[Senate Hearing 113-387]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-387

 
   CARTEL PROSECUTION: STOPPING PRICE FIXERS AND PROTECTING CONSUMERS

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 14, 2013

                               __________

                          Serial No. J-113-41

                               __________

         Printed for the use of the Committee on the Judiciary



                                 ______

                   U.S. GOVERNMENT PRINTING OFFICE 
89-503                     WASHINGTON : 2014
____________________________________________________________________________ 
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California         CHUCK GRASSLEY, Iowa, Ranking 
CHUCK SCHUMER, New York                  Member
DICK DURBIN, Illinois                ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota             LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
MAZIE HIRONO, Hawaii                 JEFF FLAKE, Arizona
            Bruce A. Cohen, Chief Counsel and Staff Director
                 David Young, Republican Chief of Staff
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                   AMY KLOBUCHAR, Minnesota, Chairman
CHUCK SCHUMER, New York              MICHAEL S. LEE, Utah, Ranking 
AL FRANKEN, Minnesota                    Member
CHRISTOPHER A. COONS, Delaware       LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut      CHUCK GRASSLEY, Iowa
                                     JEFF FLAKE, Arizona
               Caroline Holland, Democratic Chief Counsel
               Bryson Bachman, Republican General Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota..     1
Lee, Hon. Mike, a U.S. Senator from the State of Utah............     3

                               WITNESSES

Witness List.....................................................    31
Baer, William J., Assistant Attorney General, Antitrust Division, 
  U.S. Department of Justice.....................................     4
Ronald T. Hosko, Assistant Director, Criminal Investigative 
  Division, Federal Bureau of Investigation, Washington, DC......     4
    prepared statement by Messrs. Baer and Hosko.................    33
Salzman, Hollis, Partner & Co-Chair, Antitrust and Trade 
  Regulation Group, Robins Kaplan Miller & Ciresi, LLP, New York, 
  New York.......................................................    18
    prepared statement...........................................    43
Hockett, Christopher B., Chair, Section on Antitrust Law, 
  American Bar Association, and Partner, Davis Polk & Wardwell, 
  LLP, Menlo Park, California....................................    20
    prepared statement...........................................    47
Levenstein, Margaret C., Research Scientist, Institute for Social 
  Research, Adjunct Professor of Business Economics and Public 
  Policy, Ross School of Business, University of Michigan, Ann 
  Arbor, Michigan................................................    21
    prepared statement...........................................    60
Rosman, Mark, Partner, Wilson Sonsini Goodrich & Rosati, 
  Washington, DC.................................................    23
    prepared statement...........................................    67

                               QUESTIONS

Questions submitted by Senator Klobuchar for Hon. William Baer...    78
Questions submitted by Senator Klobuchar for Ronald Hosko........    79
Questions submitted by Senator Klobuchar for Margaret Levenstein.    80
Questions submitted by Senator Klobuchar for Mark Rosman.........    81
Questions submitted by Senator Klobuchar for Hollis Salzman......    82

                         QUESTIONS AND ANSWERS

Responses of Hon. William Baer to questions submitted by Senator 
  Klobuchar......................................................    83
Responses of Ronald Hosko to questions submitted by Senator 
  Klobuchar......................................................    88
Responses of Margaret Levenstein to questions submitted by 
  Senator Klobuchar..............................................    91
Responses of Mark Rosman to questions submitted by Senator 
  Klobuchar......................................................    92
Responses of Hollis Salzman to questions submitted by Senator 
  Klobuchar......................................................    98

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

Letter to Hon. Eric Holder from Senators Stabenow, Schumer, 
  Brown, Klobuchar, Levin, Cardin, and McCaskill; September 30, 
  2013...........................................................   104


   CARTEL PROSECUTION: STOPPING PRICE FIXERS AND PROTECTING CONSUMERS

                              ----------                              


                      THURSDAY, NOVEMBER 14, 2013

                               U.S. Senate,
           Subcommittee on Antitrust, Competition  
                       Policy, and Consumer Rights,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:48 p.m., in 
Room SD-226, Dirksen Senate Office Building, Hon. Amy 
Klobuchar, Chairman of the Subcommittee, presiding.
    Present: Senators Klobuchar, Blumenthal, and Lee.

 OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM 
                     THE STATE OF MINNESOTA

    Chairman Klobuchar. Good morning, and I am pleased to be 
here with Ranking Member Senator Lee. Today we are going to be 
discussing criminal enforcement against the most egregious type 
of antitrust violation, and that is price fixing. The concept 
is simple. Under the law competitors cannot get together and 
form a cartel to agree on what prices to charge their 
consumers. Price fixing is not only a crime; it is also a tax 
on businesses, consumers, and innovation.
    Price fixing can come in various forms. It can involve 
agreements to set an actual price or agreements to limit 
output. It can involve agreements not to compete, such as 
rigging a competitive bidding process or dividing up a market 
between competitors.
    There is absolutely no business justification for this 
conduct. Cartels have no purpose other than to rob consumers. 
As Justice Scalia wrote in a 2004 Supreme Court decision, 
cartels are ``the supreme evil of antitrust.''
    Anyone who bought a TV, computer, or other device with an 
LCD screen between roughly 2001 and 2006 was a victim of price 
fixing. I do not know if they know that, but they were. 
Executives from several manufacturers of LCDs met secretly in a 
hotel room where they hatched a scheme to fix the prices of 
LCDs for major computer and TV makers in the U.S. and around 
the globe. They continued to meet for years until one of the 
cartel members, fearing detection, notified the DOJ's Antitrust 
Division in order to avoid criminal liability by cooperating 
with prosecutors. So far, the Justice Department has locked up 
13 executives and fined participating companies a total of 
$1.39 billion. Yes, that is a billion. Not an ``M,'' a ``B'' 
for billion.
    Over the past two years, the Department of Justice has been 
uncovering an extensive network of price fixing in the auto 
parts industry--again, something that most Americans may not 
know, but does affect them and should matter to them. Between 
2003 and 2010, Japanese auto part makers rigged the bids to fix 
prices on five billion dollars in auto parts sold in the United 
States, everything from seat belts to starter motors to 
ignition coils and other essential vehicle components. This 
means that car makers here in the U.S., including GM, Ford, 
Chrysler, and the U.S. subsidiaries of Honda, Mazda, Nissan, 
Toyota, and Subaru paid artificially high prices for parts 
included in cars sold to 25 million Americans. The companies 
involved have been fined more than $1 billion, and 17 
executives have been sentenced to jail time.
    The Antitrust Division's work on criminal cartels over the 
past two decades is a true success story. The evolution of its 
Corporate Leniency Program, which offers leniency to the first 
cartel member to report criminal conduct, has clearly helped to 
unmask major international cartels. However, despite tough 
fines and jail sentences, the DOJ continues to discover more 
and more of these cartels.
    So we need to ask important questions: Is enforcement as 
effective as it can be in deterring price fixing? With the 
DOJ's budget tightening due to sequestration, is there a risk 
that cartels will get away with even more with their bad 
conduct? Is DOJ's focus on large international cartels coming 
at the expense of going after more of the localized domestic 
cartels?
    We will also ask the ultimate question that most consumers 
might be asking: How does this impact me? How do consumers, the 
victims of price fixing, get their money back?
    The Antitrust Division collects extensive fines on behalf 
of the government, and they go to a worthy cause: the Crime 
Victims Fund. Under the antitrust laws, consumers who are 
harmed by cartels must seek restitution for the higher prices 
they paid in private litigation. Retailers from Best Buy--that 
is our local company; I thought I would add that in--retailers 
from Best Buy on down to Mom-and-Pop stores who sold TVs and 
computers, auto makers who installed price-fixed auto parts, 
and consumers who bought these products all have to go to court 
and get their money back.
    To make sure that consumers have an incentive and ability 
to bring these cases as well as to deter price fixing, 
antitrust law holds price fixers liable for treble damages, or 
triple the amount they ripped off from their victims.
    Congress has acknowledged the critical role that private 
suits play when it comes to protecting consumers from criminal 
price fixing. In 2004 and again in 2010, Congress passed 
bipartisan legislation that provides an incentive to convicted 
price fixers to cooperate with the Justice Department and 
private litigants in exchange for being liable for only single 
as opposed to treble damages for their illegal conduct. We need 
to make sure that this system is working and that road blocks 
are not being put up to prevent businesses and consumers from 
getting the redress that they deserve.
    As a former prosecutor, cracking down on white-collar crime 
was always a priority of mine, as it is now heading up the 
subcommittee of the antitrust group. And when it comes to price 
fixing, crime quite literally pays. Companies can make hundreds 
of millions of dollars for as long as they can if they keep all 
their co-conspirators in line and under wraps. But by having 
strong laws on the books against price fixing, tough government 
enforcement, and the opportunity for victims to get redress, we 
send the message to corporate boardrooms across the globe that 
price fixing and bid rigging will not be tolerated and it will 
not pay.
    I look forward to hearing from our witnesses about the good 
work that they are doing, and I will turn it over to Senator 
Lee for his opening statement.

  OPENING STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM THE 
                         STATE OF UTAH

    Senator Lee. Thank you, Madam Chair. Thanks to both of you 
for joining us today.
    Cartels cost Americans many billions of dollars every 
single year. Each time a consumer pays for a product or for a 
service that has been affected by price fixing, bid rigging, or 
market allocation, that consumer is necessarily paying a 
premium that in some fashion or another enriches persons who 
are engaged in criminal conduct.
    Cartel activity has no redeeming value, no virtue. There is 
widespread agreement among Republicans and Democrats that 
cartels should be vigorously pursued and severely punished, and 
there is certainly absolute agreement between Senator Klobuchar 
and myself on this point.
    Our hearing today will focus on what has worked well in 
cartel enforcement and potential areas for improvement in that 
area. The Department of Justice, working together with the FBI, 
has a very impressive record of prosecuting cartels.
    In recent years, the Antitrust Division has averaged almost 
$1 billion in criminal fines. The average prison sentences for 
defendants guilty of engaging in cartel activity has also 
increased.
    But while these accomplishments are noteworthy, it is very 
important for us to remember that the government must not rest 
on its laurels. Some commentators suggest that criminal fines, 
however large they might be, may not be sufficient to deter 
criminal activity by corporations, and in some instances they 
may end up punishing shareholders more than the truly guilty 
actors.
    Others have raised concerns regarding the difficulty of 
discovering cartels by means other than pursuant to the 
government's Leniency Program. The Leniency Program has been 
hugely successful, but it has some limitations. It depends on 
bad actors fearing that there is a reasonable chance that they 
will actually get caught. It also depends on a bad actor 
turning itself in before the cartel has done too much harm to 
consumers.
    I look forward to discussing the ways in which the 
government can detect and prosecute cartels, even in those 
instances in which a guilty company has neither the incentive 
nor the courage to come forward.
    I also look forward to discussing a few other aspects of 
cartel enforcement that may well merit some consideration. I 
have heard concerns expressed about the current policy with 
respect to providing defendant companies some sort of credit 
for having implemented a compliance program. I have also heard 
concerns about the potential for double fines for transactions 
that affect both the U.S. and a foreign jurisdiction.
    Finally, I believe the Antitrust Division and Mr. Baer 
deserve a tremendous amount of credit for implementing a new 
policy in April of this year by which the names of persons 
carved out of a settlement are not made public in an 
indictment.
    As a final note that is not directly related to this 
hearing, I am carefully reviewing the Division's proposed 
settlement with American Airlines and U.S. Airways and intend 
to follow up with the Department of Justice by letter regarding 
that particular transaction.
    I look forward to hearing from the witnesses, and thank you 
both for being able to help.
    Chairman Klobuchar. Thank you very much.
    I would like to introduce our distinguished first panel of 
witnesses. Our first witness is Mr. William Baer. Mr. Baer was 
sworn in as the Assistant Attorney General for the Department 
of Justice Antitrust Division in January of this year. Prior to 
his appointment, he was a partner at Arnold & Porter and head 
of the firm's antitrust practice group and director of the 
FTC's Competition Bureau.
    Our second witness is Mr. Ronald Hosko. Mr. Hosko was named 
the Assistant Director of the Criminal Investigative Division 
for the Federal Bureau of Investigation in July 2012. 
Previously he served as a special agent in charge of the 
Washington Field Office Criminal Division.
    I thank you both for appearing at our Subcommittee's 
hearing today, and I think you brought a really cool-looking 
chart--don't you think?
    Senator Lee. Absolutely.
    Chairman Klobuchar. So we are looking forward to hearing 
about that, and I think I would ask you to rise and I will 
swear you in. So raise your right hands. Do you affirm that the 
testimony you are about to give before the Committee will be 
the truth, the whole truth, and nothing but the truth, so help 
you God?
    Mr. Baer. I do.
    Mr. Hosko. I do.
    Chairman Klobuchar. Thank you. All right. Well, let us get 
started.
    Mr. Baer.

