circumvent “defective pricing” rules and regulations.
This is much ado about nothing.
The contract had 2 parties. Are you saying that one party is liable to be punished for the crime of “defective pricing”, but the other party has no liability for “defective buying” ? Do government buyers collude with each other for the purpose of beating down the prices of suppliers? Is this not also a criminal conspiracy?
It is not a question of rules and regulations, it is a question of morality.
Henry,
It is a question of honoring contracts. If you enter into a contract with the government written into the contract is that you will follow the FAR. If you violate FAR your violate the contract. If this is done inadvertantly you either correct it with no penalty or with penalty depending on the severity of the error. If it is willful it is a crimial offense and you will usually receive a fine and/or time in jail.
As is stated early in the article if you do not want to abide by the provisions of the contract and the rules and regulations don’t sell to the government.
None of this is hidden or should be a surprise to someone who enters into a contract with the government.
If it is a question of morality I would say the person violating the contract is the immoral party.
Dick Fox –
The defendants weren’t charged with violating their contracts or even fraud. They were charged with “conspiracy to restrain trade” and the even more vague “criminal conspiracy.”
If the real crime is “making the state look foolish”, then the purpose of this prosecution is to intimidate, and remind all players of who’s the boss. Gary North made a similar point in his article about gold: Why Gold Owners are Targets of the Government: you have demonstrated by your purchase of gold or a gold-related investment that you do not trust the monetary policies of your nation’s central bank. If you are an American, this means you do not trust the monetary policies of the Federal Reserve System. You have taken a step that confirms your lack of trust in the government and its central bank. If you think the government and the central bank will sit quietly, while millions of citizens buy gold as a way to hedge against government and central bank policies, you are terminally naive.
“The defendants weren’t charged with violating their contracts or even fraud. They were charged with “conspiracy to restrain trade” and the even more vague “criminal conspiracy.” ”
Gee, I wonder why the government isn’t charged with this… maybe because it makes the rules and pretends that is why they’re valid? An exercise in hypocrisy if there ever were one.
The defendants weren’t charged with violating their contracts or even fraud. They were charged with “conspiracy to restrain trade” and the even more vague “criminal conspiracy.”
Oliva,
Are you saying that willful violation of the contract provisions is not a restraint of trade? Are you saying collusion with suppliers in violation of contract agreements are is not a criminal conspiracy?
I still think this is much ado about nothing. They willfully violated the law.
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