Justice's Antitrust Division: Better Management Information Is
Needed on Agriculture-Related Matters (06-APR-01, GAO-01-188).
GAO reviewed the Department of Justice's Antitrust Division's
overall policies and procedures for carrying out its statutory
responsibilities, particularly as they apply to the agriculture
industry. Specifically, GAO (1) described the Division's
interaction with the Federal Trade Commission (FTC) and the
Department of Agriculture (USDA) with regard to antitrust matters
in the agriculture industry, (2) provided information on the
number of complaints and leads in the agriculture industry
received by the Division for fiscal years 1997 through 1999, and
(3) provided information on the number and types of closed
matters in the agriculture industry for fiscal years 1997 through
1999. In addition, GAO described the Division's policies for and
procedures for investigating potential anti-trust violations. GAO
found that the Division (1) maintains a cooperative working
relationship with regard to anticompetitive matters in the
agriculture industry with FTC and USDA, (2) estimates that 165
complaints and leads related to the agriculture industry were
received in fiscal years 1997 through 1999, (3) closed 1,050
matters during fiscal years 1997 through 1999.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-188
ACCNO: A00759
TITLE: Justice's Antitrust Division: Better Management
Information Is Needed on Agriculture-Related Matters
DATE: 04/06/2001
SUBJECT: Interagency relations
Antitrust law
Agricultural industry
Corporate mergers
Management information systems
DOJ Correspondence and Complaint
Tracking System
DOJ Matter Tracking System
******************************************************************
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GAO-01-188
Report to the Chairman, Subcommittee on Administrative Oversight and the
Courts, Committee on the Judiciary United States Senate
United States General Accounting Office
GAO
April 2001 JUSTICE'S ANTITRUST DIVISION
Better Management Information Is Needed on Agriculture- Related Matters
Page i GAO- 01- 188 Antitrust Division's Operations Letter 1
Results in Brief 2 Background 4 Scope and Methodology 7 Division Lacks
Reliable Data on Complaints and Leads Received in
the Agriculture Industry 11 Division Also Lacks Reliable Data on Closed
Matters 15 Phases of Closed Matters 19 Agency Comments 23
Appendix I: Objectives, Scope and Methodology 27 Appendix II: Overview of
the Department of Justice's Antitrust Division Staffing
and Functions 32 Appendix III: Overview of the Antitrust Division's Policies
and Procedures for
Investigating Potential Antitrust Violations 42 Appendix IV: Characteristics
of Matters for Which Only a PI Was Done 72 Appendix V: Comments From the
Department of Justice, Antitrust Division 76 Appendix VI: GAO Contacts and
Staff Acknowledgments 84
Tables
Table 1: Reported Number of Agriculture- Related Complaints and Leads
Identified for Fiscal Years 1997 Through 1999 and Number of Preliminary
Inquires Opened As a Result 14 Table 2: Classification of Agriculture-
Related Matters Closed by the
Antitrust Division, Fiscal Years 1997 through 1999 17 Contents
Page ii GAO- 01- 188 Antitrust Division's Operations
Table 3: Number of Agriculture- Related Matters Closed by the Antitrust
Division by SIC Category, Fiscal Years 1997 through 1999 18 Table 4: Last
Phase of Inquiry at Which the Division Closed
Agriculture- Related Matters, Fiscal Years 1997 Through 1999 19 Table 5: SIC
Categories for Different Phases of Agriculture- Related
Matters Closed by the Division During Fiscal Years 1997 Through 1999 20
Table 6: SIC Codes Included in the Definition of the Agriculture
Industry. 28 Table 7: Antitrust Division's Section and Field Office
Staffing, as of
July 21, 2000 32 Table 8: Antitrust Division Field Offices 40 Table 9:
Source of the Agriculture- Related Matters Closed at the
End of the Preliminary Inquiry, Fiscal Years 1997 – 1999 72 Table 10:
Geographic Market and Amount of Commerce Affected
for Agriculture- Related Matters Closed at the End of the Preliminary
Investigation, Fiscal Years 1997 - 1999 73 Table 11: SIC Categories for
Agriculture- Related Matters Closed at
the End of the Preliminary Inquiry, Fiscal Years 1997 - 1999 74 Table 12:
Number of Days Preliminary Inquiries Were Open for
Agricultural Matters Closed at the End of the Preliminary Investigation,
Fiscal Years 1997 – 1999 74 Table 13: Reasons Agriculture- Related
Matters Were Closed at the
End of the Preliminary Investigation, Fiscal Years 1997 –
1999 75
Figures
Figure 1: Antitrust Division's Organizational Chart, as of November 2000 36
Figure 2: Flowchart of Antitrust Division's General Process for
HSR Merger Enforcement 56 Figure 3: Flowchart of Antitrust Division's
General Process for
Civil Enforcement 62 Figure 4: Flowchart of Antitrust Division's General
Process for
Criminal Enforcement 70
Page iii GAO- 01- 188 Antitrust Division's Operations Abbreviations
AAG Assistant Attorney General AMIS Antitrust Management Information System
AMS Agricultural Marketing Service CCTS Correspondence and Complaint
Tracking System CID Civil Investigative Demand DAAG Deputy Assistant
Attorney General ERS Economic Research Service FBI Federal Bureau of
Investigation FOIA Freedom of Information Act FTC Federal Trade Commission
GIPSA Grain, Inspection, Packers, and Stockyards Administration HHI
Herfindahl- Hirshman Index HSR Hart- Scott- Rodino MOU Memorandum of
Understanding MTS Matter Tracking System PI Preliminary Inquiry SIC Standard
Industrial Classification TEA Transportation, Energy and Agriculture USDA
United States Department of Agriculture
Page 1 GAO- 01- 188 Antitrust Division's Operations
April 6, 2001 The Honorable Jeff Sessions Chairman, Subcommittee on
Administrative
Oversight and the Courts Committee on the Judiciary United States Senate
The Honorable Charles E. Grassley United States Senate
The Department of Justice's Antitrust Division (Division) investigates and
prosecutes civil and criminal violations of federal antitrust laws. The
basic federal antitrust statutes are the Sherman Act, as amended (15 U. S.
C. 1- 7); and the Clayton Act, as amended (15 U. S. C. 12- 27). The acts'
objectives are to prevent anticompetitive behavior and preserve and promote
competition in the marketplace. The Division generally shares responsibility
for enforcing federal antitrust laws with the Federal Trade Commission (FTC)
and state attorneys general. 1 Both the Division and FTC are responsible for
enforcing the premerger notification provisions of the Hart- Scott- Rodino
Act (HSR Act), 2 which requires parties to notify the Division and FTC of
certain proposed mergers and to observe a waiting period before merging.
During fiscal year 1999, the Division handled over 4,900 matters, 3 of which
4,642 (about 95 percent) were potential mergers filed under the notification
provisions of the HSR Act.
This report responds to a request from Senator Grassley, as the former
Chairman of the Subcommittee on Administrative Oversight and the Courts,
Senate Committee on the Judiciary, that we obtain information on the
Division's overall policies and procedures for carrying out its statutory
1 Section 4C of the Clayton Act (15 U. S. C. 15c) authorizes state attorneys
general to bring civil actions in the name of a state on behalf of resident
consumers who have been injured as a result of a Sherman Act violation. In
addition, Section 4 of the Clayton Act (15 U. S. C. 15) authorizes private
parties “injured in [their] business or property by reason of anything
forbidden in the antitrust laws” to sue the offending parties and
recover three times their actual damages, costs, and reasonable attorney's
fees.
2 Section 7A of the Clayton Act (15 U. S. C. 18a), enacted as part of the
Hart- Scott- Rodino Antitrust Improvements Act of 1976, is commonly referred
to by that name. 3 In this report, we use the term “matter” to
mean any inquiry, investigation, or filing by the Division before a civil or
criminal court.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 01- 188 Antitrust Division's Operations
responsibilities, particularly as they apply to the Division's enforcement
activities in the agriculture industry. Specifically, as agreed with Senator
Grassley's office, our objectives were to
? describe the Division's interaction with FTC and the U. S. Department of
Agriculture (USDA) with regard to antitrust matters in the agriculture
industry;
? provide information on the number of complaints and leads in the
agriculture industry received by the Division for fiscal years 1997 through
1999; and
? provide information on the number and type (such as mergers) of closed
matters in the agriculture industry for fiscal years 1997 through 1999.
As also agreed, in appendix III, we describe the Division's policies and
procedures for investigating potential antitrust violations.
According to Division, FTC, and USDA officials, their agencies maintain a
cooperative working relationship with regard to anticompetitive matters in
the agriculture industry. This interaction with respect to specific matters
centers on their agencies' responsibilities to investigate antitrust
matters. The Division and FTC share responsibility for enforcing antitrust
laws. Their interaction generally occurs through their clearance procedures,
which is the process established between them to determine which agency will
investigate potential antitrust violations. According to agency officials,
in recent years, the Division and USDA have worked together in a number of
respects. For example, the Division obtains useful information about
agricultural markets from USDA's Agricultural Marketing Service (AMS) and
Economic Research Service (ERS).
The Division estimates that 165 complaints and leads related to the
agriculture industry were received in fiscal years 1997 through 1999. The
five legal sections or task forces 4 and seven field offices that could
potentially have handled such complaints and leads used different systems
for tracking complaints and leads and captured varying levels of detail in
their systems. One of the sections- the one specifically responsible for
agricultural commodities and that received the largest number of
agriculture- related complaints and leads- did not require its staff to
document and track all complaints and leads. Consequently, Division
4 Hereafter this letter refers to sections and task forces as sections.
Results in Brief
Page 3 GAO- 01- 188 Antitrust Division's Operations
officials could provide only estimates of the number of complaints and leads
the Division received. 5 During the course of our review, the Division
issued revised guidance to improve its documentation of complaints and
leads, requiring all sections and field offices to use the Division's
Correspondence and Complaint Tracking System (CCTS) for recording complaints
and leads. However, the revised guidance does not include guidance on the
information that staff are required to document on each contact, and the
CCTS does not include specific fields to capture information on Standard
Industry Classification (SIC) codes or the final outcome of complaints and
leads received. These limitations, combined with past history, indicate that
information may still be collected and recorded inconsistently by the
sections and field offices.
The Division's primary source of information on matters received and closed
is the Matter Tracking System (MTS), which is also used to support Division
management and budget reports. However, MTS data on matter status- such as
date closed or whether the matter was closed immediately or after some
period of investigation- are not reliable because of inconsistencies. We had
to adjust the data from MTS to ascertain the general status of matters
handled by the Division. These data show that during fiscal years 1997
through 1999, the Division closed 1, 050 matters involving mergers and
potential antitrust violations in the agricultural industry. Of these 1,050
matters, 935 (89 percent) were potential mergers filed under the premerger
notification provisions of the HSR Act. Of these 935 filings, 827 (88
percent) expired within the minimum prescribed time period that the parties
must wait before the transaction can proceed. 6 The Division took no formal
action, such as opening a preliminary inquiry, beyond reviewing the
documents submitted by the merging parties and public sources of information
for these 827 matters- a normal outcome for mergers that are permitted to
proceed after the required premerger notification period.
5 In 1991, we reviewed the Division's criminal cases and found that the
Division had a policy for documenting information on complaints and leads
from the public. However, the Division did not know how many complaints it
had received, nor did it have complete data on their characteristics because
this policy was not always followed for complaints or leads the Division
decided not to investigate. Antitrust: Information on Criminal Cases (GAO/
GGD- 92- 21FS, Dec. 17, 1991).
6 The initial waiting period is 15 days for cash tender offers and
bankruptcy sales and 30 days for other transactions.
Page 4 GAO- 01- 188 Antitrust Division's Operations
This report includes four recommendations to the Attorney General to improve
the Division's documentation and tracking of complaints and leads and the
MTS database. In commenting on our report, the Division stated that our
recommendation to incorporate a data field for SIC codes into the CCTS was
reasonable and that it would also consider our recommendation to link the
CCTS to MTS to enable the Division to track the results of citizen's
complaints. The Division was silent on our recommendation that it monitor
compliance with the November 27, 2000, policy regarding documenting and
tracking public inquiries. However, the Division took issue with our
recommendation to correct errors and improve the accuracy and reliability of
MTS data.
The Division is responsible for promoting and maintaining competition in the
American economy by enforcing the federal antitrust laws. To accomplish its
mission, the Division has 16 sections in headquarters and 7 field offices
located throughout the United States. As of July 21, 2000, the Division had
561 full- time staff and 237 part- time staff onboard; about 29 percent of
the full- time staff and about 21 percent of the part- time staff were
assigned to the field offices (see app. II for a breakdown of staffing by
sections and field offices). The Division's budget authority for fiscal year
2000 was $114.4 million, about a 16- percent increase, in nonconstant
dollars, over fiscal year 1999 funding of $98.3 million. The Division's
appropriations are offset by the fees companies are required to pay when
they file premerger notifications under the HSR Act.
The Division is responsible for enforcing the antitrust laws throughout the
economy, including industries, such as computers, health care,
telecommunications, transportation, and agriculture. Overall, the Division
handled over 4,900 matters during fiscal year 1999, 4, 642 (about 95
percent) of which were proposed mergers for which notice was filed under the
HSR Act. For fiscal year 1999, agricultural industry matters- both mergers
and nonmergers- represented about 8 percent (395) of the Division's total
workload.
As previously noted, the basic federal antitrust statutes are the Sherman
Act and the Clayton Act. Section 1 of the Sherman Act makes illegal any
contract, combination, or conspiracy that results in a “restraint of
trade.” The courts have construed the term to cover a variety of
horizontal and Background
Page 5 GAO- 01- 188 Antitrust Division's Operations
vertical trade restraining agreements. Horizontal restraints 7 are
agreements among competitors at the same level of the production,
distribution, or marketing process. Vertical restraints 8 are arrangements
among persons or firms operating at different levels of the
manufacturingdistribution- marketing chain that restrict the conditions
under which firms may purchase, sell, or resell. Section 2 of the Sherman
Act prohibits monopolization, as well as attempts, combinations, or
conspiracies to monopolize. Although the Sherman Act is both a criminal and
civil statute, it is the Division's policy to criminally prosecute only what
the Division considers to be the most egregious per se Sherman Act
violations. 9 However, in some situations the Division may not deem criminal
investigation or prosecution to be appropriate, even though the conduct may
appear to be a per se violation of the law. As examples, the Antitrust
Division manual, which outlines the Division's formal internal practices and
procedures, cites situations in which (1) there is confusion in the law; (2)
there are novel issues of law or fact presented; (3) confusion reasonably
may have been caused by past prosecutorial decisions; or (4) there is clear
evidence that the subjects of the investigation were not aware of, or did
not appreciate, the consequences of their actions.
Section 7 of the Clayton Act prohibits mergers and acquisitions that may
substantially lessen competition or tend to create a monopoly in any market.
The HSR Act added section 7A to the Clayton Act, which requires premerger
notification of proposed mergers to assist the Division and FTC in
investigating whether they would be anticompetitive.
The Division generally shares responsibility for enforcing federal antitrust
laws with FTC and state attorneys general. With the exception of criminal
7 Horizontal restraints include agreements among competitors to (1) fix
prices, (2) engage in bid rigging, (3) allocate markets, and (4) refuse to
deal or participate in a boycott. These restraints can also include certain
competitor mergers and acquisitions and anticompetitive joint ventures.
8 Vertical restraints of trade analyzed for possible illegality under the
antitrust laws include (1) exclusive dealing agreements, (2) restrictions on
the territory in which a manufacturer's distributor may sell and
restrictions concerning the customers with whom a distributor may deal, (3)
restrictions on the location of a distributor's place of business or area of
operations, (4) vertical price fixing, (5) vertical mergers and stock
acquisitions, and (6) tying arrangements or requirements. Under a tying
arrangement, a seller requires that the buyer of a good or service purchase
a second, distinct good or service as a condition of purchasing the first.
9 A per se Sherman Act violation is one in which proof of the existence of
the conduct is enough to establish its illegality.