   STATEMENT OF WILLIAM J. BAER, ASSISTANT ATTORNEY GENERAL, 
 ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE; AND RONALD T. 
  HOSKO, ASSISTANT DIRECTOR, CRIMINAL INVESTIGATIVE DIVISION, 
        FEDERAL BUREAU OF INVESTIGATION, WASHINGTON, DC

    Mr. Baer. Thank you, Chairman Klobuchar, thank you, Ranking 
Member Lee. I appreciate you inviting me to appear before you 
today, and I am very pleased to be seated alongside Assistant 
Director Hosko. The FBI, as you said, Chairman Klobuchar, is a 
key and longstanding partner in the Justice Department's 
success in battling cartels. Working together, we think we can 
and will continue to make a difference for American consumers.
    Spotlighting cartel misconduct is the right focus for the 
Subcommittee. Price fixing, bid rigging, and other criminal 
antitrust crimes cause direct and unambiguous harm to U.S. 
consumers. Effective enforcement by the FBI and the Antitrust 
Division restores competition and returns markets to 
competitive levels, resulting in lower prices for consumer 
goods and consumer services.
    In this last Fiscal Year just completed, the Division filed 
50 criminal cases. We charged 21 companies and 34 individuals 
for crimes affecting tens of billions of dollars of U.S. 
commerce. The Division obtained criminal fines totaling just 
over $1 billion, and courts sentenced 28 individuals to jail 
terms that averaged more than two years per defendant. American 
taxpayers are well served by effective cartel enforcement.
    In just the past five fiscal years, the Antitrust Division 
averaged about $850 million in criminal fines per year versus 
the average appropriation of about $85 million, minus some 
money we get from Hart-Scott-Rodino merger filing fees, but the 
direct appropriation on average was $85 million, the fines on 
average $850 million. And as the Chairman noted, these fines do 
not go to the Antitrust Division. They go to the Crime Victims 
Fund, which helps victims of all types of crime throughout the 
United States.
    In recent years, our efforts have resulted in a dramatic 
increase in exposing the world's largest price-fixing cartels. 
We have successfully prosecuted cartels involving air 
transportation, obtaining $1.8 billion in criminal fines. 
Liquid crystal displays, the LCD panels, that go into 
everything consumers buy to watch on an iPad or a TV, we 
obtained more than $1.4 billion in fines there. And most 
recently, as we will talk about, the auto parts matter where to 
date we have obtained $1.6 billion in criminal penalties.
    Those fines do not tell the whole story. To be sure, 
criminal penalties make cartel behavior less attractive for 
companies. But it is also the threat of jail time for the 
company officials responsible for injuring consumers that is 
itself a powerful deterrent. That threat is real. Today more 
individuals involved in cartel activity are being jailed for 
longer periods of time than ever before. In the 1990s, our 
average jail sentence for an antitrust crime was about eight 
months. Today the average prison sentence is 25 months, over a 
threefold increase.
    Successful prosecution of large international cartels 
obviously poses significant challenges to the FBI and to us, 
with documents, witnesses, and wrongdoers often located outside 
the U.S. We have a shared commitment with enforcers around the 
world to fighting international cartels, and we work closely 
together in trying to overcome those challenges.
    Last month, Attorney General Holder described our ongoing 
auto parts investigation and how it exemplifies ways in which 
the Division and the FBI together cooperate with our foreign 
counterparts. This is the largest criminal investigation the 
Antitrust Division has ever pursued, both in terms of its scope 
and the potential of volume of commerce affected by the 
conduct. The investigation included FBI search warrants 
executed on the very same day in the United States as dawn 
raids were conducted elsewhere around the world. And today the 
cooperation with our international counterparts continues. It 
includes enforcers from Japan, Canada, Korea, Mexico, 
Australia, and the European Commission.
    What do we have to show thus far for our efforts? To date, 
we have charged 21 companies and 21 executives. All 21 
companies have either pleaded or agreed to plead guilty. The 
immediate victims of those companies are automotive 
manufacturers such as Ford, GM, Chrysler, Honda, Toyota, 
Nissan, Subaru, Mazda, and Mitsubishi. And as you can see from 
the chart that is stage left, to my right, the conspiracies 
covered a wide variety of parts, including important safety 
systems such as seat belts, airbags, and antilock brakes.
    The cases filed to date involve conduct affecting over $8 
billion in auto parts sold to car manufacturers in the United 
States, and those are parts used in more than 25 million cars 
purchased by American consumers. The multiple conspiracies we 
charged in September affected auto companies manufacturing in 
14 different States.
    Cartels involving components of finished products are not 
unique to the automobile industry. For example, our long-
running joint investigation with the FBI into LCD flat panels 
uncovered long-running price-fixing conspiracies that affected 
computer manufacturers like Hewlett-Packard, Dell, and Apple. 
In turn, those conspiracies injured families, schools, 
businesses, charities, and government agencies that purchased 
the notebooks, the laptops, the computer monitors that 
incorporated the LCD panels into their products. We had a trial 
last year against one of the corporate conspirators, AUO, and 
we offered evidence showing that the conspirators increased 
their margin on each product by an average of $53. That meant 
every flat panel shipped into the United States had an inflated 
price of as much as $53. That stat alone tells us how the 
cartel behavior we are trying to attack imposes real costs on 
the direct purchasers and in turn on U.S. consumers.
    We have also prosecuted successfully cartels in the 
financial services industry involving municipal bonds where we 
worked together with the FBI, the SEC, the Comptroller of the 
Currency, the Federal Reserve, and a working group of 20 
different State Attorneys General. There the implicated have 
paid about $750 million in restitution, penalties and 
disgorgement, and 20 individuals have been charged; 19 have 
either been convicted in trials or pleaded guilty.
    While our enforcement efforts do focus to a significant 
extent on large-scale national and international cartels, we 
appreciate that there is local and regional impact that we need 
to pay attention to. For example, the Division continues to 
uncover collusive schemes among real estate speculators aimed 
at eliminating competition at real estate foreclosure auctions. 
With the assistance of the FBI and folks at HUD, we are looking 
at bid rigging and fraud in local markets in Alabama, 
California, Georgia, and North Carolina. To date, we have 
already brought charges against 64 individuals and three 
companies. That bad behavior involved more than 3,400 
foreclosed homes, and it has caused more than $23 million in 
loss primarily to mortgage holders.
    Together, the FBI and the Antitrust Division's dedicated 
public servants are working hard to hold both companies and 
individuals responsible for cartel behavior. The American 
consumer is the beneficiary of those efforts.
    Thank you, and I look forward to responding to your 
questions.
    Chairman Klobuchar. Thank you very much, Mr. Baer.
    Mr. Hosko.
    Mr. Hosko. Good afternoon, Chairwoman Klobuchar and Ranking 
Member Lee. I appreciate the opportunity to appear before you 
today and for your continued support of the men and women of 
the FBI.
    The FBI has forged a strong partnership with DOJ's 
Antitrust Division which has resulted in successful 
prosecutions in very significant cases. The international 
relationships, diverse scope, and broad intelligence network of 
the FBI uniquely positions us to join our DOJ colleagues in 
addressing these criminal matters that often have a global 
reach.
    There is no doubt that collusion within the global economy 
undermines the U.S. market and harms U.S. consumers. The FBI is 
absolutely committed to investigating domestic antitrust 
violations. Recognizing the potential economic impact of 
broader multinational conspiracies, the FBI has aligned its 
international criminal investigative programs, including 
antitrust, to detect and investigate price fixing and other 
illicit conduct by foreign cartels.
    In 2008, we formed the International Corruption Unit to 
manage antitrust, Foreign Corrupt Practices Act, and 
international fraud against the government as well as money-
laundering investigations that involve systemic commercial 
corruption or complicity of foreign officials.
    The alignment recognized the need for shared and enhanced 
expertise in multinational criminal investigations, productive 
relationships with foreign partners, and the application of 
proactive techniques to identify sophisticated conspiracies. 
The body of information and intelligence generated by these 
cases provides a broader understanding of illicit commercial 
activity within regions, countries, and industries.
    A second element, the Foreign Corrupt Practices Act, 
prohibits bribery of foreign public officials by U.S. and 
certain foreign businesses for commercial advantage. Partnering 
with DOJ's Criminal Division, the FBI investigates allegations 
of illegal commercial bribery around the world. Since the Act 
itself does not apply to corrupt foreign officials, committed 
foreign partners add tremendous value to our efforts.
    Through parallel investigations, both the companies' 
representatives and corrupt officials can be brought to 
justice. To enhance cooperation in this area, the FBI recently 
implemented the International Foreign Bribery Task Force. It is 
a partnership of law enforcement counterparts from the United 
Kingdom, Canada, and Australia, and fosters enhanced 
information sharing and investigative cooperation in foreign 
bribery matters.
    The recent addition of international money-laundering 
investigations to the international corruption portfolio 
provides yet another avenue for us to identify public and 
commercial corruption. For example, a kleptocracy investigation 
might reveal the target not only looted his nation's treasury 
but accepted bribes from U.S. companies to allow for access to 
markets and resources.
    During the country's engagements in Afghanistan and Iraq, 
hundreds of functions historically performed by military 
personnel were privatized. As a result, the FBI and our 
partners observed complex and wide-ranging fraud schemes 
related to government contracting. In 2005, we launched the 
International Contract Corruption Initiative to evaluate the 
crime problem, engage the numerous law enforcement agencies 
sharing jurisdiction, and develop a mutually reinforcing 
strategy to address the problem. As a result of these efforts, 
the FBI joined eight other federal law enforcement agencies in 
forming the International Contract Corruption Task Force, which 
focuses on fraud and corruption related to U.S. military, 
reconstruction, and humanitarian aid in Afghanistan and Iraq.
    Using forward-deployed agents to conduct assessments of 
corruption and fraud allegations, we developed viable cases and 
directed domestic field offices to coordinate prosecutions. 
Many of the schemes we uncovered involved military and civilian 
personnel responsible for some element of the contracting 
process. Examples included payment of bribes in exchange for 
issuing government contracts and kickbacks to facilitate theft 
of diesel fuel using scores of tanker trucks. Individuals 
involved were not only criminally derelict in their duty; in 
some cases they may have aided the enemy.
    As this is in most cases white-collar crime, the primary 
motivating force was greed.
    Interagency cooperation contributes greatly to the success 
of this initiative and others. A joint operations center 
staffed by representatives from the eight participating 
agencies and collocated within our International Corruption 
Unit provides vital information sharing, deconfliction of 
cases, and analytic support to deployed investigators.
    Despite resource challenges across the government, we have 
achieved meaningful success in countering antitrust and other 
international corruption. Clearly there is more to be done, but 
through coordination with committed foreign and domestic 
partners and by effectively prioritizing, the FBI is positioned 
to combat the most egregious offenders.
    In conclusion, I thank you both for this opportunity to 
discuss our programs, and I look forward to answering your 
questions.
    [The prepared statement of Messrs. Baer and Hosko appears 
as a submission for the record.]
    Chairman Klobuchar. Thank you very much. Thank you to both 
of you.
    I did want to put on the record a statement from Senator 
Levin of Michigan. As you know, Detroit is home to the auto 
industry, the State of Michigan, very important, and it is a 
good statement about the concerns that he has about price 
fixing and the good work that needs to continue to be done. So, 
with that, I will enter Senator Levin's statement in the 
record.
    [No statement from Senator Levin was submitted for the 
record.]
    Chairman Klobuchar. Mr. Baer, before I get into the cartel 
issues, I want to ask about something that Senator Lee 
mentioned in his statement, and that is the settlement of the 
U.S. Airways and American Airlines merger.
    As we all know from the news this week--and you know better 
than all of us up here--the settlement calls for divestiture of 
slots at two slot-constrained airports--that would be Reagan 
and LaGuardia--and two gates at each of five other large 
airports. The Justice Department's complaint, as I recall, was 
broad. It said the merger would create some major problems for 
competition, and there were fare issues as well as risk of 
increases in baggage and change fees, something I have been 
involved in in the past in terms of trying to eliminate that or 
reduce it.
    Do you think that the divestitures address all of these 
problems? And what do you see is coming out of this for the 
rest of the country in addition to the areas where the slots 
were divested?
    Mr. Baer. Thank you, Chairman Klobuchar. We do think this 
settlement is going to result in a net improvement in the 
competitive situation for U.S. air passengers. Why do I say 
that? Right now, we have had develop over the years what our 
complaint refers to as a relatively cozy oligopoly between the 
four major legacy carriers. And what we are trying to do in 
terms of this settlement is enable the group of carriers who 
are low-cost, effective competitors to be able to offer more 
opportunity, more seats at more competitive fares than ever 
before.
    In coming to that as an acceptable resolution to the 
litigation we filed to block the merger, we looked hard at what 
happened in airports around the country when low-cost carriers 
did get a foot in the door. When United had to give up its 
slots at Newark three years ago when it merged with 
Continental, Southwest picked up about 30 slots and was able to 
enter that market. It, within short order, was able to fly 
nonstop to six cities and offer consumers extraordinarily 
competitive fares in many of those cities.
    Just an example, from Newark to St. Louis, Southwest within 
a matter of months had increased the number of seats available 
to consumers by twofold, 100 percent. Fares dropped on 
average--this is not just the Southwest fare but the competitor 
fare--dropped on average by 27 percent. These low-cost carriers 
do have and can have a meaningful impact, but it is not just on 
the nonstop traffic that they add. They then can connect city 
to city, city to city to city, one-stop traffic, and offer 
consumers more meaningful competition on those fares than they 
are getting today.
    As we looked at that hard evidence--and this is just but an 
example--Jet Blue was able to obtain a few slots to obtain a 
presence here at DCA, and it had a dramatic effect on seats 
available up to Boston and the prices charged for those seats.
    So enabling some folks who now are constrained because they 
do not have access to slots, they do not have access to gates 
around the country to be more competitive, we are going to 
change the competitive dynamic that the legacy carriers are 
facing today. They are going to have to respond, and they do 
respond----
    Chairman Klobuchar. Do you think that would help, though, 
with the change fees and the baggage fees and some of these 
other issues that go to areas that are not even included in 
your slot-divested areas?
    Mr. Baer. Well, we can see from the ads that not all 
carriers are alike in terms of how they handle baggage fees. 
For example, they compete on that dimension. But because a 
carrier like Southwest is very limited today in the points 
where it can go to, it does not offer that national competition 
that it will be able to offer on a much broader platform if 
this deal goes through, if the court accepts our proposed 
settlement and divestitures.
    Chairman Klobuchar. Okay. Just one more question. I know 
you are focused on these low-cost carriers, and we love having 
low-cost carriers there as a competitive force. But they do not 
always serve some of those small and medium-size cities like I 
have in my State. I do not think we have Jet Blue going to 
Bemidji or, you know, places like that.
    One question I had is the divestiture bidding process. Will 
all airlines be able to participate? And as I understand it, 
the DOJ has acknowledged that some small and medium-size 
communities will lose service as a result of these 
divestitures. And if that is the case, shouldn't we allow some 
of the carriers that might compete more readily for those 
flights to be able to compete for those slots?
    Mr. Baer. Thank you, Madam Chair. We do not know that 
anyone is going to lose service, and, in fact, you know, we are 
not a regulator. We do not decide where people fly and where 
they do not fly. But we were conscious in negotiating the 
settlement in making sure that none of the slots that were 
surrendered by American and U.S. Airways were the small-plane 
commuter slots that are designated to fly to small and medium-
size communities. We set those aside, let them keep them in 
order to keep open the opportunity for them to fly to those 
small and medium-size communities where, as you say, the low-
cost carriers are, at least today under the current 
configuration, unlikely to fly. And, separately, the Department 
of Transportation and the merging parties--American and U.S. 
Air--entered into an agreement in which U.S. Air and American 
in the new American configuration agreed to continue to use 
those commuter slots to serve small and medium-size communities 
and medium-size hubs.
    Chairman Klobuchar. But are all airlines going to be able 
to participate? Just yes or no.
    Mr. Baer. That is the first part of the question. The 
answer is, ``Yes, but,'' if I may, and the ``but'' simply is 
that we will talk to anybody who can come in and convince us 
that they are going to compete those assets aggressively and 
effectively. Based on our experience, we have some concerns 
about whether the legacy carriers are really going to offer 
that competitive dynamic. So we will talk to them. If they do 
not like where we end up going, they have an opportunity to 
object in court to the settlement. But we will hear them, we 
will listen to them. That is what we do.
    Chairman Klobuchar. Okay. Well, I just think the goal of an 
auction should be to select carriers that can both effectively 
compete, as you point out, on price with the new American 
Airlines, but also serve those small and medium-size 
communities that could lose service as a result of the 
divestiture. So I am sure there will be more ahead on that.
    But let us get to auto parts and cartels and other things. 
We noted that the DOJ has posted impressive wins in prosecuting 
cartels, yet year after year, even as more and more larger 
fines and prison sentences are imposed, there still seem to be 
more and more cartels uncovered. Is price fixing not being 
deterred? Or are we just becoming better at detecting it? And I 
guess the follow-up question would be: What new innovations is 
the DOJ looking at despite limited constraints with funding? 
Which I will get to in a minute. What other ideas do you see 
ahead for cartel enforcement?
    Mr. Baer. Senator, we think we are getting better at 
detection, and both you and Senator Lee mentioned the Leniency 
Program as one vehicle by which we are able to get companies to 
self-report bad conduct. That is successful both on a national 
and local level and on an international level.
    In addition, by cooperating with helping educate our fellow 
competition enforcement agencies around the world on the evils 
of cartels, we have actually achieved remarkable convergence in 
the last 20 years, agreement that these things should be 
prosecuted vigorously, that other governments should establish 
leniency programs to encourage self-reporting, and that seems 
to be working.
    Chairman Klobuchar. Very good. On the resource issue I just 
mentioned, last week Preet Bharara, the U.S. Attorney for the 
Southern District of New York, raised serious concerns about 
the Justice Department's underfunded budget. He said, ``People 
are going to start getting away with bad conduct. Victims are 
going to be able to be vindicated. In my mind, it is something 
of a tragedy.''
    Do you share this concern? And do you have enough resources 
to maximize detection and prosecution of cartels?
    Mr. Baer. We will work as effectively as we can with every 
dollar Congress entrusts to us, every taxpayer dollar. That is 
our job.
    At the same time, the combination of sequestration and the 
need to impose a limitation on hiring until that process sorts 
itself out means we have actually many fewer prosecutors going 
after antitrust crimes today than we did three years ago. We 
have gone from about 124 down to about 84. As you know, based 
on your experience, that kind of reduction cannot help but have 
an impact.
    Chairman Klobuchar. And does that include the ones that 
were eliminated because of the closure of the field offices in 
places like Cleveland, Atlanta, Dallas, and Philadelphia?
    Mr. Baer. We offered the opportunity for all those people 
to transfer. Some did, some----
    Chairman Klobuchar. Right. Many positions were eliminated, 
I----
    Mr. Baer. No, the positions were not eliminated, but with a 
hiring freeze in place, we are limited in our ability to go out 
and recruit replacements.
    Chairman Klobuchar. Right.
    Mr. Baer. Hopefully when we get that issue resolved, we can 
get back to our normal hiring practice.
    Chairman Klobuchar. Well, right, and I would love to, as we 
talked about in the hallway, replace sequestration, and I have 
some ideas on how we can do it right now, and I am hopeful we 
are going to do something about this going forward with the 
budget negotiations while still bringing our debt down, because 
I am afraid we are going to lose out for consumers in the long 
term if we do not have people going after cartels like these. 
But as I mentioned, some of these field offices did close down, 
most likely because of budget issues.
    Do you think that it is harder to go after some of these 
local--you know, where people might be more willing to come 
forward about price fixing at an auto dealer shop or all kinds 
of things when you do not have those?
    Mr. Baer. We hope not. Part of what we do, in addition to 
our Leniency Program, is we do considerable outreach, 
particularly with other government officials at the federal, 
State, and local level, helping particularly federal 
procurement officials understand where they might be seeing a 
suspicious pattern of bidding behavior, and they will know who 
to come to at the FBI or over at the Antitrust Division.
    I learned this morning that over the past four years or so 
we have actually done briefings and education for over 20,000 
civil servants at various levels of government to help them 
help us. That is one way we can enrich the process. But it is a 
challenge doing outreach at the level we would like to do with 
the resources currently available to us.
    Chairman Klobuchar. Okay. Do you want to follow up at all, 
Mr. Hosko?
    Mr. Hosko. I would share the U.S. Attorney's and Mr. Baer's 
concern and my Director's concern about the resource 
restrictions that we are facing. In the past 12 years, the FBI 
shifted approximately 1,200 agents out of the criminal programs 
to address the counterterrorism threat, and that was hundreds 
of agents out of our white-collar crime program. With each of 
those agents that is not in this strata of our work, that is an 
opportunity for some person who wants to conspire unlawfully to 
commit crimes that we are talking about here today, the whole 
range of white-collar crime.
    There are hundreds of Internet frauds that are being 
conducted today that we cannot touch, nor could we ask to have 
prosecuted because we do not have the sufficient numbers of 
people to conduct the investigations or to have them prosecute 
it.
    So this is another piece of that market, the white-collar 
crime market broadly, that without FBI agents there and without 
somebody else filling that void--it might be State and local 
law enforcement effectively trained to fill the void and take 
the cases--there is going to be a gap, and that gap presents an 
opportunity for price fixers and predators.
    Chairman Klobuchar. Very good. I do not know if you know, 
but Mr. Comey, Director Comey, and I went to law school 
together. We were in the same class.
    Mr. Hosko. I did not know that.
    Chairman Klobuchar. Yes, there you go. So I will report 
back to him that you are doing a good job, Mr. Hosko.
    Mr. Hosko. Thank you.
    [Laughter.]
    Chairman Klobuchar. But also I have appreciated--and you 
can tell him this--that he has been out front on how many FBI 
agents this is going to mean if this continues with the 
sequester. I think the number is--what is it, 2,000?
    Mr. Hosko. It is roughly 3,500 personnel.
    Chairman Klobuchar. 3,500, okay.
    Mr. Hosko. And I think it bears mentioning that we need 
smarter FBI agents, and among the first things that we turned 
off in Fiscal Year 2013 was training. So our opportunity to get 
together with prosecutors, with partners, and with our own work 
force to make them smarter on these subjects got flattened last 
year because of the impacts of sequester on our budget. We need 
a smarter work force, a more agile work force, and these 
impacts will take us in the other direction.
    Chairman Klobuchar. All right. Good. Well, I have gone on 
awhile here, so I am going to give it over to Senator Lee to 
ask as many questions as he wants. Thank you very much to both 
of you.
    Senator Lee. Thank you very much.
    First of all, on the airline issue, I am pleased to hear 
you discuss the bidding process for the slots made available 
under the terms of the settlement agreement. That is an issue 
that, as you know, Senator Klobuchar and I have been concerned 
about, and that is an issue that we opined about in our letter 
that we sent to you a few months ago. And I continue to share, 
of course, Senator Klobuchar's view that the bidding process 
should be open and competitive, and so I look forward to 
following up on that by letter.
    Mr. Baer, with respect to some concerns that I have had 
about people coming to me and indicating that there is a 
potential for U.S. companies to be fined for the same conduct, 
I wanted to raise some of those concerns with you. There is 
some potential, as I understand it, for a company, including a 
U.S. company, to be fined twice for the same conduct related to 
a cartel. Such double counting, as I understand it, would arise 
in a context in which both the United States and a foreign 
government stand convinced that the same transaction had an 
impact on its own customers, on its own consumers within that 
country.
    I know this can be complex, and it can be really difficult 
to ascertain in any given context for any given activity. But I 
just wanted to ask you what the Division can do, if anything, 
to ensure that companies, including and especially U.S. 
companies, are not made subject to double fines for the same 
transaction in a cartel investigation.
    Mr. Baer. Thank you, Senator. First, in determining what a 
fine amount should be in the United States, we are guided by 
the U.S. Sentencing Guidelines, which require us to take a look 
at the volume of affected commerce involving the United States. 
So in calculating our fines, we are looking not at the 
worldwide sales, but we are looking at the sales that have a 
connection to the United States and potential adverse impact on 
U.S. consumers. And then we work out a fine under a formula 
under the Sentencing Guidelines.
    In terms of trying to make sure, though, that people are 
not getting hit two, three, four, or five times around the 
world for the same thing, we have begun working quite closely 
with other enforcers, talking about methodology where we can, 
we have got confidentiality issues in terms of Rule 6(b) about 
what we can share, but talking about approaches so that the 
cartel offense is properly penalized but not overly penalized, 
that this just does not become a tool for everybody to get 
dollars. So it is a legitimate concern, but we are focused on 
it.
    Senator Lee. Okay. And you think the procedures you have in 
place are adequate to address that?
    Mr. Baer. Yes, sir.
    Senator Lee. Okay. As I understand it, the Department does 
not currently have in place a mechanism whereby a company's own 
compliance program can be taken into account when discussing 
settlement for illegal cartel activity. Is that the case?
    Mr. Baer. I think there is a misperception out there. When 
we are looking at the fine that we are going to demand from a 