Page 6 GAO- 01- 188 Antitrust Division's Operations
enforcement of the Sherman Act, which the Division has sole authority for,
the “unfair methods of competition” clause of section 5 of the
FTC Act generally allows FTC to reach the same conduct as prohibited by the
Sherman Act. Both the Division and FTC are responsible for enforcing
Sections 7 and 7A of the Clayton Act, with the exception of certain
industries in which FTC's jurisdiction is limited by statute. For example,
Section 5 (a) (2) of the Federal Trade Commission Act of 1914 10 generally
excludes from its coverage activities subject to the Packers and Stockyards
Act. 11 FTC also enforces the Robinson- Patman Act, 12 which governs price
discrimination in interstate commerce, and section 8 of the Clayton Act (15
U. S. C. 19), which governs interlocking directorates.
As previously noted, the Division is responsible for enforcing the antitrust
laws in a broad range of industries. The antitrust laws apply generally
throughout the economy, and the Division exercises prosecutorial discretion
to determine which matters warrant investigation or enforcement action.
According to Division officials, their principal expertise is in antitrust
laws, not in specific industries. Some industries also are regulated by
government agencies under statutes that go beyond the antitrust laws to
establish additional, industry- specific regulatory requirements and
standards. For example, USDA's Grain Inspection, Packers, and Stockyards
Administration (GIPSA) regulates sales in the livestock and meat- packing
industries. GIPSA generally has the authority to prohibit unfair trade
primarily within the livestock industry.
The Division's policies and procedures manual outlines the processes for
investigating potential antitrust violations. Depending on the conduct
alleged, the Division can initiate either civil or criminal investigations
of
10 15 U. S. C. 45( a)( 2). The Federal Trade Commission Act, as amended (15
U. S. C. 41- 58) created the FTC and authorized the Commission to, among
other things, (a) define and prohibit unfair methods of competition and
unfair or deceptive acts or practices in or affecting commerce; (b) seek
monetary redress and other relief for conduct injurious to consumers; (c)
prescribe trade regulation rules defining with specificity acts or practices
that are unfair or deceptive, and establishing requirements designed to
prevent such acts or practices; (d) conduct investigations relating to the
organization, business practices, and management of entities engaged in
commerce; and (e) make reports and legislative recommendations to Congress.
11 The Packers and Stockyards Act of 1921 (7 U. S. C. 181 et seq.) was
enacted to ensure fairness and competitiveness in the livestock, meat,
meatpacking, and poultry industries by preventing fraudulent,
discriminatory, or anticompetitive practices.
12 15 U. S. C. 13.
Page 7 GAO- 01- 188 Antitrust Division's Operations
these potential violations. The Division may identify possible antitrust
violations or proposed mergers through a variety of sources. The Division is
made aware of many proposed mergers through filings required of the merging
parties by the HSR Act. The Division may learn of a possible antitrust
violation from a confidential informant, individuals, or corporations
applying for amnesty; 13 complaints and referrals from other government
departments or agencies; anonymous tips; or through reviews of newspapers,
journals, and trade publications. It may develop information about potential
criminal violations through grand jury proceedings. As previously noted,
more detailed information and flow charts of the Division's enforcement
procedures can be found in appendix III.
Our objectives were to (1) describe the Division's interaction with FTC and
USDA with regard to antitrust matters in the agriculture industry, (2)
provide information on the number of complaints and leads in the agriculture
industry received by the Division for fiscal years 1997 through 1999, and
(3) provide information on the number and type of agriculturerelated matters
closed by the Division for fiscal years 1997 through 1999.
As agreed with Senator Grassley's office, we used SIC codes selected by the
Division to define the agriculture industry (see app. I). The SIC codes
selected included only those codes specifically related to plant and animal
products that originate on land and are commercially cultivated or raised
for human or animal consumption. 14
To obtain information on the Division's interaction with FTC and USDA, we
interviewed officials in the Division, FTC, and USDA. We also reviewed the
Division's policies and procedures for interacting with other agencies,
including relevant interagency agreements.
The Division does not maintain divisionwide data on complaints and leads
related to possible anticompetitive practices in the agriculture industry.
To
13 The Division also identifies antitrust violations through its Corporate
and Individual Leniency Policies program, also referred to as the amnesty
program. According to Division officials, this program has been in place
since the 1980s, and it was expanded in 1993 to make it easier and more
attractive for companies to come forward and cooperate with the Division.
14 According to Division officials, they had to make a number of subjective
judgments to identify SIC codes related to the agriculture industry. Scope
and
Methodology
Page 8 GAO- 01- 188 Antitrust Division's Operations
obtain an estimate of the number of agriculture- related complaints and
leads received in fiscal years 1997 through 1999, we interviewed the section
or field office chief, assistant section chief, and other knowledgeable
Division officials for each of the five legal sections and seven field
offices that potentially handle matters in the agriculture industry during
this period. These officials provided information on the number of
complaints and leads received and the methods they used to record and track
them.
To gather information on the number and type of matters closed in the
agriculture industry in fiscal years 1997 through 1999, we obtained data on
the characteristics of the matters for selected SIC codes and for the
relevant time period from the Division's MTS. However, some of the data in
MTS were not accurate and reliable. For example, actions were shown as being
taken on matters after the matter had been recorded as closed, or links were
not being established between related matters. We also reviewed opening and
closing memorandums for matters that were closed without the filing of a
complaint to determine the reasons for closing the matters. We did not
attempt to determine the appropriateness of the Division's prosecutorial
decisions.
More detailed information about our scope and methodology can be found in
appendix I. We performed our work in Washington, D. C., between October 1999
and February 2001, in accordance with generally accepted government auditing
standards.
As noted earlier, the basic federal antitrust statutes are the Sherman Act
and the Clayton Act, and the Division generally shares responsibility for
enforcing the antitrust laws with FTC. The interactions between the agencies
are generally limited to their roles in enforcing antitrust laws. Officials
from the Division, FTC, and USDA said that their agencies maintain a
cooperative working relationship with regard to anticompetitive matters in
the agriculture industry. According to Division and FTC officials, their
agencies' interactions with respect to specific matters generally occur
during the clearance process established between them to determine which
agency will investigate potential antitrust violations for which they have
joint jurisdiction. According to agency officials, in recent years, the
Division and USDA have worked together in a number of respects. For example:
? The Division obtains useful information from USDA's AMS and ERS.
Division's Interaction with
FTC and USDA
Page 9 GAO- 01- 188 Antitrust Division's Operations
? With respect to livestock and meatpacking markets, the Division has
obtained useful information from USDA's GIPSA. 15
? The Division has also provided technical assistance to GIPSA on various
economic studies and on GIPSA's competition enforcement program.
? During the course of any major antitrust investigation involving
agriculture- related markets, the Division typically consults with USDA
officials to obtain the benefit of their perspective.
? USDA and Division officials have also participated in a number of
interagency policy and public outreach efforts regarding competitive
conditions in agriculture- related markets.
The Division, FTC, and USDA entered into a Memorandum of Understanding (MOU)
16 on August 31, 1999, that sets forth general policy for interacting,
exchanging information, and continuing to work together on competitive
developments in the agriculture marketplace. Division, FTC, and USDA
officials described the MOU as memorializing a longstanding, cooperative
working relationship between the agencies. Under the MOU, each agency agreed
to designate a primary contact person to facilitate communication among
agency officials. The Division's designated contact is an attorney- advisor
in the Legal Policy Section. However, in practice, this responsibility is
shared with the Division's Special Counsel for Agriculture. 17 FTC's contact
is the Deputy Director in the Bureau of Competition; and USDA's contact is
the Assistant General Counsel, Trade Practices Division. The officials in
the three agencies could not determine whether there has been any change in
the purpose or frequency of contact since the MOU was signed because they
have not tracked, nor do they currently track, communications, coordination,
or consultations between the agencies.
To avoid duplication of effort in areas of antitrust enforcement in which
FTC and the Division share enforcement jurisdiction, the agencies issued
15 A recently issued GAO report recommended changes to the Agriculture
Department's method of investigating potential anticompetitive behavior
under the Packers and Stockyard Act. Packers and Stockyards Programs:
Actions Needed to Improve Investigations of Competitive Practices (GAO/
RCED- 00- 242, Sept. 21, 2000).
16 According to agency officials, the MOU was an outgrowth of the 1998
interagency panel that examined concentration in the agriculture industry,
particularly with respect to the hog market. The task force was made up of
representatives of USDA, FTC, the Division, and other agencies and was
coordinated through the Office of the White House Counsel.
17 This position was created in January 2000 to report directly to the
Assistant Attorney General for Antitrust and work exclusively on
agriculture- related issues.
Page 10 GAO- 01- 188 Antitrust Division's Operations
joint clearance procedures, most recently revised in December 1993, to
determine which agency will pursue an investigation. 18 According to
Division officials, the agencies interact on specific matters mainly around
these procedures. Appendix III provides, among other things, information on
the clearance procedures.
According to Division officials, the August 1999 MOU is the only formal
procedure relating to the interaction between the Division and USDA. FTC has
had a formal agreement with USDA since at least 1958 regarding
investigations in the wholesale or retail food industry.
According to Division and USDA officials, USDA provides the Division with
useful information about agricultural markets that the Division uses in its
economic analysis of a particular industry. Additionally, when USDA uncovers
conduct that it believes may violate antitrust laws, it has the authority to
refer the matter to the Division for possible investigation and enforcement
action. 19 Our review of 64 matters that the Division closed after
conducting a preliminary investigation (PI) during fiscal years 1997 through
1999 revealed that 1 matter was referred from USDA. Additionally, the
Division consulted with USDA on six of the matters.
18 The first interagency agreement was informally instituted in 1938; since
1948, it has been modified and formalized. 19 Section 202 of the Packers and
Stockyards Act (P& S Act) makes unlawful actions by packers or live poultry
dealers that are unfair; unjustly discriminatory or deceptive; or that are
anticompetitive, such as allocation of territory or manipulating prices.
Violations of section 202 by packers may be enforced through administrative
litigation before the Secretary. However, according to a USDA official,
violations of section 202 by live poultry dealers must be referred to the
Department of Justice for enforcement. GIPSA refers those cases, cases
alleging that entities have violated the Secretary's order in administrative
enforcement, and cases alleging that an entity subject to the P& S Act has
refused to register (as required by the P& S Act) to the U. S. Attorney's
Office. According to USDA and Division officials, if GIPSA discovers
evidence of anticompetitive activity that might violate the antitrust laws
of the United States, USDA will communicate with Justice's Antitrust
Division and cooperate with them, as appropriate, in further action on the
case.
Page 11 GAO- 01- 188 Antitrust Division's Operations
Our 1991 review of the Division's criminal cases found that although the
Division had a policy for documenting information on complaints and leads
from the public, this policy was not always followed for complaints or leads
the Division decided not to investigate. 20 As a result, the Division did
not know how many complaints it had received nor did it have complete data
on their characteristics. Such problems continued during the period of our
review, fiscal years 1997 through 1999. High- level Division officials were
not aware of a policy requiring staff to document all complaints and leads
from the public, and the Division did not have a uniform database to provide
divisionwide information on complaints and leads. During the course of our
review, the Division took steps to improve its documentation of complaints
and leads. If fully implemented, these steps should move the Division in a
positive direction toward addressing the deficiencies we identified.
However, the improvements do not allow the Division to track complaints and
leads by industry classifications, and on the basis of past history, the
information may still be collected inconsistently by the sections and field
offices. Thus, better guidance and closer management attention to monitoring
the documentation of complaints and leads will be necessary.
We met with high- level Division officials, including the Chief of the Legal
Policy Section and an attorney- advisor in that section; the Special Counsel
for Agriculture; and the attorney who, according to Division officials,
handles the largest number of the complaints and leads in the agriculture
industry. We asked them whether the 1980 policy cited in our 1991 report was
still in effect. Initially, the officials were not aware of whether such a
policy was still in effect. According to the officials, the Division could
provide only an estimate of the number of complaints and leads received in
the agriculture industry.
On February 29, 2000, the Division's Chief of Staff issued a memorandum to
all section and field office chiefs stating that the Attorney General wanted
to ensure that the Department of Justice was answering all of its mail and
telephone inquiries in a timely and effective way. The memorandum required
all sections and field offices to use the Division's CCTS to track inquiries
from the public to help ensure that the Division was responsive to incoming
inquiries. However, in June and July 2000 when we conducted our structured
interviews with section and field office
20 GAO/ GGD- 92- 21FS, Dec. 17, 1991. Division Lacks
Reliable Data on Complaints and Leads Received in the Agriculture Industry
Page 12 GAO- 01- 188 Antitrust Division's Operations
staff responsible for documenting and tracking complaints and leads, they
were not all using CCTS, and two told us they had never heard of CCTS.
When the Division began implementing CCTS in 1997, the Division encouraged,
but did not require, the sections and field offices to use CCTS for general
and telephone correspondence. 21 CCTS was designed primarily to record
information on controlled correspondence (e. g., correspondence received
from the White House; Congress; and federal, state, and local agencies).
CCTS includes such information as the complainant's name, address, phone
number, position, and organization; the date received, date assigned,
section name, staff assigned, response due date, and date completed; and a
description of the complaint and keywords. CCTS does not include specific
fields to capture information on SIC codes or related industries or the
final outcome of complaints and leads received from the public.
Additionally, CCTS is not linked to the Division's MTS. As a result, CCTS
does not have the information needed to analyze patterns of potential
anticompetitive behavior that might emerge from complaints and leads related
to specific industries or to track the ultimate outcome of a complaint or
lead.
Subsequent to our interviews with the five legal sections and seven field
offices that would potentially handle complaints and leads related to the
agriculture industry, Division officials determined that the July 2, 1980,
directive requiring staff to document all complaints and leads was still in
effect. The 1980 directive outlined the Division's policies and procedures
for handling all unsolicited contacts of a routine and nonsensitive nature
from the general public, whether by letter, telephone call, or personal
visit. The directive required that staff
? ensure that unsolicited public contacts are assigned promptly to the
appropriate staff member( s);
? log basic information about each contact; 22 21 According to the
Division's CCTS manual, general correspondence constitutes the bulk of the
Division's incoming correspondence. It comprises letters, email, or faxes
addressed to the Division generally; to Division staff; or to one of the
Division's sections, field offices, or units. It includes, among other
things, citizen inquiries or complaints. Phone correspondence describes
notes, memorandums, or logs of incoming telephone requests, especially those
requiring follow- up by the Division.
22 The 1980 directive provided examples of the types of information staff
could document, such as date of receipt; complainant's name, address, and/
or telephone number; type of contact; subject, staff member assigned to
handle the complaint; response due date; actual response date; and other
action.
Page 13 GAO- 01- 188 Antitrust Division's Operations
? mail written responses, if warranted, within 20 working days of the date
the inquiry was received by the Division;
? maintain a central file in each section and office of all correspondence
and notes on telephone calls and visits; and
? make all logs and files described in the directive available for review by
Division officials.
In the absence of a central source of uniform, complete, and reliable data
on complaints and leads, the Division agreed to let us contact officials in
five legal sections and seven field offices to obtain any available data on
complaints and leads received in those sections and field offices. 23
According to the data provided, the Division received 165 agriculturerelated
complaints and leads in fiscal years 1997 through 1999, 14 of which resulted
in a PI being initiated (see table 1). Of these 14, 1 was referred to USDA.
Officials in these sections and field offices provided information derived
from a variety of sources, such as automated and manual tracking systems and
attorney notes, that varied among the sections and field offices. We did not
verify the accuracy or completeness of the information provided. Officials
in Transportation, Energy and Agriculture (TEA), which received the largest
number of complaints and leads reported to us, indicated that the numbers
for fiscal years 1997 and 1998 did not, to their knowledge, include
complaints received by phone and that the 1999 data were based on
information from the two section attorneys who received “most”
of the complaints and leads for the section.
23 Because the sections, task forces, and field offices employed different
methods to record information about complaints and leads, we had to rely on
the information officials provided during structured interviews. Reported
Data on Number
of Complaints and Leads Received
Page 14 GAO- 01- 188 Antitrust Division's Operations
Table 1: Reported Number of Agriculture- Related Complaints and Leads
Identified for Fiscal Years 1997 Through 1999 and Number of Preliminary
Inquires Opened As a Result
Fiscal year 1997 Fiscal year 1998 Fiscal year 1999 Total Number received
Number of PIs opened Number
received Number
of PIs opened Number
received Number
of PIs opened Number
received Number
of PIs opened
Civil Task Force 0 0 0 0 7 0 7 0 Litigation I 0 0 0 0 0 0 0 0 Litigation II
a 11 0 15 0 4 0 30 0 TEA 2 0 17 1 46 3 65 4 Atlanta 10 40 3080 Chicago 30 00
2151 Cleveland 1 1 5 1 1 0 7 2 Dallas 60 20 60140 New York 0 0 3 0 0 0 3 0
Philadelphia 2 2 1 0 0 0 3 2 San Francisco 7 2 1 1 15 2 23 5
Total 33 5 48 3 84 6 165 14
Legend: PI = preliminary inquiry; TEA = Transportation, Energy and
Agriculture. a In July 1999, the Merger Task Force was combined with the
Litigation II Section. The numbers reported in this table for Litigation II
reflect the combined totals of both units. Source: GAO analysis of data
provided during structured telephone interviews with officials from the
Antitrust Division's sections and field office.