cooperating company, we do look at the cooperation they 
provided, that is, the self-confession, even if they are not in 
under the Leniency Program; but we also take a look at--and in 
private practice I have benefited from this when I represented 
corporations--the quality and extent of the in-house compliance 
program. But it goes to the size of the fine, not whether the 
misconduct occurred or not, and that is where sometimes I think 
there may be a misunderstanding out there in the business 
community that I need to work on.
    Senator Lee. Okay. So it does exist, it can be taken into 
account, it is routinely taken into account. It just relates to 
the severity of the fine and not whether or not an action 
should be brought.
    Mr. Baer. That is correct, although routinely taken into 
account does not mean we routinely credit it because we have 
really got to look at whether it was something that is on paper 
or that is real.
    Senator Lee. Right, or whether it is something that is 
there largely to cover up the fact that something funny might 
be going on behind the scenes.
    Mr. Baer. Yes, sir.
    Senator Lee. Do you think the extent to which you take it 
into account is adequate? Does it adequately reward--I do think 
there are tremendous benefits to be born--to the extent to 
which any company believes that by having a pretty robust, 
honest, and aggressive internal compliance program, to the 
extent they believe that they will benefit from doing that, I 
think they will do it. And the more we can do to incentivize 
companies to do this, the better off I think we are going to 
be, because we are going to--obviously whenever we are 
operating in the world of government, we are dealing with 
finite resources--resources that can become more finite over 
time with things like sequestration and things like that. And 
so the more we can get people to police themselves rather than 
requiring you to police them, the better off we are going to 
be.
    Do you think the extent to which you take that into account 
currently adequately incentivizes that?
    Mr. Baer. Senator, I think the key incentive is the 
penalties that people pay if they do not comply, if 
corporations and their officers are involved in the misconduct. 
I have been practicing in this area for many years, and part of 
the time in the private sector, and one reason why I think we 
are seeing fewer U.S. corporations involved in antitrust 
misconduct is that the level of awareness within the corporate 
community, particularly in the U.S., has risen over the last 20 
years. The consequences are so severe.
    So I do think the threat of bad outcomes is motivating 
better front-end attention being paid by both lawyers and by 
the company execs.
    Senator Lee. What about the types of penalties, not just 
the magnitude of the penalty but the types of penalties 
available? Are those adequate?
    Mr. Baer. I believe they are. You know, it is always hard 
to tell what you are deterring and not deterring and what you 
are overdeterring. But these are huge penalties. Companies are 
worried about them. They are worried about the treble damage 
consequences that come on top of an antitrust violation. And 
one measure of whether it is working properly is the number of 
companies who are coming in and voluntarily self-confessing. 
You know, if the first one in does get leniency for itself as a 
company and cooperating employees, but it still faces civil 
penalties, and the other companies rush in because they know we 
are going to respect the fact they got in early and owned up 
and give them a downward adjustment in what they would 
otherwise have to pay, I think it is working pretty well. I do 
not think we need more authority than we have now.
    Senator Lee. Including authority to make someone ineligible 
to serve on a corporate board in the future?
    Mr. Baer. I think the thought of going to jail is a pretty 
powerful deterrent absent having other authority.
    Senator Lee. Thank you very much.
    Thank you, Madam Chair.
    Chairman Klobuchar. Thank you very much.
    We have been joined by Senator Blumenthal, someone who 
knows a little bit about prosecuting wrongdoers.
    Senator Blumenthal.
    Senator Blumenthal. Thank you. I want to first thank 
Senator Klobuchar and Senator Lee for having this hearing--
very, very important and significant not only to the 
profession--and I thank you, Assistant Attorney General Baer, 
for your professional involvement over many years in this area 
of law--but also to the American people, and particularly as 
institutions become bigger and people lose confidence and trust 
in the workings of the marketplace as those institutions become 
bigger and more powerful, I think the work that you do is ever 
more important.
    And I want to begin with the Leniency Program, which really 
works only because you have done effective enforcement in the 
past. In other words, as you aptly described it, the fear or 
apprehension--in other words, the deterrent effect of past 
prosecutions--is what drives the Leniency Program at the end of 
the day.
    And my concern is that most of the cases that are brought 
today, I think, from what I have seen, are generated 
exclusively from firms that have decided to come forward and 
seek leniency applications. And I know that resources are a 
consideration, that enforcement requires more than just issuing 
a subpoena. You have to have experts and litigators and 
economists to evaluate what comes through a subpoena, as well 
as other sources of evidence, to bring that investigation to 
trial and then to pursue the trial.
    I am worried that the success of the Leniency Program 
combined with budget constraints that your Division faces will 
in effect give you incentives to pursue only the companies that 
come forward--the low-hanging fruit, for lack of a better 
term--and the large dollar amount in our international cartels 
that come to your attention through the Leniency Program, and 
perhaps forgo the smaller but equally harmful domestic cartels 
that require more Department of Justice resources if there is 
nobody coming forward. And needless to say, as I know from 
personal experience, some of the most egregious and harmful of 
the cartels may have nobody coming forward. So maybe to get 
your general reaction to those concerns.
    Mr. Baer. I share the concerns, and we are paying attention 
to it. The majority of our case leads come from leniency but 
not all. We have successfully just last month prosecuted bid 
rigging at a Superfund site in New Jersey, hospital procurement 
fraud in the State of New York. We talked in my prepared--our 
joint prepared remarks about our cooperative efforts to deal 
with real estate mortgage foreclosure fraud all around the 
country. We are working as best we can to get our people to 
stretch and continue outreach efforts to educate State and 
local and county officials about what to look for and when to 
come to the FBI office in their community or come to us and we 
will work together and we will go after it.
    Senator Blumenthal. Let me ask you, in terms of sort of 
leveraging resources, what is the state of cooperation with 
State Attorneys General these days?
    Mr. Baer. Speaking to a former Attorney General of the 
State with whom, when I was at the FTC, we cooperated well, I 
think it is in a good place. In some ways it is not for me to 
say, but on matters like going after the Apple e-books 
conspiracy, we had I think 34 co-plaintiff States and reached a 
very successful outcome, good working relationship. On merger 
investigations like beer and like the recent merger involving 
American and U.S. Air we settled, we worked closely and 
cooperatively.
    Part of what we need to do is make sure that we recognize 
the legitimate State interests that need to be reflected in any 
discussion about settlement or challenge, but so far I think it 
is working quite well, and I have been pleased to get back on 
that side of the ledger.
    Senator Blumenthal. Thank you.
    I want to focus on an issue concerning congressional 
exemption under the antitrust laws, a little bit different from 
what we have been discussing. As you may know, Senator McCain 
and I have introduced a measure called the ``FANS Act,'' F-A-N-
S, because we are troubled by the blackout policies of 
professional sports leagues and broadcast and cable networks 
that all too often leave sports fans in the dark, literally, 
unable to watch games that they want to see. And we believe 
that the leagues enjoy antitrust exemptions and billions of 
dollars in subsidies that should require them to give fans fair 
access to their favorite teams on TV, which is why we 
introduced this legislation actually just last Monday that 
would protect fans, consumers, and taxpayers who essentially 
make these leagues successful. Part of the reason they are 
successful also is they enjoy live programming antitrust 
exemptions that enable them to have live programming more 
available to consumers and using the cable and the Internet.
    I am not asking you to give me your opinion or judgment on 
the proposed legislation right now. I understand you may want a 
chance to look at it. I would hope that perhaps you would and 
give me your views on it. But talking in general about 
antitrust exemptions, if the market dynamics show that prices 
are increasing, in this case it is the rights to sports 
programming, and the evidence for a unique marketplace need to 
collude--and here they are colluding, and that evidence is 
unclear--isn't it appropriate for Congress to consider 
revisiting antitrust immunities that have been granted in the 
past?
    Mr. Baer. Senator, I appreciate the pass on the specifics 
of the legislation because I could not respond adequately, 
although we will look at it. As a general matter, the Antitrust 
Division of the Justice Department and my colleagues at the 
Federal Trade Commission have urged that antitrust exemptions 
be granted sparingly and be looked at very, very closely. That 
continues to be the view of the Justice Department.
    Senator Blumenthal. Well, I certainly join you in that 
general view and hope that you will perhaps join me in 
advocating that this exemption should be narrowed or eliminated 
if the leagues continue these blackout policies that are 
essentially anti-consumer and take advantage of market power 
without any public benefit or insufficient public benefit to 
justify them. So I thank you for that view, and I look forward 
to hearing more about it.
    Thank you, Madam Chair.
    Chairman Klobuchar. Thank you very much, Senator 
Blumenthal.
    Before you leave and we get our next panel up, we really 
felt that we have not given you enough opportunity to talk 
about your chart, Mr. Baer, if that is your chart, with your 
car and everything, so we wondered if you wanted to add 
anything for your final question about the auto products 
targeted by the conspirators and which are some of the biggest 
parts of the car products that are targets.
    Mr. Baer. We developed that chart in part just to show the 
pervasiveness of the bad conduct pattern we had seen. If you 
look at the auto products that the conspirators fixed prices 
on--this is just what we have discovered and prosecuted so far, 
it is not necessarily the end of the game by any stretch--but, 
you know, Mitsubishi got overcharged for alternators, starter 
motors, ignition coils. Hitachi, you know, six different 
products, air flow meters, throttle bodies, ignition coils, 
alternators, valve timing controller devices, starter motors. 
It is Mitsubishi compressors, condensers.
    If you look around the car and look at the safety systems 
or the electrical systems, there has been a very bad pattern of 
conduct that domino by domino we--the dominoes are falling. I 
almost mixed a metaphor there, but I caught myself. The 
dominoes are falling, and we think we are actually, as we go 
forward, going to be able to deliver more good news to the 
American consumer about prosecuting bad conduct with the help 
of the guy to my left and his terrific team.
    Chairman Klobuchar. Okay. Do you want to add anything, Mr. 
Hosko?
    Mr. Hosko. No. I echo Mr. Baer's sentiments.
    Chairman Klobuchar. Okay, very good. Well, we are looking 
forward to hearing about more successes, and if there is 
anything we can help with legislatively, even the smallest 
things, we would love to do anything to help. And I think your 
first answer to that, ``Yes, get rid of the sequestration, 
Senator.'' But if there are any tools that we can give you and 
legal issues, we would love to work together to help you.
    Do you want to add anything, Senator Lee?
    [No response.]
    Chairman Klobuchar. Okay. Thank you, both of you.
    Mr. Baer. Thank you very much.
    Mr. Hosko. Thank you.
    Chairman Klobuchar. We will call up our second panel.
    [Pause.]
    Chairman Klobuchar. Okay. I would like to now introduce our 
next panel of distinguished witnesses.
    Our first witness will be Hollis Salzman. Ms. Salzman is a 
partner at Robins Kaplan Miller & Ciresi, which I will add is a 
Minneapolis-based law firm, and I do not think that is why she 
is here. In fact, I think our staff was looking for experts in 
this area, and it just happened to be a Minneapolis-based law 
firm because, in fact, you are out of the New York office, and 
she is the co-chair of the Antitrust and Trade Regulation 
Group, and I will say Robins Kaplan has handled some major 
international civil litigation and handled it quite well.
    We next have Mr. Christopher Hockett. Mr. Hockett is a 
partner at Davis Polk and serves as the head of the firm's 
antitrust practice, also a very well-known firm. He is also 
chair of the section on antitrust law for the American Bar 
Association and is testifying on behalf of the section.
    Our third witness will be Ms. Margaret Levenstein. Dr. 
Levenstein is the executive director of the Michigan Census 
Research Data Center and an associate research scientist for 
the Institute for Social Research at the University of 
Michigan. She is also an adjunct professor of business 
economics and public policy in the Ross School of Business. So 
being from Michigan, you probably care a lot about cars. Okay. 
You do not have to answer that.
    Our final witness will be Mark Rosman. Mr. Rosman is a 
partner at Wilson Sonsini Goodrich & Rosati, where he is a 
member of the firm's antitrust practice.
    A friend of mine from the University of Chicago was at your 
firm for a long time. We can talk about it later.
    Prior to joining the firm, he served as assistant chief of 
the National Criminal Enforcement Section in the Justice 
Department's Antitrust Division.
    So I ask our witnesses to rise and raise their hands as I 
administer the oath. Do you affirm that the testimony you are 
about to give before the Committee will be the truth, the whole 
truth, and nothing but the truth, so help you God?
    Ms. Salzman. I do.
    Mr. Hockett. I do.
    Ms. Levenstein. I do.
    Mr. Rosman. I do.
    Chairman Klobuchar. Thank you. Why don't we begin with Ms. 
Salzman.