According to Division officials, the Division receives many complaints
reporting conduct that is unrelated to antitrust. In these instances, they
said that a complaint might be referred to an appropriate federal, state, or
local agency. For example, 4 of the 165 complaints and leads the Division
received during fiscal years 1997 through 1999 were referred to FTC. On some
occasions, they said the Division section may refer an antitrustrelated
complaint or lead to another Division section, to FTC, or to the appropriate
state attorney general's office. If a Division attorney determines that
there are sufficient indications of an antitrust violation to open an
investigation beyond discussions with the complainant, he or she is to draft
a PI request memorandum.
According to Division officials, staff can generally determine whether the
information provided by a complainant merits further investigation. The
Division may respond to a complainant by telephone or in writing. Division
officials also said that many complaints in the agriculture industry are
general in nature, with no information useful for an investigation, and that
the Division's response to such a general complaint typically
Page 15 GAO- 01- 188 Antitrust Division's Operations
? attempts to educate the complainant on antitrust laws and the Division's
role in enforcing them,
? describes the type of evidence needed to open an investigation or bring a
case, and
? invites the complainant to come back to the Division with more specific
information that might indicate a possible antitrust violation.
On October 24, 2000, the Division rescinded the 1980 policy and issued a new
directive requiring all of its sections and offices to (1) use the
Division's CCTS to document and track all unsolicited public contacts (such
as complaints and leads) and (2) maintain a central file of these contacts.
This directive made section and field office chiefs responsible for ensuring
that the procedures are routinely followed. The October 2000 directive was
replaced with a November 27, 2000, directive. The only difference between
the two directives was that the November directive made reference to an
optional word perfect form that staff could use- in addition to CCTS, not in
lieu of it- to document information for the section's or office's own
central file. Consistent with the 1980 directive, neither the October 24,
2000, directive nor the November 27, 2000, directive provided guidance on
the information that staff are required to document on each contact.
Consequently, it is not clear that the latest directive will resolve the
data availability issues discussed above, including inconsistently recorded
information on complaints and leads.
To obtain information on the number and type of closed matters in the
agriculture industry for fiscal years 1997 thorough 1999, we relied on data
from the Division's MTS, its primary management information system for
tracking the Division's matters. 24 We encountered several problems with the
MTS data, including inconsistencies on matter status and type. For example,
there were many matters for which the final disposition was unclear
according to our review of the MTS data. For some of the matters we
reviewed, the MTS data indicated that actions had been taken on matters
after the matters had been recorded as closed. In addition, the dispositions
for some of the matters were not appropriate for the particular phase of the
matters. We worked with Division officials to resolve these issues wherever
possible. Recognizing its limitations, we
24 Implemented in February 1998, MTS was created and is maintained to permit
Division personnel to, among other things, locate matters currently or
formerly under investigation. The system is also used in the preparation of
management and budget reports. Division Also Lacks
Reliable Data on Closed Matters
Page 16 GAO- 01- 188 Antitrust Division's Operations
believe the adjusted MTS data we used can provide a general profile of
agriculture- related matters closed by the Division during fiscal years
1997- 1999. We used the MTS data because there is no other comprehensive
listing of the Division's matters and their status.
According to Division officials, there were several causes for the MTS data
problems we encountered. Some of the matters we reviewed were entered into
the Division's older system, the Antitrust Management Information System
(AMIS), and were incorporated into MTS without change. 25 A 1991 GAO report
reported that there were inaccuracies and inconsistencies in the AMIS data.
26 Concerning the matters for which MTS incorrectly indicated that the
matter was closed following the PI, Division officials said it is possible
to have further action after a matter is closed. Occasionally, evidence
associated with a particular investigation would initially prove inadequate
for further prosecutorial action. However, several months or years later,
evidence may become available, and instead of opening a new PI, the Division
would reopen the original investigation. We did not test the MTS data to
determine the full nature or extent of the data reliability problems.
However, with the corrections made with the assistance of Division
officials, the MTS data we used can provide a general profile of the status
of agriculture- related matters closed by the Division in fiscal years 1997
through 1999.
MTS data showed that the Division closed 1,050 matters involving mergers and
potential antitrust violations in the agricultural industry during fiscal
years 1997 through 1999. Of these 1,050 matters, 935 (89 percent) were Hart-
Scott- Rodino merger filings. Of these 935 filings, 827 (88 percent) expired
within the initial 30- day HSR waiting period. The Division took no formal
action, such as opening a PI, beyond reviewing the documents submitted by
the merging parties and public sources of information for these 827 matters-
a normal outcome for mergers that are permitted to proceed after the
required premerger notification period. Table 2 shows the classification of
the 1,050 matters closed by the Division during this time period.
25 For reopened matters, the dispositions captured in MTS at the time we
reviewed the data may be subsequently changed, so that the final
dispositions, if matters were reopened, may be different from those we have
reported in this report.
26 GAO/ GGD- 92- 21FS, Dec. 17, 1991. Most Closed Matters
Involved Hart- ScottRodino Filings and Were Not Pursued
Page 17 GAO- 01- 188 Antitrust Division's Operations
Table 2: Classification of Agriculture- Related Matters Closed by the
Antitrust Division, Fiscal Years 1997 through 1999 Classification FY 97 FY
98 FY 99 Total
Hart- Scott- Rodino mergers 262 326 347 935
Civil nonmergers 19 6 10 35
Criminal 10 3 18 31
Pre- Hart- Scott- Rodino mergers a 6 71326 Multiple types 4 4 5 13
Non- Hart- Scott- Rodino mergers b 2 125 Other c 1 405
Total 304 351 395 1,050
a A “pre- Hart- Scott- Rodino merger” is a merger subject to HSR
reporting but for which the PI memo was submitted before the HSR filing was
received. b A “non- Hart- Scott- Rodino merger” is a merger not
subject to HSR reporting.
c Other includes business reviews, judgment enforcement, and requests for
export trade certificates. Source: GAO analysis of data from the Division's
MTS database.
As discussed previously, the Division included several SIC codes in its
definition of the agricultural industry. The largest number of the 1,050
matters closed by the Division during the 3 fiscal years was in SIC codes
for food manufacturing- 442, or 42 percent. Table 3 shows the number of
matters that were closed by the Division during fiscal years 1997 through
1999 by the agriculture- related SIC categories that make up the Division's
definition for the agricultural industry.
Page 18 GAO- 01- 188 Antitrust Division's Operations
Table 3: Number of Agriculture- Related Matters Closed by the Antitrust
Division by SIC Category, Fiscal Years 1997 through 1999
Fiscal year 1997 1998 1999 Total
All food manufacturing 124 162 156 442
Eating and drinking places 50 37 45 132
Retail food stores 26 38 67 131
Wholesale trade– groceries 36 42 52 130
Wholesale trade– farm supplies 8 61327 Agricultural chemicals 7 8722
Farm machinery manufacturing 3 9719 Wholesale trade– beer, wine, and
distilled beverages 7 6 6 19
All crop production 4 8517 All tobacco products 5 2714 Wholesale
trade– farm/ raw materials 10 1 3 14
All livestock production 0 7310 Warehousing and storage 1 449 All
agricultural services 3 115 Food products machinery manufacturing 3 036
Wholesale trade– farm and garden machinery 2 0 2 4
Wholesale trade– tobacco products 0 011 Multiple primary codes 2 035
Other a 13 20 10 43 Total 304 351 395 1,050
a Other includes those matters for which the primary SIC code was not
agriculture, but there were secondary SIC codes that were. Note: See
appendix I for definitions of the SIC categories used in this table. Source:
GAO analysis of data from the Division's MTS database.
It should be noted that FTC also handles matters in the agriculture
industry, so the figures above do not include the entire universe of
agriculture antitrust matters and merger filings within these SIC codes. The
Division could not provide reliable data on the direct labor costs for
agriculture- related matters that were closed during fiscal years 1997
through 1999. According to Division officials, MTS does not contain reliable
data on direct labor costs, although such data could be obtained with some
effort from other sources.
Page 19 GAO- 01- 188 Antitrust Division's Operations
Not all of the matters handled by the Division culminated in a case being
filed in civil or criminal court. We analyzed the Division's MTS database to
ascertain how many matters completed the various phases of an inquiry or
what the last actions taken were when no inquiry was done. As previously
noted, the majority of the 1,050 matters closed by the Division during this
period were filings submitted under the premerger notification provisions of
the HSR Act. In about 88 percent of these filings, the Division did not
initiate any formal investigative inquiries because it concluded that the
matters did not appear to raise significant competitive concerns warranting
a more thorough review. These matters were closed without further action on
or before the expiration of the initial 30- day HSR waiting period expired.
Table 4 shows the number of matters closed by the Division by the last phase
of inquiry or action taken in the matter. The categories are listed in the
general order of resources expended on the matter. For example, HSR filings
that expired within the initial 30- day waiting period or that were cleared
to FTC would not generally result in a preliminary inquiry. Conversely, a
civil investigative demand (CID) would generally be issued following a
preliminary inquiry.
Table 4: Last Phase of Inquiry at Which the Division Closed Agriculture-
Related Matters, Fiscal Years 1997 Through 1999
Fiscal year 1997 1998 1999 Total
HSR filings that expired within 30- day waiting period 228 284 315 827
HSR filings that were cleared to FTC 20 18 18 56
Non- HSR matters cleared to Justice for which a PI was not initiated 17 7 1
25
Non- HSR matters that were cleared to FTC 14 9 18 41
Preliminary inquiry only 13 26 25 64
CID a issued or grand jury held 6 41020 Civil or criminal case filed in
court 5 3816 Business review conducted b 1 001
Total 304 351 395 1,050
a A CID may be issued to any person who may be in possession, custody, or
control of documentary material, or may have any information, relevant to a
civil antitrust investigation. A CID is a written demand for such person to
produce such documentary material for inspection and copying, to answer in
writing written interrogatories, to give oral testimony concerning
documentary material, or to furnish any combination of such material,
answers, or testimony. b According to the Division manual, under the
Antitrust Division's Business Review Procedure, 28
C. F. R., sect. 50.6, business entities can ascertain the Division's current
enforcement intentions with respect to proposed business conduct. The
business review procedure is currently used to evaluate only potential
civil, nonmerger conduct, with the exception of a very limited number of
health care mergers.
Source: GAO analysis of data from the Division's MTS database.
Phases of Closed Matters
Page 20 GAO- 01- 188 Antitrust Division's Operations
To determine any differences among various agriculture- related industries,
we arrayed the inquiry phases in table 4 by primary SIC category. Table 5
shows the last phase of each matter by the primary SIC category for all 3
fiscal years. In appendix IV, we also summarize information about the 64
matters shown in table 4 that were closed following a PI with no further
action.
Table 5: SIC Categories for Different Phases of Agriculture- Related Matters
Closed by the Division During Fiscal Years 1997 Through 1999
Category HSR- DOJ HSR –
FTC NonHSR
– DOJ
NonHSR FTC PI
CID or Grand
Jury Civil or
crim. case Bus.
Review Total
All food manufacturing 340 20 11 8 41 14 8 0 442
Eating and drinking places 1292 0000 1 0132 Retail food stores 95 13 2 19 2
0 0 0 131
Wholesale trade– groceries 1164 2151 1 0130 Wholesale trade–
farm supplies 220 1021 1 027 Agricultural chemicals 126 0300 1 022 Farm
machinery manufacturing 171 0020 0 020 Wholesale trade– beer, wine,
and distilled beverages 14 1 3 0 1 0 0 0 19
All crop production 912122 0 017 Tobacco manufacturing 101 0300 0 014
Wholesale trade– farm/ raw materials 612020 3 014 All livestock
production 900010 0 010 Warehousing and storage 900000 0 09 All agricultural
services 410000 0 05 Food machinery manufacturing 201110 0 05 Wholesale
trade– farm and garden machinery 2 0 0 1 1 0 0 0 4
Wholesale trade– tobacco products 1 0 0 0 0 0 0 0 1
Multiple primary codes 030020 0 05 Other a 302 1422 1 143
Total 827 56 25 41 64 20 16 1 1, 050
a Other are those matters for which the secondary code( s), but not the
primary code( s), was included in the definition of agricultural industry.
Source: GAO analysis of data from the Division's MTS database.
Upon reviewing these tables, the Division questioned the category
“NonHSR
matters cleared to Justice for which a PI was not initiated” in table
4. We provided the Division with a list of the matters that we placed in
that category as a result of our analysis of the MTS database. After
additional
Page 21 GAO- 01- 188 Antitrust Division's Operations
research of the files and discussions with the attorneys who handled some of
these matters, the Division provided additional information on all 25 of the
matters in that category.
According to Division officials, of these 25 matters, the last action or
phase for 4 was PI, CID or grand jury for 5, and a case filed in court for
3. The officials indicated that the Division initiated a PI memorandum but
that a PI was not conducted for one matter; and the Division had considered
opening a PI for another, but then decided not to after gathering additional
information about the matter. They indicated that the remaining 11 matters
involved Division activities that do not require that a PI be opened- 5
involved the Division's responsibilities for granting an export trade
certificate, 2 involved judgment enforcement actions, 2 involved judgment
modification actions, 1 was a business review letter, and 1 was an internal
matter- one field office reviewing another office's files for ideas on how
to approach a possible investigation.
According to Division officials, the 12 matters for which a PI had been
opened, a CID issued, a grand jury convened, or a case filed in court should
all have been linked in MTS to other matters in the database. They said that
the links apparently had not been made in the database and believed that
including these matters in our profile would, therefore, be double-
counting. As previously noted, we based our profile on the information that
was available in the MTS database. Although we understand the Division's
concern about double- counting, we have not dropped these matters from our
analysis for mainly two reasons. First, we do not know whether there were
additional cases for which the MTS database was missing appropriate links.
It is possible that additional case file review and analysis would have
resulted in alterations to the MTS data for other matters. Second, removing
these 25 matters from our profile would afford them preferential treatment
based on detailed Division research and analyses that were not conducted for
all agriculture- related matters in the database. Moreover, the fact that
the Division had to conduct additional review on these matters to clarify
their status further illustrates that the information in the database is not
wholly reliable. Given the problems we encountered with the database
throughout this assignment, we believe that the data available from MTS
cannot be used without the type of time- consuming checking and scrutiny
that the Division and we performed. An accurate, detailed picture of the
Division's workload cannot readily be determined using MTS alone until the
Division corrects the errors that have been identified and verifies that all
of the data in MTS are accurate and reliable.
Page 22 GAO- 01- 188 Antitrust Division's Operations
Although the Division had a specific policy to document all complaints and
leads received, the policy was not consistently followed in the past by all
sections and field offices. Federal internal control standards, among other
things, note that all transactions and significant events should be clearly
documented and promptly recorded to maintain their relevance and value to
management in controlling operations and making decisions. 27 The Division's
new policy requiring staff to document all complaints and leads in CCTS is a
step in the right direction. However, given our 1991 finding that the 1980
policy was not being followed by all sections and field offices and given
the findings of our current review, we believe that better guidance and
closer management attention will be needed to ensure compliance with
whatever policy is in place.
However, even if the new policy is implemented consistently, the CCTS system
is inadequate for providing the information needed to assess patterns in
complaints and leads by industry or track and analyze the results of
complaints and leads. CCTS does not include specific fields for SIC code or
the final outcome of complaints and leads received from the public.
Furthermore, the Division's primary management information system for
tracking matters, MTS, does not include information on the source of a
matter, nor is it linked to CCTS. As a result, Division officials may not
have readily available information on the source of matters and the specific
industries about which the Division is receiving complaints.
The data in the Division's MTS, which are used for developing management and
budget reports, are not totally accurate and reliable. Errors have been
identified that have not been corrected. For example, links were not
consistently established between related matters, and actions were recorded
after matters had reportedly been closed. Given the problems we encountered
with the MTS database throughout this assignment, we believe that MTS
information should be used with caution and that an accurate, detailed
picture of the Division's workload cannot
27 Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
21. 3. 1, Nov. 1999). Conclusions
Page 23 GAO- 01- 188 Antitrust Division's Operations
readily be determined until the Division corrects the errors that have been
identified and verifies that all MTS data are accurate and reliable.
To ensure that (1) all complaints and leads are documented as required by
the Division policy; (2) data are readily available on the final outcome of
complaints and leads, the source of matters, referrals of matters to other
agencies, and the specific industries in which the Division receives
complaints and leads; and (3) the Division has an accurate and reliable
database that can be used to prepare meaningful management and budget
reports, we recommend that the Attorney General direct the Assistant
Attorney General for Antitrust to
? modify CCTS to capture the related SIC code( s);
? monitor compliance with the November 27, 2000, policy regarding
documenting and tracking public inquiries;
? link CCTS to MTS to provide a mechanism to determine the source of the
matter and the ultimate outcome of a complaint; and
? correct the errors that have been identified in MTS as a result of our
work and verify that the MTS data are accurate and reliable.
Justice's Antitrust Division provided written comments on a draft of this
report. In its comments, which are included as appendix V, the Division
stated that our recommendation to incorporate a data field for SIC codes
into CCTS was reasonable and that it would also consider our recommendation
to link CCTS to MTS to enable the Division to track the results of citizens'
complaints. The Division was silent on our recommendation that it monitor
compliance with the November 27, 2000, policy regarding documenting and
tracking public inquiries.
The Division took issue with our recommendation to correct errors and
improve the accuracy and reliability of MTS data. The Division stated that
although data linkages can be improved and data coding reviewed to ensure
consistency, MTS is soundly structured, logically presented, and contains
fully reliable data. The Division contended that we based our conclusion
concerning the reliability of MTS data largely on the results of 25 of 1,050
agriculture- related matters.
We continue to believe that the Division needs to take steps to improve the
accuracy and reliability of MTS data. Contrary to the Division's assertions,
the basis for our conclusion goes beyond the 25 matters highlighted in the
report. On numerous occasions during our review, we had to ask officials
Recommendations
Agency Comments
Page 24 GAO- 01- 188 Antitrust Division's Operations
for clarification about data issues because the information as presented was
not clear or appeared to be in error. For example, there were many matters
for which we could not determine the final disposition on the basis of the
data recorded. Division officials needed to devote considerable time and
effort to respond to questions and issues we raised. MTS data should not
require repeated reviews and refinements to produce accurate data on simple
frequency counts of the number of matters closed. The finding of missing
database links for 12 of the 25 matters further illustrates the difficulty
of creating accurate frequency counts using the MTS database without careful
and time- consuming review of the data, sometimes requiring a review of the
case files. The Division acknowledged in its letter that it is currently
reviewing how best to ensure that any similar linkage issues are identified
and corrected, and it is updating MTS as new information becomes available
and inaccuracies or gaps are discovered. These statements show that the
Division recognizes that information in the MTS database needs improvement.
In connection with its discussion on data reliability problems, the Division
mistakenly stated that we found that its reopening of previously closed
matters was an indication of incorrect closures. We recognize that closed
matters are sometimes reopened in light of new evidence and do not object to
the Division doing so. Our point was that the database does not accurately
portray this activity, and we noted this as another example of MTS failing
to accurately represent Division activity. However, we modified the language
in our report to clarify this issue.
The Division also commented on four other items discussed in our report.
First, the Division stated that contrary to our assertion, it could report
direct labor costs for matters but not from one central data source. During
our review a high- level Division official stated that although it is true
that MTS does not contain accurate data on direct labor costs for specific
matters, such data would be available through various other sources.
However, at a meeting to discuss direct labor costs, among other things,
this official told us that although the Division could provide us with these
data with considerable effort, the data would be incomplete and lack
credibility.
Second, the Division indicated that its efforts to improve its documentation
of complaints and leads began well before we initiated our review. However,
the Division's response ignores the fact that the problems we identified in
tracking complaints and leads were also identified in our 1991 report. Thus,
any corrective actions taken over the last 10 years were insufficient to
address the deficiencies identified in that
Page 25 GAO- 01- 188 Antitrust Division's Operations
report. As noted in our report, at the beginning of our review Division
officials were unsure whether the 1980 policy to document and track
complaints and leads was still in effect. Further, at the beginning of our
review the Division's sections and offices were not using a uniform system
to document and track complaints and leads. The Division issued a memorandum
in February 2000 that instructed the legal sections and field offices to use
CCTS to track all public inquiries and ensure that they were addressed in a
timely manner. In June 2000, we found that 7 out of the 12 sections and
field offices were not using CCTS to document and track complaints and
leads. Of the five that were using CCTS, three had begun using it only after
March 2000. In October 2000, the Division issued a directive requiring all
sections and field offices to (1) use the CCTS to document and track all
unsolicited pubic contacts and (2) maintain a central file of these
contacts.
Third, the Division stated that the draft report gave the impression that if
a merger filing under the HSR process did not result in a PI being opened,
the Division had taken no action. It was not our intent to give this
impression. Our report states that the Division took no formal action in
these filings. Further, our report states that it is a normal outcome that
PIs are not initiated for the majority of HSR mergers and that such mergers
are permitted to proceed at the end of the required waiting period after the
Division has concluded that they should be permitted to proceed. However, we
modified the language in our report to clarify this issue.
Fourth, the Division commented on the definition of
“agriculture” used to determine which matters to include in our
review, intimating perhaps that this was a shortcoming of the Division. We
did not take issue with the Division's lack of a working definition of
agriculture. We merely stated that because there was no set definition, we
needed to determine one to define the constraints of our review.
Furthermore, we relied on the Division's judgment in this matter and
accepted its definition as given. In fact, the definition the Division
provided was the same one that it used in its April 2000 response to Senator
Lugar on another agriculture- related antitrust matter.
The Division also offered technical comments on the draft, which we
incorporated where appropriate. However, we disagree with the Division's
characterization of our description of the antitrust legal framework and
antitrust enforcement, as the vast majority of its comments were technical
suggestions or editorial preferences and not substantive. Moreover, in some
cases, the Division's suggested changes altered wording taken directly from
the Division's written policies and
Page 26 GAO- 01- 188 Antitrust Division's Operations
procedures. In such cases, we generally retained the wording from the
Division's official documentation.
We also requested comments from FTC and USDA officials with whom we had met
during this review. Both agencies provided technical comments, which we
incorporated where appropriate.
We will send copies of this report to Senator Orrin G. Hatch, Chairman, and
Senator Patrick J. Leahy, Ranking Member, Senate Committee on the Judiciary;
Representative Jim Sensenbrenner, Jr., Chairman, and Representative John
Conyers, Jr., Ranking Minority Member, House Committee on the Judiciary; the
Honorable John D. Ashcroft, Attorney General; the Honorable Mitchell E.
Daniels, Jr., Director of Management and Budget; and other interested
parties. We will also make copies available to others upon request. This
report will also be available on GAO's home page at http:/ www. gao. gov.
Please contact William Jenkins or me on (202) 512- 8777 if you or your staff
have questions about this report. Major contributors to this report are
acknowledged in appendix VI.
Richard M. Stana Director, Justice Issues
Appendix I: Objectives, Scope and Methodology
Page 27 GAO- 01- 188 Antitrust Division's Operations
Our objectives were to (1) describe the Department of Justice's Antitrust
Division's (Division) interaction with the Federal Trade Commission (FTC)
and the U. S. Department of Agriculture (USDA) with regard to antitrust
matters in the agriculture industry, (2) provide information on the number
of complaints and leads in the agriculture industry received by the Division
for fiscal years 1997 through 1999, and (3) provide information on the
number and type of closed matters in the agriculture industry for fiscal
years 1997 through 1999.
Because the Antitrust Division does not have a working definition of the
agriculture industry, we first had to determine what constituted the
agriculture industry. To define what complaints, leads, matters, and cases
were related to agriculture, we met with the Division and requestor staff to
identify the Standard Industrial Classification (SIC) codes that would
encompass agriculture. The Division assigns each matter or case one or more
SIC codes. As agreed with Senator Grassley's office, we used the Division's
selected SIC codes to define the agriculture- related activities. The
Division's selected SIC codes used to define the agriculture industry
included those specifically related to plant and animal products that
originate on land and are commercially cultivated or raised for human or
animal consumption, meaning oral ingestion. If any identified complaint,
lead, matter, or case included one of these SIC codes, we included it in our
analysis. The SIC codes the Division included in its definition for the
agricultural industry, as well as the way we grouped them for analysis
purposes, are shown in table 6. Appendix I: Objectives, Scope and
Methodology
Appendix I: Objectives, Scope and Methodology
Page 28 GAO- 01- 188 Antitrust Division's Operations
Table 6: SIC Codes Included in the Definition of the Agriculture Industry.
GAO Categorization SIC Code a Definition
All crop production 01 All crop production, including tobacco and cotton
(because of cottonseed oil), with the sole exception of ornamental nursery
products (Code 0181) All livestock production 02 All livestock, including
animal aquaculture (Code 0273), except for fur- bearing
animals and rabbits (Code 0271), horses and other equines (Code 0272), and
animal specialties not elsewhere classified (Code 0279 - pets, lab animals,
etc) All agricultural services 07 All agricultural services, including
cotton ginning (Code 0724 – a necessary step in
producing cottonseed oil), except for specialized veterinary services (Code
0742 –
pets, horses, fur- bearers), and landscape and horticultural services (Code
078 –
lawnscapes, lawn and garden, ornamental shrubs and trees) All food
manufacturing 20 All food manufacturing, except canned and cured seafood
(Code 2091), fresh or
frozen prepared fish (Code 2092), and manufactured ice (Code 2097) Tobacco
manufacturing 21 All tobacco products manufacture Agricultural chemicals 287
Agricultural chemicals manufacture Farm machinery manufacturing 3523 Farm
machinery and equipment manufacture Food machinery manufacturing 3556 Food
products machinery manufacture
4221 Farm product warehousing and storage Warehousing and storage 4222
Refrigerated warehousing and storage Wholesale trade– farm and garden
machinery 5083 Wholesale trade in farm and garden machinery Wholesale
trade– groceries 514 Wholesale trade in groceries and related
products, except for trade related solely to
fish and seafood (Code 5146) Wholesale trade– farm/ raw materials 515
Wholesale trade in farm product raw materials Wholesale trade– beer,
wine, and distilled beverages 518 Wholesale trade in beer, wine, and
distilled beverages Wholesale trade– farm supplies 5191 Wholesale
trade in farm supplies Wholesale trade– tobacco products 5194
Wholesale trade in tobacco and tobacco products Retail food stores 54 Retail
food stores Eating and drinking places 58 Eating and drinking places Liquor
stores 592 Liquor stores Tobacco stores and stands 5993 Tobacco stores and
stands
a Two- digit SIC codes designate each major industry group. The scheme is
hierarchical and allows related industries to be classified together. Each
additional digit provides an increasing level of specificity in designating
the industry group.
To obtain information on the Division's interaction with the FTC and USDA,
in each of the three agencies, we relied primarily on interviews with key
officials in the Division, FTC, and USDA. We relied on these officials'
representation of the agencies' interaction. We also reviewed the Division's
policies and procedures for interacting with other agencies and relevant
interagency agreements, including the 1999 Memorandum of
Appendix I: Objectives, Scope and Methodology
Page 29 GAO- 01- 188 Antitrust Division's Operations
Understanding that addresses cooperation among the Division, FTC, and USDA
for monitoring competitive conditions in the agricultural marketplace. In
addition, we reviewed Division testimonies, speeches, and press statements
that addressed the interaction among the agencies. With regard to merger
investigations, we reviewed agreements between the Division and FTC for
cases that fell within the joint antitrust jurisdiction of both agencies.
These included a 1993 agreement that established clearance procedures for
investigations and a 1995 agreement in which the agencies agreed to specific
time frames for deciding which agency should investigate a matter.
Because the Division had not collected consistent, divisionwide information
on complaints and leads, we relied on data provided by Division officials to
obtain information about the agriculture- related complaints and leads the
Division received by mail, telephone, facsimile, e- mail, or personal visit
during fiscal years 1997 through 1999. To obtain information on the policies
and procedures for documenting and tracking complaints and leads, we
interviewed the Director of Legal Policy; the Chief of the Legislative Unit;
the Executive Officer; the Special Counsel for Agriculture; and the
Directors of Criminal Enforcement, Civil Merger Enforcement, and Civil
Nonmerger Enforcement. In addition, we reviewed the Division's directives
for tracking complaints and leads. We also held structured interviews with
Division officials representing the five headquarters sections or task
forces- Civil Task Force; Litigation I section; Litigation II section;
Transportation, Energy and Agriculture section, and Merger Task Force 1 -and
the seven field offices- Atlanta, Chicago, Cleveland, Dallas, New York,
Philadelphia, and San Francisco- that Division officials said would most
likely have reviewed anticompetitive matters in the agriculture industry for
the period we reviewed. We asked them to describe their policies and
procedures for documenting and tracking complaints and leads. We provided
them with the agriculture- related SIC codes, and we asked them to provide
us with data on, among other things, the total number of agriculture-
related complaints and leads received by SIC code for each fiscal year 1997
through 1999 and the outcome of the complaint or lead. Because of the
variety of methods used to track complaints and leads within the Division,
we could not verify the accuracy or completeness of the data provided to us.
1 In July 1999, the Merger Task Force was combined with the Litigation II
Section.
Appendix I: Objectives, Scope and Methodology
Page 30 GAO- 01- 188 Antitrust Division's Operations
To summarize and describe the matters that were closed during fiscal year
1997 through 1999, we analyzed data from the Division's Matter Tracking
System (MTS). MTS contains information on all civil merger, civil nonmerger,
and criminal matters handled by the Division. As each matter goes through
various phases in the enforcement process, MTS is to capture each phase and
its related disposition. MTS is designed and used primarily for Division
management purposes.
We obtained data on the characteristics of the matters for those
agriculture- related SIC codes for fiscal years 1997 through 1999. To
understand the data elements in MTS and how the Division systematically
maintains information on matters during its review of potential
anticompetitive conduct, we reviewed the Antitrust Division Manual and the
Division's MTS data dictionary, and we met with officials from the
Division's Information Systems Support Group.
We defined a closed matter as any effort (e. g., a case, an investigation,
an inquiry, etc.) in the database that the Division closed during fiscal
years 1997, 1998, or 1999. The database defines matters by use of a unique
identification number, which tracks efforts that may span multiple years
and/ or contain multiple phases. We used this number to identify each
individual matter.
To provide a profile, we categorized the closed matters in the agriculture
industry into the following groups:
1. Hart- Scott- Rodino (HSR) matters that expired by the 30- day limit
(under Division purview),
2. HSR matters that were cleared to FTC, 3. non- HSR matters on which a
formal PI was not opened (under Division
purview), 4. non- HSR matters that were cleared to FTC, 5. matters in which
a PI was opened but no further action was taken by
the Division, 6. matters on which a civil investigation was conducted or a
grand jury
was held, 7. matters for which a civil or criminal case was filed in court,
or
Appendix I: Objectives, Scope and Methodology
Page 31 GAO- 01- 188 Antitrust Division's Operations
8. business review matters. The groups were defined on the basis of the last
phase recorded in the database for the matter. A matter in group (7), for
example, might have originated as an HSR filing; but it was assigned to
group (7) because the last phase recorded either indicated that a case was
filed, or it gave the outcome (e. g., “won”) of the case.
To augment MTS information for our profile of closed matters, we reviewed
Antitrust Division memorandums for matters for which a PI was conducted but
no further actions were taken by the Division. Our data collection
instrument included the dates that the investigation was authorized to be
opened and closed, the type of matter, statute and potential antitrust
conduct violated, geographic market, amount of commerce affected, SIC code(
s), section assigned to review the matter, reason for closing the
investigation, and whether or not there was economic analysis group
concurrence.
For those matters for which we were unable to understand the information
provided in the memoranda, we spoke with a Division official to clarify the
information. We verified summary results with Antitrust Division officials,
and we discussed and came to agreement on matters of discrepancy.
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 32 GAO- 01- 188 Antitrust Division's Operations
The Department of Justice's Antitrust Division's (Division) mission is to
promote and maintain competition in the American economy. According to its
manual, the Division's primary functions and goals include
? the general criminal and civil enforcement of the federal antitrust laws
and other laws relating to the protection of competition and the prohibition
of restraints of trade and monopolization;
? the intervention or participation before administrative agencies
functioning wholly, or partly, under the regulatory statutes in proceedings
requiring consideration of the antitrust laws or competitive policies; and
? the advocacy of procompetitive policies before other branches of
government.