STATEMENT OF HOLLIS SALZMAN, PARTNER & CO-CHAIR, ANTITRUST AND 
TRADE REGULATION GROUP, ROBINS KAPLAN MILLER & CIRESI, LLP, NEW 
                         YORK, NEW YORK

    Ms. Salzman. Thank you very much for inviting me to be here 
to testify. We talked a lot about the auto parts litigation, 
and I am one of the co-lead counsels in the private enforcement 
actions that supplements the criminal cases in the auto parts 
cases.
    I wanted to make three points here today that are outlined 
in my written testimony.
    The first point relates to ACPERA, and I echo the comments 
made earlier today. The Antitrust Division's use of the amnesty 
and leniency for the first firm who reports its participation 
in a cartel and providing evidence against the cartel has been 
hugely successful. For example, the air cargo litigation, the 
LCD case, and most recently, and as we have been discussing 
today, the auto parts cartels where the DOJ has secured record 
fines and sent ample numbers of people to jail for violating 
the antitrust laws. These are real-life cases that affect real 
people. These are consumers that are harmed, consumers who 
purchase computers, cell phones, automobiles. These are 
products purchased by every household in America, and consumers 
are greatly affected by these cartels and the overcharges to 
their products as a result.
    ACPERA could be enhanced. Specifically the statute does not 
provide enough guidance on the contours of the required 
cooperation and the timing of such cooperation in civil cases. 
A recent example is in the auto lights litigation that is 
pending before Judge Wu in the Central District of California. 
Recently in that case, the plaintiffs made a motion before the 
court to exclude the ACPERA applicant's right to seek single 
damages in a case because the applicant did not cooperate in a 
timely fashion or in a robust manner with the plaintiffs in 
that action, and Judge Wu agreed with the plaintiffs. The 
timing of cooperation is particularly relevant if you think 
about it in terms of a statute of limitations. If a defendant, 
an ACPERA applicant, is to provide quality evidence and that 
evidence provides additional co-conspirators that could be 
brought into litigation or that should have charges brought 
against it as participants in the conspiracy but that 
information arrives after a statute of limitations has run, 
that information has no value for the private plaintiff.
    So we think that having appropriate explanations in the 
ACPERA statute as part of it, both in terms of what is expected 
of a leniency applicant in terms of its cooperation in a 
private case, as well as the timing of the cooperation, will 
not only assist the private litigants, but will also provide 
guidance to defendants in their process as they move through 
their Leniency Program and would likely want to take advantage 
of the single damages limitation that is being offered to them.
    A second point, while not part of ACPERA, is the Senate's 
recent passing of the Whistleblower Act for reporting antitrust 
crimes, which will enhance the ability to secure evidence of 
antitrust violations. We are hopeful that this Act will receive 
approval of the full Congress.
    We do think, however, that the added provision of a 
financial reward for reporting should be reconsidered by the 
Senate as such a provision would motivate employees to step 
forward with information on criminal acts.
    Finally, given the tremendous success of the Department of 
Justice's cartel enforcement, including recoupment of record 
fines exceeding well over $1 billion in each of the last two 
years alone, we urge Congress to consider increased funding for 
the DOJ's antitrust enforcement efforts. It is especially in 
difficult economic times when companies are looking for ways to 
increase profits, which may include engaging in unlawful 
conspiracies, and given the recent DOJ record fines, which are 
growing daily, increased and continued funding for the 
Department of Justice makes good economic dollars and sense.
    Thank you.
    [The prepared statement of Ms. Salzman appears as a 
submission for the record.]
    Chairman Klobuchar. Thank you very much.
    Next, Mr. Hockett.

    STATEMENT OF CHRISTOPHER B. HOCKETT, CHAIR, SECTION ON 
  ANTITRUST LAW, AMERICAN BAR ASSOCIATION, AND PARTNER, DAVIS 
          POLK & WARDWELL, LLP, MENLO PARK, CALIFORNIA

    Mr. Hockett. Good afternoon, Chairman Klobuchar and Ranking 
Member Lee. I am Chris Hockett. I am a partner at Davis Polk 
and chair of the 8,000-member Section of Antitrust Law. My 
remarks today are given on behalf of the Antitrust Section, and 
I thank you for the honor of appearing before you.
    As we have heard from every witness so far--and I do not 
think there will be any change by the end of the day--there is 
no question that cartels hurt American consumers and the 
American economy by raising prices, stopping competition, 
reducing output, and reducing quality. And for decades, it has 
been a top priority of the Antitrust Division to prosecute 
cartel conduct.
    The commitment of the Division to this mission has been 
exemplary and unwavering over multiple administrations. Our 
Nation's Criminal Antitrust Enforcement Program is truly a 
model of bipartisan or nonpartisan consistency. And as Chairman 
Klobuchar and Ranking Member Lee have observed, it has also 
been highly successful.
    The advent of the revised Leniency Program in the 1990s and 
Congress' decision to increase penalties for criminal antitrust 
conduct have launched a new era of success in detecting and 
prosecuting large international cartels that inflict 
significant harm on the American public.
    As one former Division head once said, ``Leniency programs 
are the greatest investigative tool ever designed to fight 
cartels.''
    Now, is the system working perfectly? No. There is always 
room for improvement. So what are the important challenges and 
what can we do about them?
    Well, I have made some remarks about that in my written 
testimony, but today I would like to briefly highlight two 
things.
    One, personnel cuts. Over the years, the returns on cartel 
enforcement efforts have been multiples of the Antitrust 
Division's budget. You heard from Assistant Attorney General 
Baer 10 times each year, year over year. And we are currently 
in the midst of a boom in U.S. cartel enforcement with the auto 
parts investigation being the largest ever, and it is just one 
among many.
    However, this intense activity level coincides with other 
events that have resulted in a one-third decrease in the number 
of cartel enforcers at the Division plus the implementation of 
a hiring freeze. It is perhaps too early to tell the effects of 
this head-count reduction, but given the importance of cartel 
enforcement to American consumers and the complexity of the job 
that needs to be done, the current situation presents a 
significant concern.
    The second thing is the internationalization of cartel 
enforcement. Antitrust law has been one of the United States' 
most successful exports over the past 20 years, and that 
includes cartel enforcement. Other countries have seen the high 
fines and criminal sanctions associated with our enforcement 
efforts and have followed our lead. Fifty countries now have 
leniency programs, and we are encouraging other countries to 
adopt criminal laws to prevent antitrust violations, and they 
are.
    Now, that is in many ways a very good thing because it 
increases the chances of detection, it increases deterrence, 
but there are also some downsides. It adds complexity and 
requires the kind of coordination that Assistant Attorney 
General Baer mentioned they were engaged in: coordination, 
cooperation, engagement with counterparts around the world, 
among other things, to avoid the kind of double recovery 
problem that Senator Lee mentioned.
    The proliferation of these vigorous anti-cartel mechanisms 
around the world also creates another complexity, and that is, 
criminal sanctions are going to be enforced by jurisdictions 
whose notions of due process and fair treatment are different, 
quite a bit different from our own. And we strongly support the 
Division's continued involvement to ensure transparent and fair 
investigative, administrative, and adjudicative procedures 
related to cartel enforcement, both in the U.S. and abroad. We 
at the Antitrust Section are committed to furthering those 
goals, but we are no substitute for the Antitrust Division, 
which is an active and important leader in international 
organizations such as the ICN and the OECD.
    So we urge the Antitrust Division to be supported in its 
efforts to stay engaged in those very, very important 
international dialogues for the sake of American consumers and 
American businesses doing business globally, because we do not 
want people to be thrown in jail for getting into a joint 
venture.
    [The prepared statement of Mr. Hockett appears as a 
submission for the record.]
    Chairman Klobuchar. Very good. Thank you.
    Dr. Levenstein.

   STATEMENT OF MARGARET C. LEVENSTEIN, RESEARCH SCIENTIST, 
 INSTITUTE FOR SOCIAL RESEARCH, ADJUNCT PROFESSOR OF BUSINESS 
     ECONOMICS AND PUBLIC POLICY, ROSS SCHOOL OF BUSINESS, 
          UNIVERSITY OF MICHIGAN, ANN ARBOR, MICHIGAN

    Dr. Levenstein. Thank you, Senator Klobuchar and Senator 
Lee, for inviting me to speak to you today.
    As we have said, cartels can and do have a significant 
negative impact on consumers and competition. My research with 
Valerie Suslow has shown that cartels do last, perhaps not 
forever, but on average seven to 10 years. Cartels have been 
found in a wide variety of industries, including ones that are 
technologically dynamic, not just staid, staple goods 
industries, but things like computer chips and flat panel 
screens. Cartels affect consumers in industry, agriculture, 
financial services, and the public sector.
    While economists, which I am, being economists, differ on 
exact estimates of the impact of cartels on prices, it is clear 
that cartels can raise prices substantially. But cartels do not 
simply raise prices. To survive and protect their profits, 
cartels must prevent entry. They must create barriers to entry.
    Some of these barriers will not endure, but if you are a 
firm attempting to enter an industry and are denied access to 
technology, as happened to a firm in the graphite electrodes 
industry, or denied access to customers, as happened to someone 
who tried to go up against the sewing needle cartel, or faced 
with a targeted price war, as happened to a firm that was 
trying to sell steel pipes, then it will not matter to you that 
some other firm, but perhaps with deeper pockets, manages to 
wear the cartel down years later. Your entrepreneurship, the 
potential that your dynamic activity could contribute to our 
economy, is stymied.
    The Antitrust Division has had a strong and consistent 
anti-cartel enforcement policy for the past 20 years. But 
cartels continue to form, and we see recidivism among convicted 
cartel members. This suggests that existing penalties, while 
they have increased, are still insufficient. Firms still treat 
these fines as the cost of doing business. We can and should 
increase fines, and corporate fines are critical to aligning 
shareholders' incentives with consumer welfare. But fines large 
enough to deter collusion are probably large enough to bankrupt 
firms given the uncertainty in detection and the high profits 
that collusion dangles in front of firms. We do not want to 
bankrupt firms. That simply undermines rather than strengthens 
competition.
    So we need smarter, not simply larger, penalties. Jail 
terms, embraced by the Division, provide a more effective--a 
very effective, I think, deterrent to individual executives and 
to managers.
    Two other potential remedies I think should be considered.
    First of all, I think we should consider banning executives 
who have been convicted of felonies against consumers in their 
industry. There are not an enormous number of tools to do that, 
but I do not think it is impossible. There are some ways that 
we could imagine doing that.
    I also think we need to consider increased scrutiny of 
mergers of former cartel members. We have seen in a couple 
instances cartels broken up, only to see consolidation in the 
industry afterwards, which defeats the purpose.
    Finally, you might consider increased private litigation as 
a way to increase deterrence, but I think it is important to 
remember that private action by itself rarely discovers 
cartels. Civil penalties are important for fairness, and the 
DOJ, with its outreach to consumers, can help consumers to 
detect and prevent collusion, and so bring private resources, 
sort of a Consumer Neighborhood Watch, if you like, to bear. So 
private action can complement federal action, but it is not a 
substitute for federal action.
    Amnesty has been very effective at breaking up cartels, 
particularly international cartels that had long considered 
themselves immune. But amnesty cases still require resources, 
and unless there are effective resources for--unless 
prosecutorial resources are expanded or at least maintained, 
amnesty cases crowd out other investigations. Colluding firms 
hide what they are doing and develop ever more sophisticated 
ways of operating and hiding these things, and so it takes 
increasing resources on the part of investigators to discover 
collusion.
    Investigative resources can pay off. Newly developed 
statistical screening techniques discovered collusion in LIBOR 
three years before the Wall Street Journal reported on it. 
Novel techniques in analyzing Web-based communication could be 
used to discover invitations to collude, such as those that 
were employed in the U-Haul case.
    Intra-industry swaps, which have legitimate business 
purposes but which are also used regularly to meet cartel 
quotas, could be investigated.
    The Division and FTC should also identify highly 
concentrated market niches. Most cartels operate in extremely 
concentrated markets. In one study, Professor Suslow and I 
found that over two-thirds of cartels were in markets with a 
four-firm concentration ratio of over 75 percent, and these 
were often global concentration ratios. With appropriate 
resources, the DOJ and the FTC can identify markets that are at 
risk. This is not a simple task, as market definition is key.
    For example, there are over 5,600 commercial banks in the 
United States, and for decades most economists thought of U.S. 
banking as being overly fragmented, not too concentrated. But 
the number of participants in LIBOR is much smaller. The number 
of participants in foreign exchange markets, which were also 
subject to collusion we now know, is smaller still. And I can 
count on one hand the number underwriting municipal bonds. 
Thus, Professor Suslow and I called a recent paper ``Constant 
Vigilance.''
    While we will never stop all price fixing--and we probably 
would not want to because that would be overdeterrence--there 
are both investigative tools and sanctions that, with 
appropriate policies and resources, we can apply to reduce the 
impact of anticompetitive behavior on consumers and 
competition.
    Thank you.
    [The prepared statement of Dr. Levenstein appears as a 
submission for the record.]
    Chairman Klobuchar. Thank you very much.
    Mr. Rosman.