To accomplish its mission, the Division has 16 sections or task forces in
headquarters and 7 field offices located throughout the United States. As
shown in table 7, as of July 21, 2000, the Division had 561 full- time staff
and 237 part- time staff, of which about 29 percent of the full- time staff
and about 21 percent of the part- time staff were assigned to the field
offices.
Table 7: Antitrust Division's Section and Field Office Staffing, as of July
21, 2000 Attorney Economists Paralegals Secretaries Other Total Headquarters
section Fulltime Parttime
Fulltime Parttime Fulltime Parttime Fulltime Parttime Fulltime Parttime
Fulltime Parttime
Office of AAG 14 2 0 0 0 1 4 0 5 0 23 3 Office of Operations 71 0 0 0 3 22
20116
FOIA and Privacy Act U nit 10 0 0 4 1 01 21 73 Paralegal Unit 0 0 0 0 16 71
0 7 0 1 16 79 Appellate Section 10 1 0 0 0 0 2 0 1 0 13 1 Civil Task Force
19 4 0 0 0 4 4 4 0 0 23 12 Competition Policy Section 0 0180 001002192
Computers and Finance Section 24 1 0 0 0 2 4 1 1 1 29 5 Economic Litigation
Section 0 0153 013172257 Economic Regulatory Section 0 0190 002303216
Executive Office 00 0 0 0 0 112292310
Information Systems Support Group 00 0 0 0 0 02201203 Foreign Commerce
Section 71000002 10 83 Legal Policy Section 52 0 0 0 0 10 10 72
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 33 GAO- 01- 188 Antitrust Division's Operations
Attorney Economists Paralegals Secretaries Other Total Headquarters section
Fulltime Parttime
Fulltime Parttime Fulltime Parttime Fulltime Parttime Fulltime Parttime
Fulltime Parttime
Litigation I Section 15 1 0 0 0 1 2 1 2 0 19 3 Litigation II Section 47 5 1
0 0 4 5 8 2 0 55 17 Telecommunications Task Force 25 5 0 0 0 3 4 3 1 0 30 11
Transportation, Energy and Agriculture Section 25 3 0 0 0 3 6 2 1 0 32 8
Health Care Task Force 12 2 0 0 0 1 3 2 1 0 16 7
Totals 211 28 53 3 20 97 44 40 69 20 397 188 Percent of division totals 38
12 9 1 4 41 8 17 12 8 71 79 Field offices
Atlanta 12 1 0 0 5 4 2 2 2 0 21 7 Chicago 11 0 1 0 2 5 5 1 3 0 22 6
Cleveland 13 1 0 0 2 3 2 2 3 0 20 6 Dallas 13 0 0 0 3 5 4 1 3 0 23 6 New
York 17 1 0 0 3 4 4 2 4 0 28 7 Philadelphia 14 2 0 0 1 7 4 2 2 0 21 11 San
Francisco 16 1 1 0 3 2 4 2 5 1 29 6
Totals 96 6 2 0 19 30 25 12 22 1 164 49 Percent of division totals 17 3 .4 0
3 13 4 5 4 .4 29 21 Division totals 307 34 55 3 39 127 69 52 91 21 561 237
Note: Percentages do not add to 100 due to rounding. Source: Antitrust
Division staffing summary as of July 21, 2000.
The Assistant Attorney General (AAG) for the Antitrust Division is
responsible for leadership and oversight of all Division programs and
policies. The Division AAG is nominated by the president and confirmed by
the Senate. The AAG's Chief of Staff is responsible for managing the Office
of the Assistant Attorney General, advising the AAG on the formulation and
implementation of highly sensitive antitrust policy issues, and coordinating
that policy with other federal and state government agencies.
As of November 2000, the Division AAG had has three special counsels- the
Special Counsel for Civil Enforcement, the Special Counsel for Information
Technology, and the Special Counsel for Agriculture (who
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 34 GAO- 01- 188 Antitrust Division's Operations
was appointed in January 2000). 1 The special counsels are generally
responsible for:
? maintaining expertise in assigned program areas and the competitive issues
affecting them;
? advising the AAG and other senior Division management about enforcement
priorities in assigned program areas and assisting in the development and
implementation of Division policy in these areas;
? assisting the Division in articulating its views on issues involving
assigned program areas before other government entities, the press, the bar,
and the public; and
? participating as appropriate in the identification of potential
investigations assigned to program areas and any resulting investigation or
enforcement action.
The Division also has five Deputy Assistant Attorneys General (DAAG), at
least one of whom has traditionally been a career employee; and three
Directors of Enforcement, one of whom serves as the Director of Operations.
Each DAAG has a number of components that report to him or her. (See fig.
1.)
1 Currently, only the Special Counsel for Agriculture remains. More may be
added by the new Assistant Attorney General when he arrives.
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 35 GAO- 01- 188 Antitrust Division's Operations
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 36 GAO- 01- 188 Antitrust Division's Operations
Figure 1: Antitrust Division's Organizational Chart, as of November 2000
Deputy Assistant Attorney General
for Economic Analysis
Litigation I Section Atlanta
Office New York
Office Chicago
Office Cleveland
Office Dallas
Office San Francisco
Office Philadelphia
Office Economic
Litigation Section
Competition Policy Section
Economic Regulatory
Section Deputy Assistant
Attorney General for Criminal Enforcement
B
Assistant Attorney General A
This line represents the office's involvement with the three Deputy
Assistant Attorneys General
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 37 GAO- 01- 188 Antitrust Division's Operations
Source: Antitrust Division.
Principal Deputy Assistant Attorney General
Deputy Assistant Attorney General
for Civil Non- Merger
Enforcement Deputy Assistant
Attorney General for Merger Enforcement
Office of Operations
Civil Task Force
Foreign Commerce
Section Computers and Finance
Section Appellate
Section Health Care
Task Force Transportation
Energy and Agriculture
Telecommunications Task Force
Legal Policy Section
Litigation II Executive
Office
B
Special Counsel for Information Technology
Special Counsel for Civil Enforcement
Special Counsel for Agriculture
A
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 38 GAO- 01- 188 Antitrust Division's Operations
The DAAG for Criminal Enforcement, who traditionally has been a career
employee, has overall supervisory and management responsibility for the
Litigation I Section and the Division's seven field offices and is primarily
responsible for the Division's criminal enforcement program. The civil
enforcement responsibilities are divided among the remaining three legal
DAAGs.
The DAAG for Economic Analysis 2 has supervisory and management
responsibility for the three economic sections (i. e., Economic Litigation,
Economic Regulatory, and Competition Policy). The Economic Litigation
Section focuses on general industries that historically have not been
regulated; it also has a Corporate Finance Unit, which provides financial
analyses of failing firm defenses, divestitures, and efficiencies defenses;
makes recommendations as to fines; and reviews financial issues involved in
damage analyses and other issues requiring financial, accounting, and
corporate analysis. The Economic Regulatory Section focuses on industries
that currently are regulated or historically have been regulated (e. g.,
telecommunications, airlines, and energy matters). The Competition Policy
Section assists in matters that have a strong foreign outreach connection as
well as matters involving certain specialized industries.
In total, the economic sections are made up of 52 full- time and 3 part-
time economists. According to a Division official, the economic sections
have a common pool of staff members. Although economists are assigned to one
of the three sections, in practice they work for all three sections.
According to a Division official, this practice helps balance workload.
The three Directors of Enforcement- which include the Director of Merger
Enforcement, the Director of Civil Non- Merger Enforcement, and the Director
of Criminal Enforcement- have direct supervisory authority over the
activities of the various litigating sections, task forces, and field
offices, each of which is headed by a Chief and Assistant Chief. These
sections, task forces, and field offices carry out the bulk of the
Division's investigatory and litigation activities. According to the
Division manual, the three Directors of Enforcement work closely with the
DAAGs in overseeing Division activities. Four special assistants to the
Directors of Enforcement are each assigned several sections and field
offices and play
2 In 1985, the head economist was elevated to the position of DAAG for
Economics and began to report directly to the Division's AAG. Prior to then,
the Economics Director formally reported to one of the Division's DAAGs.
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 39 GAO- 01- 188 Antitrust Division's Operations
a liaison role between those sections and the Directors, in addition to
performing other duties as assigned by the Directors. The senior Special
Assistant also serves as the Liaison Officer to FTC.
The Director of the Office of Operations, who also serves as one of the
Directors of Enforcement, reports to the AAG. The Office of Operations
coordinates the policies and procedures governing the Division's civil
investigations and enforcement actions and includes four support units. The
Premerger Notification Unit/ FTC Liaison Office (commonly referred to as the
Premerger Office) receives the Division's copy of all Hart- ScottRodino
filings and assigns them to the appropriate sections. The Premerger Office
communicates to FTC the Division's interest in conducting an investigation
or its willingness to grant early termination of the filing period. The
Freedom of Information Act (FOIA) Unit is responsible for receiving,
evaluating, and processing all FOIA requests made of the Division; assisting
in the preparation of materials to be provided to state attorneys general;
and maintaining and indexing pleadings, business review letters, and other
frequently used files. The Paralegal Unit provides paralegal support on
request to investigations and cases handled in Washington, D. C., and the
field offices. The Training Unit coordinates training opportunities for the
Division's legal and support personnel.
The Division has seven Washington, D. C., litigating sections and task
forces, including the following:
? The Computers and Finance Section enforces antitrust laws and competition
policy in the banking, finance, insurance, securities, and computer
industries.
? The Civil Task Force handles civil nonmerger antitrust enforcement in some
assigned industries, in intellectual property matters, and in all industries
not specifically assigned elsewhere and handles merger matters in its
assigned industries.
? The Health Care Task Force investigates and litigates civil merger and
nonmerger antitrust law violations involving the health care industry and
provides legal guidance to the American health care industry through an
extensive business review program.
? The Litigation I Section conducts criminal investigations and litigation
in conjunction with its field office counterparts.
? The Litigation II Section enforces antitrust laws with regard to mergers
and acquisitions in unregulated industries; handles some civil nonmerger
work in its assigned industries; and reviews, investigates, and litigates
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 40 GAO- 01- 188 Antitrust Division's Operations
matters in a large variety of industries. 3 This section is also responsible
for the review of bank mergers.
? The Telecommunications Task Force enforces antitrust laws and promotes
procompetitive regulatory policies in the communications industry,
investigating and litigating violations of antitrust laws within that
industry, and participating in proceedings before the Federal Communications
Commission.
? The Transportation, Energy and Agriculture Section enforces antitrust laws
and promotes procompetitive regulatory policies in transportation, energy,
and agricultural commodities, investigating and litigating violations of
antitrust laws within those industries, and participating in proceedings
before a number of federal regulatory agencies, including the Department of
Agriculture; and prepares reports to Congress and the executive branch on
policy issues related to various transportation, energy, and agriculture
industries.
The Division's seven field offices conduct criminal investigations and
litigation. Field offices also handle some civil merger and nonmerger
matters, depending on resource availability and particular expertise. The
offices act as the field liaison with U. S. Attorneys, state attorneys
general, and other law enforcement agencies within their areas of
jurisdiction (see table 8).
Table 8: Antitrust Division Field Offices Field office States covered by the
field offices
Atlanta Alabama, Florida, Georgia, Mississippi, North Carolina, South
Carolina, Tennessee, Puerto Rico, U. S. Virgin Islands Chicago Colorado,
Illinois, Indiana, Iowa, Kansas, West District of Michigan, Minnesota,
Missouri, Nebraska, North Dakota,
South Dakota, Wisconsin Cleveland Kentucky, Eastern District of Michigan,
Ohio, West Virginia Dallas Texas, Oklahoma, Louisiana, New Mexico, Arkansas
New York Connecticut, Maine, Massachusetts, New Hampshire, Northern New
Jersey, New York, Rhode Island, Vermont Philadelphia Delaware, Maryland,
Southern New Jersey, Pennsylvania, Virginia San Francisco Alaska, Arizona,
California, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington,
Wyoming
Source: Antitrust Division.
3 Prior to July 1999, the Division had eight sections. In July 1999, the
Merger Task Force was folded into the Litigation II Task Force. The Merger
Task Force was responsible for the enforcement of the antitrust laws with
regard to mergers and acquisitions in its assigned unregulated industries.
It also handled some civil nonmerger work in those industries.
Appendix II: Overview of the Department of Justice's Antitrust Division
Staffing and Functions
Page 41 GAO- 01- 188 Antitrust Division's Operations
The Division also has several specialized components, in addition to those
included in the Office of Operations, that assist in carrying out the
Division's mission.
? The Executive Office formulates and administers the Division's budget,
manages its reporting and records, handles personnel matters, and provides
information systems services for all Division activities. This Office
includes the Information Services Support Group, which provides automated
services and resources to handle information in support of the Division's
attorneys, economists, and managers.
? The Appellate Section represents the Division in appeals to the U. S.
Courts of Appeals and appeals before the U. S. Supreme Court.
? The Legal Policy Section provides analyses of complex antitrust policy
matters; coordinates the Division's legislative program; and handles
longrange planning, projects, and programs of special interest to the AAG.
This Section includes the Legislative Unit, which coordinates the Division's
relations with Congress and responds to congressional requests and inquiries
of the Division.
? The Foreign Commerce Section assists other sections in matters with
international aspects and is primarily responsible for the development of
Division policy on international antitrust enforcement and competition
issues involving international trade and investment.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 42 GAO- 01- 188 Antitrust Division's Operations
The Antitrust Division is responsible for, among other things, promoting and
maintaining competition in the United States by enforcing the federal
antitrust laws. It is charged with investigating and prosecuting violations
of these laws. The Division's Antitrust Division Manual 1 is intended to
provide a comprehensive source of information about the Division's mission
and investigative and enforcement procedures and practices. The following is
a general overview of the antitrust investigative and enforcement processes,
up to the point at which an enforcement action is filed, for the three
principal types of antitrust enforcement actions brought by the Division-
Hart- Scott- Rodino merger enforcement actions, civil enforcement actions,
and criminal prosecutions. 2
The Division may become aware of a possible antitrust violation through a
variety of sources, including a confidential informant; individuals or
corporations applying for amnesty; complaints and referrals from other
government departments or agencies; an anonymous tip; or through reviews of
newspapers, journals, and trade publications. New investigations may also
begin with information the Division obtains in other grand jury proceedings,
or in merger filings required by the premerger notification provisions of
the Hart- Scott- Rodino Antitrust Improvements Act of 1976 (HSR Act, 15 U.
S. C. 18a). Economists from one of the Economic Analysis Group sections may
also discover a possible anticompetitive activity, which they would then
discuss with an attorney in one of the Division's legal sections.
When an attorney makes a determination that there is sufficient evidence to
open an investigation beyond discussions with the complainant, he or she is
to draft a preliminary inquiry (PI) request memorandum to the section, task
force, or field office 3 chief describing the conduct involved
1 The last comprehensive revision was issued in February 1998. 2 We
developed the description of the processes from discussions with Division
officials, information obtained from the Division, and our review of the
Antitrust Division Manual . According to Division officials, figures 2
through 4 and the accompanying narrative fairly describe a typical antitrust
investigative and enforcement process. However, Division officials said that
no two investigations are exactly alike, and, therefore, the Division's
processes are flexible. Additionally, they noted that for any significant
matter, there is ongoing consultation at all levels within the Division,
including at the DAAG and AAG levels.
3 Hereafter this appendix refers to sections and task forces as sections and
field offices as offices. Appendix III: Overview of the Antitrust
Division's Policies and Procedures for Investigating Potential Antitrust
Violations
Identification of Possible Antitrust Violations
Preliminary Inquiry Process
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 43 GAO- 01- 188 Antitrust Division's Operations
and the possible violation. For civil matters, the memorandum is also to
state whether the economist concurs. The memorandum is to include, among
other things
? a factual summary of the information upon which the request is based,
? evidence supporting a potential antitrust violation as well as any
contrary evidence,
? an evaluation of the significance of the matter from an economic and
antitrust perspective, and
? a description of the proposed course of the investigation. Additionally,
the memorandum is to include basic information on (1) the commodity or
service to be investigated; (2) the alleged anticompetitive conduct or
merger and, for civil matters, the theory of competitive harm; (3) the
relevant statute; (4) the parties involved; (5) the amount of commerce
affected on an annual basis; and (6) the geographic area involved.