 STATEMENT OF MARK ROSMAN, PARTNER, WILSON SONSINI GOODRICH & 
                     ROSATI, WASHINGTON, DC

    Mr. Rosman. Good afternoon and thank you, Chairman 
Klobuchar and Senator Lee. My name is Mark Rosman, and I am a 
partner at Wilson Sonsini Goodrich & Rosati in the Antitrust 
Group here in Washington, D.C. Before joining Wilson Sonsini, I 
was a trial attorney and prosecutor for the U.S. Department of 
Justice Antitrust Division for 2 decades, and I work both in 
the field office as well as at the headquarters. It is my 
distinct honor to have worked for the DOJ, and it is a distinct 
honor to be here today to testify with you all.
    Before leaving the DOJ, I was the lead prosecutor on the 
airlines investigation, which you heard Assistant Attorney 
General Baer allude to, bringing in $1.8 billion in fines. It 
was certainly a proud accomplishment of mine while I was at the 
Department. And I brought in this little piggy bank that I kept 
on my desk when I was at the Department. It is from China, and 
one of the prosecutors in my old office brought this back for 
me, and I kept it on my desk as a little good luck charm and 
also a bit of a motivator to bring in the big fines. And I have 
this on my desk today, but it has a little bit of a different 
meaning to me today.
    Number one, when I look at it, I wonder: Could I ever have 
really put $1.8 billion in this little piggy bank?
    But, also, I wonder, to echo Dr. Levenstein's comments, 
whether going for bigger fines was always the best thing and 
the right thing that the Department should be doing as opposed 
to looking at some other alternatives that the Senators here 
today have raised and asked about, going for smarter fines, 
perhaps. And I am going to talk a little bit more about that in 
my comments.
    In my written comments I outline four areas of concern, and 
I do not think anybody can really question the success of the 
Antitrust Division, and these comments are made in the vein of 
improving and building on that success.
    One of the areas of concern is a discussion of refocusing 
and rebalancing, if you will, the Division's focus on these 
blockbusters, I will call them, cartels, international cartels. 
And I think we heard Senator Blumenthal ask a good question 
about, you know, whether perhaps--or at least raise a concern 
whether the emphasis and the focus has shifted, the pendulum 
has swung to the other end of the spectrum such that there may 
be a lack of focus on domestic and regional price-fixing 
violations.
    A second concern I raised is about the application of the 
guidelines to lower-level employees and mid-level employees, 
and whether the Antitrust Division should consider using some 
guidelines applications such as offering individuals who are 
involved in these offenses a minimal or minor role adjustment 
in order to encourage cooperation, because juries recently have 
acquitted a number of these individuals that have been brought 
to trial in cases, and there have been a lot of resources spent 
prosecuting lower-level individuals.
    A third concern goes to your point, Senator Lee, about the 
point that you have raised about double counting and whether 
there are other ways the Division could approach sentencing and 
fines for corporations. And, in particular, there is a practice 
that is used now and has been used for quite some time of a 
bump, it is called, if you will, for indirect commerce. And 
this is significantly raising the fines both in the airlines 
cases that I worked on, but also continuing today in the auto 
parts cases, and whether that commerce--whether the Division 
needs to go after that commerce, whether it is just serving a 
deterrent effect, and whether it may be best gone after by 
other authorities that are now actively investigating these 
types of violations.
    And then, finally, I raise some thoughts in my written 
remarks about concerns about deterrence generally and 
specifically as to individuals who are involved, and I think 
there has always been a push, and certainly when I was at the 
DOJ, of raising the bar, increasing the amount of time 
individuals go to jail, and certainly I would agree with the 
Assistant Attorney General's remarks that fear of going to jail 
is a deterrent, but I think one thing that I would highlight is 
also there has to be a fear of detection, a fear of getting 
caught. And I think the professor alluded to that as well. And 
so, you know, if you are not really afraid of getting caught, 
having longer and higher jail sentences may not be the best 
deterrent.
    With that, I see my time is up, and I am happy to answer 
any questions that you may have.
    [The prepared statement of Mr. Rosman appears as a 
submission for the record.]
    Chairman Klobuchar. Thank you very much. We are going to 
get started. Senator Lee is going to go first this time. 
Thanks.
    Senator Lee. I want to talk a little bit more about the 
bump, Mr. Rosman. I suspect that this happens a fair amount 
because they want to obtain a larger fine. They have got their 
own piggy bank on their desk. I thought that was interesting, 
by the way. That was the first thought I had, was how you could 
possibly fit over $1 billion in such a thing. My second thought 
was that that piggy bank sort of resembles a cat. I do not know 
quite what to do with that, but I do not know, maybe they have 
a different variety of pig there.
    But it seems to me that this could result in double 
counting and double penalizing the same conduct, the same 
transaction. How do they go about it? And, more importantly, 
what can we do to help discourage improper bumping?
    Mr. Rosman. Yes, so I will say that when I was at the 
Division--and I am sure today it is the case as well--the 
leadership and the attorneys were mindful of this issue, and so 
there was a concern, and there were discussions and ongoing 
discussions today, as we have heard, with their counterparts 
from other countries to try to take into account that this is a 
real issue.
    And so, for example, in the airlines cases, when you looked 
at indirect commerce, it was a question of inbound, what was 
called ``inbound commerce''--in other words, for air cargo or 
passenger commerce, commerce that was literally on flights 
coming into the United States. And so that was part of the 
bump. But the DOJ did not take a dollar-for-dollar measure of 
that commerce. There was actually an adjustment that was made 
based on the import-export ratio. So the DOJ did try to take 
into account and not actually take all of that commerce.
    What I am questioning here today is: Is that enough? And 
given the increasing levels of enforcement worldwide, do they 
really need to go after that? And are there, in fact, other 
ways to incentivize companies, such as through compliance 
program credit and perhaps other penalties, such as increased 
corporate governance, that would achieve the same goals that 
the Division has rather than just simply trying to ratchet up 
the fines.
    Senator Lee. I do not necessarily hear you saying that 
there is a legitimate purpose for the practice. Do you think 
there is? Should it be abandoned altogether?
    Mr. Rosman. Well, I would say that, you know, it depends on 
the facts. As you pointed out earlier, these are complex kind 
of factual considerations, even getting down to the level of, 
you know, where is the product that is in question invoiced? 
You know, where is the invoice sent to? Is it sent to the 
United States? Is it sent to some other country to try to 
determine where the sale takes place?
    So it is a very fact-driven type of analysis, and in some 
cases, if there is a direct--you know, you could say that even 
in an indirect sale there is some effect on the United States. 
I am not here to say that that is impossible. But I think that 
given that the fines are reaching very high levels, even just 
taking direct commerce alone, it is a fair question to ask: Do 
you need this indirect commerce? Does it really serve a 
deterrence purpose? Other countries going after that commerce 
that takes place in their country, is that enough of a 
deterrent without having to account for it, even if you agree 
that it might have had some indirect effect on the U.S.? I 
think that is a valid question.
    Senator Lee. Thank you. That is helpful.
    Dr. Levenstein, let us talk about fines and jail time. You 
talk in your testimony about the fact that in some 
circumstances fines might not work and, in fact, might be even 
counterproductive. You might reach a point at which they become 
counterproductive. Talk to me a little bit about why reliance 
on prison time and/or debarment might be better.
    Dr. Levenstein. I think the way that economists think about 
this is that, in order to deter collusion, you need to have the 
expected payoff to collusion be negative. You do not want it to 
pay. And you can have it not pay by having high fines. You can 
have it not pay by having it likely that you will have to pay 
those fines, so increasing the investigative activity, the 
likelihood of detection will also increase deterrence.
    There are other things, though. There are individuals who 
may not have to pay the fines or may be compensated in other 
remunerative ways. When you think about going to jail, you 
might actually get managers who are not willing to engage in 
collusion if you use prison sentences.
    I think there are other things that--so I think that--well, 
there are two things. One is that prison sentences are 
effective deterrents if people believe that they are likely to 
face them. So, again, it is always combined with discovery.
    I think that we want to think about things like barring 
people from an industry because there are clearly certain 
industries and certain firms that have been engaged in this 
activity over and over again, and we even have the suggestion 
that there are firms that say, okay, you take one for the team 
and then we will take care of you after that. And people have 
to understand that--this is not an acceptable way to compete, 
and that you cannot participate in the market if you do this.
    Senator Lee. Yes, that, and I suppose are people who, once 
they have learned they can earn a living in a certain way, they 
would like to continue earning a living that way, especially if 
it is very lucrative.
    Dr. Levenstein. Well, when people have been successful at 
doing this and the fines are not--the fines are not enough to 
make it not profitable. That is the bottom line. And if you 
know that it is still profitable, then you are going to keep 
doing it.
    Senator Lee. Okay. Mr. Hockett, you expressed some concerns 
regarding fair treatment and due process for defendants, 
especially in foreign jurisdictions with which the U.S. 
cooperates in investigations. What do you think we could do to 
help alleviate those concerns within the U.S. in that regard?
    Mr. Hockett. You know, a couple of ways. I think, number 
one, set a good example by continuing to provide transparency, 
fairness, and due process in our own system when we are 
addressing conduct by people who live outside the United 
States.
    Second, I think continuing to engage in these international 
fora, which is something that may seem sort of extra and 
optional to people who are not involved in it, but it is really 
the only way that the U.S. Government can try to shape the 
norms of what is considered a hard-core antitrust violation 
worthy of jail time or huge fines and how people are treated in 
those systems. It is a big challenge because unlike, say, 
merger enforcement, which bolts onto a country's regime 
probably they did not have anything like it until they decided 
to adopt it, a criminal antitrust enforcement regime overlays 
the country's native criminal justice system, which, as I 
indicated before, might be dramatically different from what we 
are used to and the guarantees of due process and procedural 
fairness that we are used to.
    So what we do not want is a situation in which American 
businesses and citizens doing business abroad are confronted 
with claims that seem quite exotic as far as hard-core 
antitrust violations and then are treated to foreign justice 
systems that are unfair.
    The only way to do that is through the soft influence that 
we have through these international fora, and in which the DOJ 
has played quite an active role, but they are increasingly 
constrained in doing that by the lack of funds.
    Senator Lee. Thank you.
    Thank you, Madam Chair.
    Chairman Klobuchar. Very good. Thank you.
    I will start with you, Ms. Salzman. You represent victims 
of price fixing, the consumers, and often companies that have 
paid higher prices because of a crime and criminal cartels. 
What is the magnitude of the harm? And what have you seen that 
it means for their bottom line and their ability to expand 
their businesses?
    Ms. Salzman. I think that that is a very good question, but 
it varies from case to case, and depending on the particular 
conspiracy, each conspiracy takes on its own characteristics in 
terms of the amount of overcharge.
    I cited a study in my written testimony, and, you know, 
depending on how you look at the averages, you are looking at 
probably, at the low end, around 25 percent of an overcharge. 
And what this does to consumers is consumers do not know about 
these antitrust conspiracies because, until it is brought to 
light either by the government or private enforcement, they 
just continue to overpay higher prices for goods. And for 
businesses that are paying for overpriced goods from purchases 
from wrongdoers, they are passing it on to consumers who are 
ultimately injured. But also for the businesses what it does is 
it creates higher costs for them in terms of inputs for their 
businesses, and that in and of itself is a problem for their 
business model and what else they could do with those funds in 
terms of competing in the market, research and development, 
other ways that they could spend that money.
    I was wondering if I could make one comment to the bumping 
question.
    Chairman Klobuchar. Sure.
    Ms. Salzman. I just have a slightly different perspective 
on this bumping issue. The way that I see it--and I am thinking 
in particular in the auto parts litigation, where there was an 
imputed amount in the fine, it had to do with goods that were 
manufactured abroad, but put into a product that ultimately 
ended up in the United States. And to me that is commerce that 
affects our consumers here in the U.S. And if you violate the 
antitrust laws and you are being brought to justice for that, 
you should be held accountable for those transactions.
    Chairman Klobuchar. We talked earlier about the lawyer 
power in the Antitrust Division and across the board, including 
with the FBI, with their agents. How do you think this will 
negatively affect consumers if we see this continued drawdown 
of people working in this complex area?
    Ms. Salzman. I think, as I said in my remarks, that I do 
think funding the Department of Justice so that it has adequate 
staffing and funds to continue their investigation is 
imperative for our economy. In bad economic times, companies 
look for ways to make money, and unfortunately some of the 
companies look to conspiring with their competitors, which 
results in higher prices for small businesses and consumers. So 
I think it is imperative that the Department of Justice 
continue to get funding and increased funding.
    Chairman Klobuchar. And if they do not bring a case for 
whatever reason, does that affect your decision about what you 
do?
    Ms. Salzman. It does not always affect our decision. There 
are times when we are given information on a conspiracy and we 
try to investigate, but without the power of subpoena that the 
Department of Justice has, it is very difficult to get the 
necessary early information and evidence that would be required 
to sustain a motion to dismiss a complaint in court.
    Chairman Klobuchar. Very good. Thank you.
    Mr. Hockett, Senator Lee asked you about the international 
aspect of this, and just stepping back from--I know you have 
these concerns on the due process issues and other things. Just 
how has it changed over the years? I would just think more and 
more this has become an international issue, so there is a 
reason to pursue it beyond our--I do not think these crooks 
care about the State borders or country borders, and look at 
this as an international issue, and isn't there an argument to 
actually have this be more of an issue that is raised in 
whether it is trade negotiations or other things without other 
countries?
    Mr. Hockett. Yes, it is certainly a global issue. These 
cartels that have come to light, largely through the Leniency 
Program, have operated across international borders. They have 
hurt not only U.S. consumers but consumers all around the 
world. And as I have indicated, the regimes designed to enforce 
against cartel conduct have sprouted up all over the world with 
our encouragement. That is what makes it so important for our 
enforcers to work side by side with theirs, not simply to 
promote fairness and avoid double recoveries, but also to 
coordinate the enforcement efforts themselves, which require 
simultaneous seizures of information, dawn raids, sharing of 
information consistent with confidentiality requirements, so 
that they can act as effective law enforcement agents and 
prosecutors.
    Chairman Klobuchar. Thank you.
    Dr. Levenstein, understanding that more than just economic 
data is needed to prove price fixing, some experts have 
suggested that the DOJ should use economic screening tools to 
monitor industries, particularly those that are highly 
concentrated, as a way of detecting potential cartel activity. 
For example, a number of foreign jurisdictions use economic 
screens, and screens are widely attributed to discovering the 
LIBOR conspiracy.
    What is your view on the use of economic screens to detect 
cartels?
    Dr. Levenstein. Well, I think statistical screens----
    Chairman Klobuchar. Would you explain it to everyone here 
what that means?
    Dr. Levenstein. A statistical screen is simply a way of 
looking at the prices that are supposedly set independently by 
all of the participants in a market to see whether or not it is 
even within the realm of plausibility that they were set 
independently without working together. And it was clear from 
the analysis of the LIBOR case that the probability that these 
prices--that these LIBOR rates had been set independently on a 
daily basis over many, many years and somehow ended up the way 
that they did was not within the realm of possibility. And they 
use--I mean, it is not just are they the same prices, but they 
actually look at the matching of the digits in the price to 
determine these things in that particular case.
    Screens have also been used in some gas price-fixing cases 
I believe the FTC has looked at.
    They have also been used, say, in the school milk auctions. 
They have been shown that you can use those. That was done ex 
post, not to discover the cartel, but they have been shown to 
be quite effective in distinguishing, particularly when you are 
talking about auctions, where you have a small number of 
bidders, when you have auctions where the bids become public, 
it is actually--it is very hard for the customer to protect 
itself because we do want transparency from our local 
governments, but it makes it very easy for these firms to do 
this, and it is a very useful technique in getting at it.
    Chairman Klobuchar. And critics have said that there is 
sometimes a risk of a false positive. How do you respond to 
that?
    Dr. Levenstein. You need good investigative techniques. You 
need good statisticians. I do not think anybody is saying, oh, 
just because they charge the same price, that means it is 
collusion. But the techniques are actually quite robust.
    Chairman Klobuchar. Okay. Thank you very much.
    Mr. Rosman, just one last question here. Do you agree that 
private enforcement and private follow-on suits are an 
important component to antitrust law and the benefit of 
consumers? And are there barriers now for victims to get to 
court?
    Mr. Rosman. I do agree that private enforcement is an 
important part of the mix of deterrence, and as was referred to 
earlier, treble damages are a big component of that. So I think 
it is important, yes.
    Are there barriers now? I am not sure there are significant 
barriers. Ms. Salzman might disagree with me about that. I 
think that, you know, you certainly see whenever there is an 
investigation brought by the DOJ you can almost, you know, 
bet--you could bet that there are going to be class action 
suits filed right on the heels of whatever case--it does not 
even have to be a case, frankly. It can be a search warrant, a 
headline in the news, and these cases are going to be filed.
    And there are now, you know, many more cases where 
plaintiffs are choosing to opt out, such as, I believe, Best 
Buy was one of those cases where they believe they have their 
own case for damages; they can opt out of the class action.
    So I think there is a robust private enforcement that is 
going on out there. Perhaps there could be some fine tuning to 
it, but I think that plaintiffs do have a strong voice out 
there right now.
    Chairman Klobuchar. All right. Do you have any follow-ups?
    [No response.]
    Chairman Klobuchar. Okay. Very good. Well, I wanted to 
thank all of you. I think this was a robust hearing, to use Mr. 
Rosman's word there at the end, and I know that there were some 
ideas tossed out there for changes to the law, which we 
appreciate. And we really appreciate everyone's time, and thank 
you for all of your efforts in this very, very important area.
    We will leave the record open for a week--is that enough 
time? Okay--for colleagues to put any questions on the record 
or for ourselves, and we just want to thank you all for taking 
time out of your day today and visiting with us, and we learned 
a lot. So thank you for that, and the hearing is adjourned.
    [Whereupon, at 4:31 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