If the section chief does not agree with the staff's recommendation to open
a PI, no further action is taken. If the section chief agrees with the
recommendation, he or she is to submit a request to Operations or, in the
case of a criminal PI, to the Office of Criminal Enforcement. The
appropriate Director of Enforcement is to approve or disapprove the PI
request on the basis of four standards: (1) the facts presented must provide
sufficient indications of an antitrust violation; (2) the amount of commerce
affected must be substantial, or the matter must have some broader
significance or implicate an important legal principle; (3) the
investigation should not needlessly duplicate or interfere with other
efforts of the Division, FTC, a U. S. Attorney, or a state Attorney General;
and (4) Division resources must be available for the investigation.
Because both the Division and FTC have antitrust jurisdiction, they must
agree on which agency is to conduct the investigation. 4 To ensure that both
agencies are not investigating the same conduct, they have established
clearance procedures to determine which agency will
4 Although clearance is also required for the opening or expansion of a
criminal investigation, the Division handles all criminal matters and,
according to Division officials, FTC routinely grants clearance as long as
it agrees that the matter is criminal in nature.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 44 GAO- 01- 188 Antitrust Division's Operations
investigate a potential violation. 5 If either the Division or FTC objects
to the other agency conducting the investigation, the staffs are to follow
the clearance dispute procedures to determine which agency will proceed with
the investigation. 6 According to Division and FTC officials, clearance
disputes are relatively rare.
Clearance must be obtained for all PIs, business reviews, grand jury
requests that have not resulted from an existing PI, and any expansion of a
previously cleared matter. The agencies cannot begin a PI until clearance is
granted. 7 For a typical investigation, the clearance request is to specify,
among other things, the parties to be investigated, the product line
involved, the potential offenses, and the geographic area. The Division's
Premerger Notification Unit/ FTC Liaison Office oversees the clearance
process.
The primary determinant of which agency will conduct an investigation is
current agency expertise about the product or service market( s) at issue,
so that a merger will usually be reviewed by whichever of the two agencies
is most knowledgeable about the relevant market( s). According to Division
and FTC officials, the Division has investigated the preponderance of
mergers affecting agriculture, with a prominent exception being grocery
store transactions, in which FTC has substantial experience and expertise.
The Division has handled investigations in the cattle, hog, and lamb
sectors, and FTC has traditionally handled investigations in the poultry
sector.
5 The first interagency agreement was informally instituted in 1938; since
1948, it has been modified and formalized. On December 2, 1993, FTC and
Justice jointly issued “Clearance
Procedures for Investigations.” On March 23, 1995, FTC and Justice
jointly announced
“Hart- Scott- Rodino Premerger Program Improvements.” These
improvements included a commitment by each agency to resolve clearance on
matters where an HSR filing was made within 9 business days of receipt of
the HSR filings for a merger, and 7 business days of receipt of a filing in
a cash tender offer or a notification involving an acquisition in
bankruptcy.
6 According to Division officials, the criteria for resolving clearance on
civil nonmerger matters differ in one important respect from those used in
merger matters. Although valuing expertise, they also give weight towards
initiative. In the absence of overwhelming expertise in an area, the matter
generally will be awarded to the agency that first identified the potential
competitive problem and developed the proposed investigation.
7 Division staff cannot contact private parties, except for complainants who
approach the agencies on their own initiative, until clearance is obtained.
However, they can develop information from public sources and governmental
entities.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 45 GAO- 01- 188 Antitrust Division's Operations
Once clearance is obtained and the PI is opened, staff are to investigate
the merger or alleged conduct through interviewing complainants, customers,
competitors, other possible witnesses and victims and reviewing other public
sources of information. They may request information on a voluntary basis
from any party involved. They also may use a compulsory process to obtain
further information and documents. 8
According to Division officials, the staff determine whether to conduct a
criminal or civil investigation early in their deliberations, usually when
the PI request is submitted. Where it is unclear whether the conduct in
question would be a civil or criminal violation, the Division's policy is
usually to open a civil investigation. This policy stems from two Supreme
Court decisions 9 that place restrictions on the government's ability to use
evidence gathered during the course of a grand jury investigation in a
subsequent civil case.
After the staff evaluates the results of the PI, the attorneys and economist
(in civil matters) are to recommend either closing the PI or proceeding with
a civil or criminal investigation. For a civil matter, this means preparing
a lawsuit for filing. For a criminal matter, this means convening a grand
jury. In making this decision, the staff are to consult with their section
or office chief and, in civil matters, the relevant economic analysis group
chief to discuss the results of the PI.
To close a PI, the attorney is to prepare a closing memorandum. In a civil
matter, the legal staff's memorandum is to state whether the economist
concurs. The memorandum generally is to provide the factual and legal bases
for the staffs' recommendation to close the PI.
Operations or, in criminal matters, the Office of Criminal Enforcement is to
review the memorandum and consult with the appropriate DAAG and
8 In most civil matters handled by the Division, both merger and nonmerger,
Civil Investigative Demands (CIDs) can be used to compel production of
information and documents if voluntary requests are judged to be inadequate
or inappropriate for the Division's needs. Under the Antitrust Civil Process
Act, CIDs may be served on any person, including suspected violators,
potentially injured persons, witnesses, and record custodians, if there is
reason to believe that the person may have documentary material or
information relevant to a civil antitrust investigation.
9 United States v. Sells Engineering, Inc., 463 U. S. 418 (1983) and United
States v. Baggot, 463 U. S. 476 (1983).
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AAG if the matter involves significant policy questions. 10 The appropriate
Director of Enforcement then notifies the cognizant section or office chief
of the decision to close the PI. Staff are to then notify the subjects of
the investigation that the matter is closed and close the file on the
matter.
Most mergers and acquisitions that have the potential to raise competitive
concerns must be reported to the Division and FTC before they occur. The
premerger notification provisions of the Hart- Scott- Rodino Act require
companies exceeding certain thresholds of company size and value of the
transaction to notify the Antitrust Division and FTC of the proposed merger
transaction, 11 submit documents and other information to the agencies
concerning the transaction, 12 and refrain from closing the transactions
until a specified waiting period has expired. 13
10 The Division's AAG has full supervisory authority over the activities of
the Antitrust Division, including the authority to become involved in any
investigation at any stage. The DAAGs also have the authority to become
involved in any investigation within their authority at any stage. The AAG
may have other special legal assistants for specific areas, such as the
Special Counsel for Agriculture. These special legal assistants have
delegated authority to involve themselves in any matter within their areas
of responsibility.
11 FTC's Premerger Notification Office is responsible for administering the
HSR premerger notification program for both the Division and FTC. The
Premerger Notification Office has the ultimate responsibility for accepting
the filing or rejecting it if it is deemed to be incomplete.
12 The parties must provide the agencies with information concerning the
parties to the transaction and the structure of the transaction; information
concerning each party's revenues, by Standard Industrial Classification
codes; copies of certain Securities & Exchange Commission filings and annual
reports; information related to prior relevant acquisitions; and certain
certifications. Additionally, each party is required to submit copies of any
documents that have been prepared in connection with the transaction by or
for any officer or director that analyze the competition aspects of the
transaction. The filing must be accompanied by a filing fee, which, for the
period we reviewed, was $45, 000 regardless of the value of the transaction.
However, the HSR filing fees were amended effective February 1, 2001, and
are now set at $45, 000 for transactions valued at less than $100 million;
$125,000 for transactions valued at $100 million to less than $500 million;
$280, 000 for transactions valued at $500 million or more. (Departments of
Commerce, Justice, and State, the Judiciary, and related agencies
Appropriations Act, 2001, P. L. 106- 553, section 630 (Dec. 21, 2000)) These
dollar thresholds will be adjusted annually, beginning with fiscal year
2005, to reflect changes in the gross national product during the previous
fiscal year.
13 Failure to comply with the HSR Act is punishable by a civil penalty of up
to $11,000 per day, and parties not in compliance are subject to injunctive
and other equitable relief. Hart- Scott- Rodino
Merger Enforcement Process
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There are three tests, all of which must be met in order for the transaction
to be reportable. 14 The first test is the commerce test, in which either
the acquiring party or the acquired party must be engaged in commerce or in
any activity affecting interstate commerce, as defined in Section 1 of the
Clayton Act. The second test is the size- of- person test. For the period we
reviewed, one party to the transaction had to have annual sales or assets of
at least $100 million and the other party of at least $10 million. 15 The
third test is the size- of- transaction test. Under this test, for the
period we reviewed, as a result of such acquisition, the acquiring party had
to hold (1) voting securities or assets worth in the aggregate more than $15
million, or (2) voting securities that confer control (50 percent) of an
issuer with annual sales of $25 million or more. 16
HSR merger reviews usually begin with the parties filing a proposed merger.
However, the Division also may become aware of a merger prior to the
required filing through other sources, such as its own research or
notification by a concerned citizen. The Division has up to 30 days (15 days
for cash tender offers and bankruptcy filings) from the time of the filing
of the proposed merger to review the filing and make a determination as to
whether the Division should seek additional information and documents from
the merging parties and thereby extend the waiting period to enable further
review. Generally, staff should decide within 5 business days of receipt of
an HSR filing (3 days in the case of a cash tender offer or a bankruptcy
filing) whether the filing raises competitive issues that need to be
investigated. According to Division officials, in markets already
characterized by high concentration levels, there is a substantially
increased likelihood that a proposed merger will be investigated.
14 Unless otherwise noted, the discussion of the tests for reportability
pertains to the period we reviewed. Legislation that took effect February 1,
2001, made changes in these tests. (Departments of Commerce, Justice, and
State, the Judiciary, and related agencies Appropriations Act, 2001, P. L.
106- 553, section 630 (Dec. 21, 2000)).
15 When the acquired party is not engaged in manufacturing and does not have
at least $100 million of sales or assets, then it must have assets of at
least $10 million. 16 See 15 U. S. C. 18a( a) and 16 C. F. R. 802.20. The
legislation that took effect on February 1, 2001, discussed in footnote14,
raised the size- of- transaction threshold from $15 million to $50 million.
The legislation also eliminated the alternative percentage threshold.
Accordingly, no transaction resulting in an acquiring person holding less
than $50 million or voting securities of an acquired person will be
reportable. In addition, under the new legislation, transactions valued at
greater than $200 million are reportable without regard to whether the size-
of- person threshold is met.
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The majority of mergers that raise antitrust concerns are horizontal
mergers. According to Division officials, the Division's and FTC's joint
Horizontal Merger Guidelines are a reasonably accurate portrayal of how the
Division and FTC generally conduct their analyses of proposed mergers. 17
The guidelines were originally developed in 1982 and were updated in 1992.
In 1997, the efficiencies section of the guidelines was expanded. 18 The
unifying theme of the guidelines is that mergers should not be permitted to
create or enhance market power or facilitate its exercise. The guidelines
define a seller's market power as the ability to profitably maintain selling
prices above competitive levels for a significant period of time. Similarly,
a buyer's market power is defined as the ability to profitably maintain
buying prices below competitive levels for a significant period of time. 19
The guidelines outline the five- step analytical process the Division is to
use to determine whether a merger is likely to substantially lessen
competition and, ultimately, whether to challenge a merger. The Division is
to (1) delineate the relevant market and assess whether the merger would
significantly increase concentration and result in a concentrated market; 20
(2) identify the market participants, assign shares, and assess
17 The Division also has “Non- Horizontal Merger Guidelines” for
mergers involving firms that do not operate in the same market. In addition,
the Division and FTC issued joint
“Antitrust Guidelines for Collaborations Among Competitors.”
These guidelines address a broad range of horizontal agreements among
competitors, including joint ventures, strategic alliances, and other
competitor collaborations. The Division and FTC also issued joint
“Antitrust Guidelines for the Licensing of Intellectual
Property.” These guidelines set forth the antitrust enforcement policy
of Justice and the FTC with respect to the licensing of intellectual
property protected by patent, copyright, and trade secret law, and of
knowhow.
18 The efficiencies section of the guidelines was revised and issued on
April 8, 1997. The revised section states that the government will not
challenge a merger if cognizable efficiencies are of a character and
magnitude such that the merger is not likely to be anticompetitive in any
relevant market.
19 According to the Division, in most instances, the concern raised by a
merger is the ability of the merging companies to raise above the
competitive level the price of the products or services they sell. However,
in some instances, the concern will be that the merger will substantially
lessen competition with respect to the price that the merging companies pay
for the products or services they purchase.
20 Once a market is defined, the market shares of competitors within the
market are determined and the Herfindahl- Hirshman Index (HHI) is calculated
by squaring the market shares of each firm and adding them to determine
market concentration. A postmerger HHI below 1,000 indicates an
unconcentrated market. Mergers resulting in unconcentrated markets are
unlikely to have adverse competitive effects and usually require no further
analysis.
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whether increased market concentration from the proposed merger raises
concern about potential adverse competitive effects; (3) assess whether
entry into the market would be timely, likely and sufficient either to deter
or to counteract the competitive effects of concern; (4) assess any
efficiency gains that cannot be reasonably achieved by the parties absent
the proposed merger; and (5) determine whether, but for the merger, either
party to the transaction would be likely to fail and exit the market.
If the attorney, in consultation with the economist, concludes that the
information reviewed does not raise significant competitive concerns, the
attorney is to submit a “no interest” form 21 and, with the
section chief's concurrence, no investigation is opened. 22 If the “no
interest” decision is made in time, the Division will typically
request that FTC grant “early
A post- merger HHI between 1,000 and 1,800 indicates moderate concentration.
Mergers producing an increase in the HHI of less than 100 points in
moderately concentrated markets postmerger are unlikely to have adverse
competitive effects and generally require no further analysis. Mergers
resulting in an increase in the HHI of more than 100 points in moderately
concentrated markets postmerger potentially raise significant competitive
concerns. A postmerger HHI above 1,800 indicates a highly concentrated
market. Mergers producing an increase in the HHI of less than 50 points even
in highly concentrated markets postmerger are unlikely to have adverse
competitive consequences and ordinarily require no further analysis. Mergers
resulting in an increase in the HHI of more than 50 points in highly
concentrated markets postmerger potentially raise significant competitive
concerns.
When the postmerger HHI exceeds 1,800, the Division assumes that mergers
producing an increase in the HHI of more than 100 points are likely to
create or enhance market power or facilitate its exercise. However, this
assumption may be refuted by showing that other factors in the guidelines
make it unlikely that the merger will create or enhance market power or
facilitate its exercise, in light of market concentration and market shares.
21 The no- interest form records such information as the identity of the
parties, the HSR transaction number, SIC codes, product and geographic
overlaps, and a summary of the transaction. Staff also are to explain why
they recommend that no investigation be initiated.
22 According to Division officials, the Division and FTC undertake their
review of a merger in order to determine whether to challenge the merger.
Therefore, they do not “approve” a merger, but rather decide not
to challenge it. Moreover, the Division and FTC are not precluded from
pursuing enforcement actions even after the transaction has closed.
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termination” of the waiting period when requested in writing by one of
the merging parties. 23
If the attorney, in consultation with the economist, concludes that the
information reviewed raises significant competitive concerns warranting a
more thorough review, the attorney is to submit a request to open a PI. The
PI request is to be reviewed by the section chief and, if the section chief
concurs, by Operations. While deciding whether to authorize the PI,
Operations is to request clearance to proceed from FTC. If clearance is
granted to the Division, the Director of Merger Enforcement in Operations
decides whether to authorize the PI. According to Division officials,
Operations generally approves merger PI requests.
If the PI is authorized, the attorney and economist are to investigate the
proposed merger during the initial waiting period, generally using voluntary
procedures. 24 They are to determine whether the proposed transaction raises
issues substantial enough to warrant the issuance of a second request. At
this point, the merging parties often begin to meet with Division staff to
discuss any problems the Division has with the proposal and to provide their
own analysis of the transaction. 25
If the attorney concludes, in consultation with the economist, that there
are no significant competitive concerns, then the attorney is to submit a
memorandum to the section chief recommending that the investigation be
closed. If the section chief concurs, the memorandum is to be sent to
Operations, where the Director of Merger Enforcement makes the final
decision on whether to close the investigation. If the attorney concludes,
in consultation with the economist, that there are significant competitive
23 Section 7A( b)( 2) of the Clayton Act, 15 U. S. C. 18a( b)( 2),
authorizes FTC and the Division to grant early termination of the act's
waiting period. Early termination will normally be granted where (1) it has
been requested in writing, (2) all parties have submitted their notification
and report forms, and (3) both enforcement agencies have determined not to
take enforcement action. All early terminations must be cleared through FTC,
and the act requires that notice that early termination has been granted be
published in the Federal Register. FTC is responsible for notifying parties
that early termination has been granted by
both agencies, even in situations where the investigation has been cleared
to the Division. 24 When PI authority is granted, staff may begin contacting
customers, trade associations, competitors, and other relevant parties to
more thoroughly assess whether there are likely competitive concerns in any
relevant markets.
25 The merging parties, generally through their counsel, and often their
economists as well, typically meet with Division staff at different stages
throughout the process to discuss their proposed merger.
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concerns that require the Division to obtain additional information to be
obtained from the parties to enable a more thorough review, the attorney is
to submit a proposed “Second Request” for that information to be
submitted to the merging parties before the waiting period expires. 26
The proposed second request is to be reviewed by the section chief and, if
the section chief concurs, by Operations, where the Director of Merger
Enforcement makes the final decision whether to approve the second request.
According to Division officials, if the second request is not approved, the
investigation typically is closed.
If the second request is approved, it is sent to the merging parties. For
the period we reviewed, this extended the waiting period until 20 days (10
days for cash tender offers and bankruptcy sales) after the merging parties
substantially comply with the second request. 27 In order for the extended
waiting period to end, the merging parties must substantially comply with
the second request. The attorney also may apply for authorization to issue
CIDs to any person. According to Division officials, the attorney and
merging parties will likely meet to discuss the competitive concerns as well
as any possible modifications to the second request.
When the merging parties have supplied the information requested, they are
to certify substantial compliance with the second request. If the attorney
does not agree that the parties are in substantial compliance, the attorney
is to notify the merging parties of the areas of noncompliance and submit a
proposed deficiency letter to the section chief. If the section chief
concurs, the letter is to be sent to the merging parties, and the waiting
period is further extended.
26 In April 2000, the Division issued a press release announcing
improvements to its merger review procedures. The improvements are intended
to make the process for obtaining additional information in a merger
investigation more efficient for the business community and the Division
and, according to the Division, are continuations or extensions of existing
practices. The improvements include (1) centralized high- level review of
second requests prior to issuance, (2) early conferences with the merging
parties to identify competitive issues, (3) quick turn- around of requests
for modifications of a second request, (4) new procedures for appealing
second request issues, (5) specialized staff training on second request
investigations, and (6) ongoing consultation with the industry and the
private bar to identify further means of easing the merger review process.
27 The legislation that took effect on February 1, 2001, discussed in
footnote 14, extended the 20 day period to 30 days, while leaving the 10-
day period for cash tender offers and bankruptcy sales unchanged.
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If the attorney agrees that there has been substantial compliance with the
second request, or if the section chief does not concur in sending the
deficiency letter, the waiting period is not further extended and comes to
an end within the prescribed number of days after certification of
substantial compliance.
If the attorney concludes in consultation with the economist that the merger
is not likely to substantially lessen competition in violation of the
antitrust laws, the attorney is to submit a memorandum to the section chief
recommending that the investigation be closed. If the section chief concurs,
the memorandum is to be sent to Operations, where the Director of Merger
Enforcement decides whether to close the investigation. If the Director of
Merger Enforcement approves closing the investigation, the Division
typically requests that FTC early terminate the extended waiting period. 28
If the attorney concludes in consultation with the economist that the merger
is likely to substantially lessen competition in violation of the antitrust
laws, the attorney is to inform the section chief. If the section chief
concurs, Operations is to consider the matter in consultation with the
attorney, the economist, the section chief, and the relevant DAAGs. If the
section chief does not concur with the attorney's conclusion, then the
investigation is typically closed; or occasionally, it is sent back to the
attorney for further work.
If the Director of Merger Enforcement concurs with the attorney's
conclusion, the attorney is to notify the merging parties of the specific
competitive concerns and that staff intends to recommend challenging the
merger in court if the parties proceed with the merger as proposed. If the
Director does not concur, the investigation is closed or, occasionally, sent
back to the section for further work.
If the Division determines that the proposed merger is anticompetitive, the
merging parties may offer to divest assets in a manner that resolves the
competitive concerns. If they do so, the Division files a complaint and
proposed consent decree with the court that binds the parties to the
28 Early termination may be granted even absent a request from a merging
party in instances in which a second request has been issued.
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arrangement. 29 Alternatively, the merging parties may elect to “fix
it first” by divesting the assets of competitive concern before the
merger takes place, or to “restructure” the merger by forgoing
acquisition of those specific assets in the first place. 30
If the merging parties do not offer to divest assets in a manner that
resolves the competitive concerns, the attorney is to submit a case
recommendation package to the section chief. 31 The package is to include
the recommendation memorandum, an order of proof with the key documents and
other evidentiary support, a draft complaint, and draft motions for
temporary restraining order and preliminary injunction. The case
recommendation memorandum is to include, among other things:
? the date by which the Division must file any temporary restraining order
or preliminary injunction papers, and any other dates that bear on timing;
? a brief description of the transaction, including the identity of the
merging parties, the form of the transaction, and the consideration;
? a brief description of the proposed suit, including proposed defendants,
the statutes under which the merger is to be challenged, the proposed
judicial district, and the relief sought;
? a general description of the impact of the transaction, including the
relevant product and geographic markets, volume of commerce, market shares,
and HHIs;
? a brief description of the basic theory of competitive harm;
? a short discussion of the weaknesses of the case; 29 The Antitrust
Procedures and Penalties Act (also known as the Tunney Act) requires that a
competitive impact statement be filed with every proposed consent decree. 15
U. S. C. 16. A competitive impact statement is the Division's explanation of
its case, the proposed judgment, and the circumstances surrounding the
judgment.
30 Because a “fix it first” resolution does not involve a case
being filed, no complaint, stipulation, competitive impact statement,
Federal Register notice, or newspaper notice is necessary. However, staff is
to prepare a case recommendation memorandum and draft press release, along
with any documents necessary to understand the proposed resolution.
31 According to the Division manual, the expertise and capabilities of
Division economists should be fully utilized as a resource in thorough
prefiling preparation for litigation, particularly in merger and other civil
matters. The Division's Economic Analysis Group assigns one or more
economists to each merger or civil nonmerger matter to assist the legal
staff in investigating and analyzing the competitive effects of the proposed
acquisition or other conduct being investigated. Additionally, Division
economists and the Division's Economic Analysis Group are to participate
fully in, among other things, developing and implementing quantitative
analysis of anticompetitive effects of mergers and other business conduct,
and in providing or securing expert economic testimony.
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? any settlement possibilities; and
? an explanation of why litigation is worth the expenditure of the necessary
Division resources.
The economist also provides a memorandum on the key economic issues. These
memorandums and accompanying materials are to be forwarded to Operations and
to the relevant DAAG. After conferring, they make a recommendation to the
AAG.
At this point, the merging parties may request meetings with the Director of
Enforcement, the DAAG, and the AAG to discuss the merger. During this
period, the merging parties may still offer to divest assets to resolve the
competitive concerns. If the parties do not offer to divest assets in a
manner that resolves the competitive concerns, and if the AAG approves
taking enforcement action, the Division files a complaint and, usually,
motions for a preliminary injunction and a temporary restraining order with
the court. The preliminary injunction prevents consummation of the
transaction before the court can determine its legality. If the AAG does not
approve taking enforcement action, the investigation is closed.
Figure 2 shows the general process the Division follows for HSR merger
enforcement actions.
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Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 56 GAO- 01- 188 Antitrust Division's Operations
Figure 2: Flowchart of Antitrust Division's General Process for HSR Merger
Enforcement
Are there competitive concerns that warrant further
review?
Yes No Merging parties file
with Division and Federal Trade Commission (FTC)
Staff complete a “No Interest” form and, with concurrence of
section chief, no investigation is opened
Attorney makes recommendation to open investigation and submits a request,
through section chief, to Operations for Preliminary Inquiry (PI)
FTC clearance is requested Is clearance contested? Division and
FTC complete and exchange “contested matter claim form”
Clearance is granted to the Division
Yes No
Clearance is granted to FTC
Director of Merger Enforcement authorizes the PI
Attorneys and economists investigate potential violation Clearance is
granted to the agency with greatest, most current industry experience
Attorneys and economists assigned and make initial review Early termination
is usually
granted when requested in writing by one of the merging parties
Are there significant concerns that require additional
information from merging parties?
No A
Attorney submits memo, through section chief, to Operations recommending
that investigation be closed
Yes
Does Director of
Merger Enforcement
concur? Operations
closes PI
Yes No
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Source: Developed by GAO on the basis of the Antitrust Division Manual and
discussions with Division officials.
Operations closes PI Attorney prepares Second
Request to send to Operations through section chief
Does there appear to be a violation of
antitrust laws?
Case is filed in court
Yes No
Yes
Second Request issued to merging parties
Are parties in substantial
compliance with Second
Request? Deficiency letter
sent to merging parties
Attorney submits memo, through section chief, to Operations recommending
that investigation be closed
Yes No
No Yes
Does AAG decide that enforcement
action is warranted?
No
Operations closes investigation
Is Second Request approved?
Attorney notifies merging parties of specific competitive concerns and
intent to challenge the merger in court
Do merging parties agree to restructure
merger to resolve concerns?
No
Parties restructure before merger or Division files a complaint and proposed
consent decree in court
A
Attorney and economist submit case recommendation memos, through section
chiefs, to Operations for review and discussion, often in consultation with
the Deputy Assistant Attorney General (DAAG)
Does Director of Merger
Enforcement concur?
Yes No
Does Director of Merger
Enforcement concur? Operations
closes investigation
No Yes
Operations forwards case recommendation to relevant DAAG and
to the Assistant Attorney General
(AAG) Yes
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When alleged conduct would not be appropriate for criminal prosecution but
might be found to be anticompetitive, the Division may initiate a civil
investigation. Civil investigations differ from criminal investigations in
the involvement of the Division's economists and in the manner of the
Division's interaction with the parties under investigation. The Division
generally follows the same procedures for reviewing civil non- HSR mergers
and HSR mergers, except that non- HSR merger investigations are not subject
to statutorily prescribed waiting periods. The Division's procedures for
reviewing non- HSR merger matters and civil nonmerger matters are also very
similar.
Civil nonmerger matters involve the investigation and civil prosecution of a
variety of conduct under Sections 1 and 2 of the Sherman Act. According to
the Division, such conduct may constitute an illegal restraint of trade or
unlawful monopolization or attempted monopolization. Examples of conduct
that may raise competitive issues include strategic alliances between
companies, joint ventures among suppliers, and misuse of intellectual
property rights. According to the Division manual, considerations in civil
matters include legal theory, relevant economic learning, the strength of
the likely defense, any policy implications, and the potential doctrinal
significance of the matter.
The investigative process begins when the Division becomes aware of
potentially anticompetitive conduct, or a potentially anticompetitive merger
not subject to HSR reporting, and it refers the matter to the appropriate
section for handling. Attorney( s) and economist( s) are assigned to assess
the conduct or merger using public sources of information. If the attorney,
in consultation with the economist, concludes that the conduct or merger
raises significant competitive concerns warranting a more thorough review,
the attorney is to submit a request to open a PI. Otherwise, the attorney
recommends that no action be taken; and, if the section chief concurs, no
investigation is opened.
The PI request is to be reviewed by the section chief and, if the section
chief concurs, by Operations. Before deciding whether to authorize the PI,
Operations is to request clearance to proceed from FTC. If clearance is
granted to the Division, the Director of Enforcement decides whether to
authorize the PI. According to Division officials, civil PI requests are
generally authorized.
If the PI is authorized, the attorney and the economist are to investigate
the conduct or merger, generally using voluntary procedures, such as
interviews and voluntary requests for documents. The attorney may also Civil
NonMerger and
Non- HSR Merger Enforcement Process
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apply for authorization from Operations to issue CIDs to parties subject to
the investigation and to third parties who may have relevant information.
According to the Division manual, a decision to issue CIDs generally
involves a significant expansion in resources committed by the Division and
should be made only after serious consideration and a thoughtful
reassessment of the matter's potential significance.
If the attorney and economist recommend closing the investigation and if the
section chief and Director of Enforcement concur, the investigation is
closed. The closing recommendation is to include a description of the
conduct or market involved in a violation, an analysis of competitive
issues, a development of the facts and law, and recommendations. The
Director of Enforcement may send the matter back for further work.
If the attorney, in consultation with the economist, concludes that the
conduct or merger can be proven to violate the antitrust laws, the attorney
is to submit a case recommendation to the Director of Enforcement. The case
recommendation is to include the following information:
? a brief description of what the prospective case is fundamentally about;
? a conceptual discussion of the case and why it is an important one for the
Division to bring, including the theory and statute( s) on which the case
would be based; theories investigated but not recommended to be pursued; and
the justifications or defenses likely to be raised by the prospective
defendants;
? an assessment of whether the case is winnable at trial, including a short
order of proof (which will typically be attached to the case recommendation
as a separate document), a summary of the relative strengths and weaknesses
of the evidence supporting the case, and a summary of likely defense
evidence and arguments; and
? a discussion of potential settlement options. The case recommendation is
to be reviewed by the section chief, and if the section chief concurs, the
recommendation is reviewed by Operations, in consultation with the attorney,
the economist, the section chief, the economic chief, and often the relevant
DAAGs. The economist is also to
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 60 GAO- 01- 188 Antitrust Division's Operations
submit a case recommendation memorandum on the key economic issues. 32
If the Director of Enforcement does not concur, the investigation is closed
or, occasionally, sent back to the section for further work. If the Director
of Enforcement concurs in the attorney's conclusion, the attorney is to
notify the parties of the Division's competitive concerns and that staff
intends to recommend challenging the conduct or merger in court. Operations
is to forward the case recommendation to the relevant DAAGs and to the AAG.
The AAG is to review the case recommendation and consider whether to bring
an enforcement action. At this point, the parties may request meetings with
the DAAG and with the AAG to discuss the matter. 33 The parties may offer to
cease the conduct giving rise to the competitive concerns and take other
action as necessary to resolve those concerns, or to restructure the merger
to resolve the competitive concerns. If the offer satisfactorily resolves
the competitive concerns, the attorney is to file a complaint and proposed
consent decree in court. 34 If the parties do not satisfactorily offer to
resolve the competitive concerns, and if the AAG approves taking enforcement
action, he or she is to sign the pleadings and other documents. The Division
then files a case in court and begins litigation. If the AAG does not
approve taking enforcement action, the investigation is closed.
Figure 3 shows the general process the Division follows for civil nonmerger
and non- HSR merger enforcement actions.
32 According to a Division official, the economist's memorandum generally
provides essential background information and focuses on the key economic
issues. The memorandum follows the same review process as the attorney's
case recommendation memorandum.
33 The parties usually prepare their own position paper (also referred to as
a “white paper”), including an economic analysis, and submit it
to the Division. 34 As with an HSR merger, in the case of a merger, the
parties may elect to “fix it first” by divesting the assets of
competitive concern before the merger takes place, or to
“restructure” the merger by forgoing acquisition of those
specific assets in the first place, in which case there is no complaint or
consent decree filed in court.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 61 GAO- 01- 188 Antitrust Division's Operations
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 62 GAO- 01- 188 Antitrust Division's Operations
Figure 3: Flowchart of Antitrust Division's General Process for Civil
Enforcement B
Clearance is granted to the Division
Yes No
A
Clearance is granted to the FTC
Division becomes aware of potentially anticompetitive conduct or merger a
and refers to appropriate section or field office
Attorneys and economists are assigned to make initial review
Are there competitive concerns that warrant further
review? No further action
taken Attorney submits a request, through section chief, to Operations for
Preliminary Inquiry (PI)
Federal Trade Commission (FTC) clearance is requested
Director of Enforcement grants PI authority
Is clearance contested?
Attorneys and economists investigate the conduct or merger (and if attorney
requests, Director of Enforcement may authorize CIDs)
Does merger or
conduct violate antitrust
laws? Division and FTC
complete and exchange “contested
matter claim form”
No Yes Yes
No
Clearance is granted to the agency with greatest, most current industry
experience
a Refer to figure III. 1 for mergers for which a filing is received pursuant
to the Hart- Scott- Rodino Act. Attorney submits memo,
through section chief, to Operations recommending that investigation be
closed
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 63 GAO- 01- 188 Antitrust Division's Operations
Source: Development by GAO on the basis of the Antitrust Division Manual and
discussions with Division officials.