              Additional Material Submitted for the Record

[GRAPHIC] [TIFF OMITTED] T9503.001

[GRAPHIC] [TIFF OMITTED] T9503.002

  Prepared Statement of William J. Baer, Assistant Attorney General, 
 Antitrust Division; and Ronald T. Hosko, Assistant Director, Criminal 
        Investigative Division, Federal Bureau of Investigation

[GRAPHIC] [TIFF OMITTED] T9503.003

[GRAPHIC] [TIFF OMITTED] T9503.004

[GRAPHIC] [TIFF OMITTED] T9503.005

[GRAPHIC] [TIFF OMITTED] T9503.006

[GRAPHIC] [TIFF OMITTED] T9503.007

[GRAPHIC] [TIFF OMITTED] T9503.008

[GRAPHIC] [TIFF OMITTED] T9503.009

[GRAPHIC] [TIFF OMITTED] T9503.010

[GRAPHIC] [TIFF OMITTED] T9503.011

[GRAPHIC] [TIFF OMITTED] T9503.012

 Prepared Statement of Hollis Salzman, Partner and Co-Chair, Antitrust 
  and Trade Regulation Group, Robins, Kaplan, Miller & Ciresi, L.L.P.

[GRAPHIC] [TIFF OMITTED] T9503.013

[GRAPHIC] [TIFF OMITTED] T9503.014

[GRAPHIC] [TIFF OMITTED] T9503.015

[GRAPHIC] [TIFF OMITTED] T9503.016

    Prepared Statement of Christopher B. Hockett, Chair, Section on 
  Antitrust Law, American Bar Association, and Partner, Davis Polk & 
                Wardwell, L.L.P., Menlo Park, California

[GRAPHIC] [TIFF OMITTED] T9503.017

[GRAPHIC] [TIFF OMITTED] T9503.018

[GRAPHIC] [TIFF OMITTED] T9503.019

[GRAPHIC] [TIFF OMITTED] T9503.020

[GRAPHIC] [TIFF OMITTED] T9503.021

[GRAPHIC] [TIFF OMITTED] T9503.022

[GRAPHIC] [TIFF OMITTED] T9503.023

[GRAPHIC] [TIFF OMITTED] T9503.024

[GRAPHIC] [TIFF OMITTED] T9503.025

[GRAPHIC] [TIFF OMITTED] T9503.026

[GRAPHIC] [TIFF OMITTED] T9503.027

[GRAPHIC] [TIFF OMITTED] T9503.028

[GRAPHIC] [TIFF OMITTED] T9503.029

   Prepared Statement of Margaret C. Levenstein, Research Scientist, 
Institute for Social Research, Adjunct Professor of Business Economics 
and Public Policy, Ross School of Business, University of Michigan, Ann 
                            Arbor, Michigan

[GRAPHIC] [TIFF OMITTED] T9503.030

[GRAPHIC] [TIFF OMITTED] T9503.031

[GRAPHIC] [TIFF OMITTED] T9503.032

[GRAPHIC] [TIFF OMITTED] T9503.033

[GRAPHIC] [TIFF OMITTED] T9503.034

[GRAPHIC] [TIFF OMITTED] T9503.035

[GRAPHIC] [TIFF OMITTED] T9503.036

 Prepared Statement of Mark Rosman, Partner, Wilson Sonsini Goodrich & 
                         Rosati, Washington, DC

[GRAPHIC] [TIFF OMITTED] T9503.037

[GRAPHIC] [TIFF OMITTED] T9503.038

[GRAPHIC] [TIFF OMITTED] T9503.039

[GRAPHIC] [TIFF OMITTED] T9503.040

[GRAPHIC] [TIFF OMITTED] T9503.041

[GRAPHIC] [TIFF OMITTED] T9503.042

[GRAPHIC] [TIFF OMITTED] T9503.043

[GRAPHIC] [TIFF OMITTED] T9503.044

[GRAPHIC] [TIFF OMITTED] T9503.045

[GRAPHIC] [TIFF OMITTED] T9503.046

[GRAPHIC] [TIFF OMITTED] T9503.047

  Questions submitted by Senator Amy Klobuchar for Assistant Attorney 
                          General William Baer

[GRAPHIC] [TIFF OMITTED] T9503.048

     Questions submitted by Senator Amy Klobuchar for Ronald Hosko

[GRAPHIC] [TIFF OMITTED] T9503.049

  Questions submitted by Senator Amy Klobuchar for Margaret Levenstein

[GRAPHIC] [TIFF OMITTED] T9503.050

      Questions submitted by Senator Amy Klobuchar for Mark Rosman

[GRAPHIC] [TIFF OMITTED] T9503.051

    Questions submitted by Senator Amy Klobuchar for Hollis Salzman

[GRAPHIC] [TIFF OMITTED] T9503.052

   Responses of Assistant Attorney General William Baer to questions 
                     submitted by Senator Klobuchar

[GRAPHIC] [TIFF OMITTED] T9503.053

[GRAPHIC] [TIFF OMITTED] T9503.054

[GRAPHIC] [TIFF OMITTED] T9503.055

[GRAPHIC] [TIFF OMITTED] T9503.056

[GRAPHIC] [TIFF OMITTED] T9503.057

    Responses of Ronald T. Hosko to questions submitted by Senator 
                               Klobuchar

[GRAPHIC] [TIFF OMITTED] T9503.058

[GRAPHIC] [TIFF OMITTED] T9503.059

[GRAPHIC] [TIFF OMITTED] T9503.060

  Responses of Margaret Levenstein to questions submitted by Senator 
                               Klobuchar

[GRAPHIC] [TIFF OMITTED] T9503.061

  Responses of Mark Rosman to questions submitted by Senator Klobuchar

[GRAPHIC] [TIFF OMITTED] T9503.062

[GRAPHIC] [TIFF OMITTED] T9503.063

[GRAPHIC] [TIFF OMITTED] T9503.064

[GRAPHIC] [TIFF OMITTED] T9503.065

[GRAPHIC] [TIFF OMITTED] T9503.066

[GRAPHIC] [TIFF OMITTED] T9503.067

Responses of Hollis Salzman to questions submitted by Senator Klobuchar

[GRAPHIC] [TIFF OMITTED] T9503.068

[GRAPHIC] [TIFF OMITTED] T9503.069

[GRAPHIC] [TIFF OMITTED] T9503.070

[GRAPHIC] [TIFF OMITTED] T9503.071

[GRAPHIC] [TIFF OMITTED] T9503.072

[GRAPHIC] [TIFF OMITTED] T9503.073

   Letter to Hon. Eric Holder, Attorney General, U.S. Department of 
                                Justice

[GRAPHIC] [TIFF OMITTED] T9503.074

[GRAPHIC] [TIFF OMITTED] T9503.075


                                   