Does Director of Enforcement
concur? Operations
closes PI Operations forwards case recommendation to the relevant DAAG and
to the Assistant Attorney General (AAG) Attorney notifies parties
of specific competitive concerns and intent to challenge the conduct or
merger in court
A Yes
No
Attorney and economist submit case recommendation memos, through section
chiefs, to Operations for review and discussion, often in consultation with
Deputy Assistant Attorney General (DAAG)
Does Director of Enforcement
concur? Do parties agree to resolve competitive concerns
by ceasing conduct or restructuring
merger? Division files a complaint and a proposed consent decree in court.
(If parties restructure merger before consummating, there is no need to
file.)
Does AAG decide enforcement
action is warranted?
Yes
Operations closes investigation
Case is filed in court
No No
Yes Yes B
No
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 64 GAO- 01- 188 Antitrust Division's Operations
When the Division becomes aware of a possible criminal antitrust violation,
it assigns the matter to the appropriate section or office to handle the
review. The attorney reviews the information to decide whether to seek
authority to open a criminal investigation. If the attorney concludes that
there is not sufficient evidence to warrant opening a criminal PI, and if
the section or office chief concurs, the Division would not open a criminal
investigation, but it might open a civil investigation. 35
If the attorney concludes that there is not sufficient evidence to warrant
opening a grand jury investigation, but there is sufficient evidence to
warrant opening a preliminary inquiry, the attorney is to submit a PI
request to the section or office chief. (If the attorney concludes that
there is already sufficient evidence to warrant opening a grand jury
investigation, the attorney may bypass the criminal PI and proceed directly
to submit a request for grand jury authority to the section or office
chief.) If the section or office chief concurs in the PI request, the
request is to be sent to the Office of Criminal Enforcement. If the section
or office chief does not concur in the PI request, a criminal investigation
is not opened, but a civil investigation might be opened.
35 Generally, decisions on whether to investigate a matter as a potential
criminal violation or a potential civil violation are based on the nature of
the conduct involved. Criminal enforcement is reserved for the most
egregious, hard- core anticompetitive conduct, such as price fixing, bid
rigging, and horizontal market allocation agreements. Other suspected
antitrust violations are investigated civilly. Typically, it is readily
apparent whether the allegations under investigation are of a nature that
would warrant criminal prosecution. Occasionally, however, during the course
of an investigation that is generally pursued criminally, the Division
determines that unusual circumstances exist that would make criminal
prosecution inappropriate. Situations that might lead the Division to
proceed civilly rather than criminally include cases where (1) the legality
of the conduct is not clear, (2) there are novel legal or factual issues,
(3) prior prosecutorial decisions may have caused confusion about
enforcement policies, or (4) there is clear evidence that the subjects of
the investigation were not aware of the consequences of their actions.
Criminal Enforcement
Process
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 65 GAO- 01- 188 Antitrust Division's Operations
If the Director of Criminal Enforcement approves the criminal PI request, 36
the Office of Criminal Enforcement is to request clearance from FTC through
the clearance process; and, once clearance is obtained, 37 the attorney is
to investigate the potential violation, using voluntary procedures. If the
Director of Criminal Enforcement does not approve the criminal PI request,
the Division would not open a criminal investigation, but it might open a
civil investigation.
If the attorney concludes that the PI does not reveal sufficient evidence to
warrant opening a grand jury investigation, the attorney is to submit a
memorandum to the section or office chief recommending that the
investigation be closed. If the section or office chief concurs with the
closing memorandum, it is to be sent to the Director of Criminal
Enforcement, who will close the criminal investigation or, occasionally,
send it back to the section or office to develop more evidence. If the
criminal investigation is closed, a civil investigation might be opened.
If the attorney concludes that the PI reveals sufficient evidence to warrant
opening a grand jury investigation (or if the PI phase is bypassed and a
grand jury is requested at the outset), the attorney is to submit a
memorandum to the section or office chief outlining the evidence and
requesting grand jury authority. To the extent possible, the request for
grand jury authority is to
? identify the companies, individuals, industry, or commodity or service
involved;
? estimate the amount of commerce involved on an annual basis; 36 The
decision on whether to open an investigation depends on three questions: (1)
are the allegations or suspicions of a criminal violation sufficiently
credible or plausible to call for a criminal investigation, which, according
to the Division manual, is a matter of prosecutorial discretion; (2) is the
matter significant, which is determined on a matter- bymatter basis based on
such factors as volume of commerce affected, geographic area impacted,
potential for expansion of the investigation or prosecution from a
particular geographic area and industry to an investigation or prosecution
in other areas or industries, the deterrent impact and visibility of the
investigation and/ or prosecution, the degree of culpability of
conspirators, and whether the scheme involved a fraud on the federal
government; and (3) what resources will be required to investigate and
prosecute the matter, which, according to the Division manual, is asked only
for matters that are assessed as having lesser significance.
37 Because the Division handles all criminal investigations, clearance is
not contested in a criminal matter, as long as FTC agrees that the matter is
criminal in nature.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 66 GAO- 01- 188 Antitrust Division's Operations
? identify the geographic area affected and the judicial district in which
the investigation will be conducted;
? describe the suspected violations, including non- antitrust violations,
and summarize the supporting evidence;
? evaluate the significance of the possible violation from an antitrust
standpoint;
? explain any unusual issues or potential difficulties the staff has
identified;
? identify the attorneys who will be assigned to the investigation;
? explain initial steps in the staff's proposed investigative plan; and
? estimate the duration of the investigation. If the request is approved by
the section or office chief, the Special Assistant is to prepare a
memorandum for the Director of Criminal Enforcement, who makes a
recommendation to the Division's AAG, with a copy to the DAAG. If the AAG
does not approve the request, the criminal investigation is closed or,
sometimes, sent back to the section or office to develop more evidence. If
the criminal investigation is closed, a civil investigation might be opened.
If the grand jury request is approved by the AAG, the Office of Criminal
Enforcement is to obtain FTC clearance if it has not already been obtained
previously for a PI, or if the scope of the investigation is expanded. Then
the attorney is to meet with the local U. S. Attorney's office, and a grand
jury is convened. 38
The grand jury investigation phase involves (1) issuing a subpoena to
companies for records, (2) calling witnesses, and (3) presenting evidence on
the alleged violation to the grand jury. After completing the grand jury
investigation, the attorneys are to recommend either closing the
investigation; proceeding with a criminal case and prosecuting the
defendants; or, occasionally, continuing the investigation as a civil
matter.
If the attorney concludes that the grand jury investigation does not reveal
sufficient evidence to warrant filing criminal charges, the attorney is to
submit a memorandum to the section or office chief recommending that the
investigation be closed. If the section or office chief concurs with the
closing memorandum, it is sent to the Director of Criminal Enforcement,
38 The investigation must be conducted by a grand jury in a judicial
district in which the violation occurred or in which subjects of the
investigation do business.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 67 GAO- 01- 188 Antitrust Division's Operations
who will either authorize closing the investigation or, occasionally, send
it back to the section or office for further grand jury investigation.
If the attorney concludes that the grand jury investigation reveals
sufficient evidence to warrant filing criminal charges, and if the section
or office chief concurs, the attorney and section or office chief are to
submit a memorandum to the Office of Criminal Enforcement recommending
criminal action and providing the factual and legal bases of their
investigation. The memorandum is to include the following information:
? a summary of the offense;
? a list and description of the proposed defendants;
? a summary of the evidence establishing the offense and a summary of the
evidence against each proposed defendant;
? the names of the persons and companies that were potential targets of the
investigations but are not being recommended for indictment;
? a detailed analysis of the weaknesses of the case, and any anticipated
defenses, with appropriate staff responses; and
? a list of the defense counsel for the proposed defendants, a description
of the arguments made to staff, and staff responses to the arguments.
The Director of Criminal Enforcement is to analyze all the related
documents, assess the merits of the case, and recommend what action, if any,
to bring against the proposed defendant( s). The documents are then to be
reviewed by the Division's criminal DAAG. According to the Division manual,
staff will ordinarily inform defense counsel that staff is seriously
considering recommending indictment and give counsel an opportunity to
present their views to the staff and section or office chief, or to the
Director of Enforcement or the DAAG, before the indictment recommendation is
forwarded to the AAG. At any time, the party may agree to plead guilty.
Defense counsel do not have an absolute right to be heard by the Director of
Criminal Enforcement or the criminal DAAG, although it is routine that they
are.
If the DAAG (or the Director of Criminal Enforcement) does not concur in the
recommendation to proceed with criminal prosecution, the criminal
investigation is closed or, occasionally, sent back to the section or office
to develop more evidence. If the criminal investigation is closed,
occasionally, a civil investigation might be opened. If the DAAG (or the
Director of Criminal Enforcement) concurs in the recommendation to proceed
with criminal prosecution, the DAAG (or the Director of Criminal
Enforcement) is to forward a recommendation to the Division's AAG. The
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 68 GAO- 01- 188 Antitrust Division's Operations
Division's AAG is to decide whether to bring a legal action or decline
prosecution.
If the AAG does not approve the criminal prosecution, the criminal
investigation is closed or, occasionally, sent back to the section or office
to develop more evidence. Occasionally, if the criminal investigation is
closed, a civil investigation might be opened. If the AAG approves criminal
prosecution and the party has not agreed to plead guilty, the Division
presents the recommended indictment to the grand jury. If the grand jury
returns an indictment, the Division begins criminal proceedings in court. If
the grand jury does not indict, the investigation is closed.
If the party has agreed to plead guilty, staff are to prepare a memorandum
recommending filing an information and entering a plea agreement with a
sentence recommendation. The memorandum is to be forwarded to the criminal
DAAG through the Director of Criminal Enforcement if it is the first case to
arise from an investigation, or to the Director of Criminal Enforcement if
it is not the first case. The memorandum is to include the following
informaiton:
? a brief description of the proposed charges;
? a description of the illegal conduct and an analysis of the available
evidence demonstrating the existence of that conduct;
? a brief description of the elements of the proposed plea agreement, with a
more detailed explanation of any unusual provisions, and an analysis of the
potential criminal penalty pursuant to the United States Sentencing
Commission's Federal Sentencing Guidelines;
? a description of the potential charges faced by the proposed defendant,
had the case proceeded to indictment;
? an analysis of the benefits and disadvantages of the proposed plea
agreement, including the impact of the proposed agreement on any continuing
investigation or future trial; and
? a discussion of relevant victims' rights issues. The DAAG is to review the
memo and forward it to the AAG with a recommendation. If the AAG concurs
with the recommendation, the
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 69 GAO- 01- 188 Antitrust Division's Operations
Division files the information, plea agreement, and sentence recommendation
with the court. 39
Figure 4 shows the general process the Division follows for criminal
enforcement actions.
39 Violation of the Sherman Act is a felony punishable by fines up to
$350,000 and up to 3 years' imprisonment for each offense for individuals
and fines up to $10 million for each offense for corporations. Under 18 U.
S. C. 3571, the Alternative Fine Provision, if any person derives pecuniary
gain from the offense, or if the offense results in pecuniary loss to a
person other than the defendant, the defendant may be fined not more than
the greater of twice the gross gain or twice the gross loss, unless
imposition of a fine under this subsection would unduly complicate or
prolong the sentencing process.
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 70 GAO- 01- 188 Antitrust Division's Operations
Figure 4: Flowchart of Antitrust Division's General Process for Criminal
Enforcement
Division becomes aware of possible antitrust violation
Is there enough evidence to warrant
a grand jury investigation?
Attorney makes recommendation to open an investigation and submits a
criminal PI request to Office of Criminal Enforcement
Does Director of Criminal Enforcement
grant criminal PI authority?
Attorneys investigate potential violation
Is there sufficient evidence to warrant opening
a grand jury investigation?
Yes No
Section or field office attorney assigned to decide whether to seek
authority to open a criminal investigation
Attorney prepares memo to recommend closing investigation
Office of Criminal Enforcement closes criminal PI a Is
there enough evidence to open
a criminal Preliminary
Inquiry (PI)? No further action
taken a
Yes
Attorney prepares memo to request grand jury authority and submits through
section or office chief to Office of Criminal Enforcement
No further action taken or criminal PI closed a Grand jury request is
forwarded to AAG for review
Yes No
A
a The Division may initiate a civil investigation or the matter could be
returned to the section or office for further work.
No Yes
Yes No No
Does Director of Criminal Enforcement
concur in grand jury request?
Appendix III: Overview of the Antitrust Division's Policies and Procedures
for Investigating Potential Antitrust Violations
Page 71 GAO- 01- 188 Antitrust Division's Operations
Source: GAO developed based on Antitrust Division Manual and discussions
with Division officials. Division staff
meet with local U. S. Attorney's Office and convene grand jury Is grand
jury authority request approved?
A
Is sufficient evidence revealed to warrant
filing criminal charges?
Do Director and DAAG concur with recommendation?
Does AAG approve
prosecution? Division files information, plea agreement, and sentence
recommendation in court Division presents
proposed indictment to grand jury Does
grand jury indict? Office of Criminal
Enforcement closes investigation
Recommendation is forwarded to AAG
Yes Yes
Case is filed in court
Office of Criminal Enforcement closes investigation
No Yes No
No Yes
Memo is submitted to Office of Criminal Enforcement to close investigation
No Yes
Office of Criminal Enforcement closes investigation a
Party is notified of proposed indictment
Yes No No
Has party agreed to
plead guilty?
Staff and section chief prepare memo with recommendation to proceed
criminally and forward memo to Office of Criminal Enforcement. Party is
notified that staff is seriously considering recommending indictment.
Director of Criminal Enforcement and Deputy Assistant Attorney General
(DAAG) review and comment on memo and package, and usually meet with defense
counsel.
Appendix IV: Characteristics of Matters for Which Only a PI Was Done
Page 72 GAO- 01- 188 Antitrust Division's Operations
As shown in table 4 of our report, during fiscal years 1997 through 1999,
the Division closed a total of 64 agriculture- related matters in the SIC
codes we examined after conducting a PI. We reviewed opening and closing
memorandums for all 64 matters to determine, among other things, (1) the
source of these matters, (2) the geographic market and amount of commerce
affected, (3) the SIC codes for these matters, (4) the number of days the
matters were open, and (5) the reasons the matters were closed with no
action beyond the PI phase.
For the 64 matters that were closed following the PI, 47 (73 percent) of the
PIs were initiated as a result of HSR filings. Of the remaining matters,
seven resulted from complaints received from the public; four were referred
from another federal agency, including two from the Federal Bureau of
Investigation (FBI), one from USDA, and one from FTC; two resulted from an
investigation of a related matter; and two were selfinitiated. In addition,
there were two matters for which there appeared to be more than one source
for the investigation. Table 9 summarizes how the Division became involved
in each of the 64 matters.
Table 9: Source of the Agriculture- Related Matters Closed at the End of the
Preliminary Inquiry, Fiscal Years 1997 – 1999
Source of the matter Number of matters Percent of total matters
HSR filing 47 73 Complaint from the public 7 11 Referral from another agency
a 4 6 Investigation of related matter 2 3 Self- Initiated 2 3 Other b 2 3
Total 64 100 c a Two matters were referred from the FBI, one from USDA, and
one from FTC.
b Other includes one matter for which we could not determine whether it was
initiated as a result of a complaint or an HSR filing, and another for which
we could not determine whether it resulted from a complaint or was self-
initiated. c Does not add to 100 percent due to rounding.
Source: GAO analysis of data from opening and closing memorandums.
Table 10 shows the distribution of these 64 matters by the geographic market
and amount of commerce affected. Forty- three (67 percent) of the matters
were regional 1 in scope, and the amount of commerce affected
1 Regional means of a geographical scope less than national, such as
Northeast or Midwest. Appendix IV: Characteristics of Matters for
Which Only a PI Was Done
Appendix IV: Characteristics of Matters for Which Only a PI Was Done
Page 73 GAO- 01- 188 Antitrust Division's Operations
was not shown in the closing memorandums in 16 (25 percent) of the 64
matters. Of the 47 matters in which the amount of commerce was known, 12 (25
percent) involved commerce estimated at between $150 million and $499.9
million.
Table 10: Geographic Market and Amount of Commerce Affected for
AgricultureRelated Matters Closed at the End of the Preliminary
Investigation, Fiscal Years 1997 - 1999
Geographic scope and amount of commerce affected Number of
matters Percent of total matters
Geographic scope of market
Regional 43 67 National 20 31 International 1 2
Total for geographic market 64 100 Amount of commerce affected
$1,000,000 to $9,999,999 3 5 $10,000,000 to $24,999,999 3 5 $25,000,000 to
$49,999,999 4 6 $50,000,000 to $149,999,999 9 14 $150,000, 000 to $499, 999,
999 12 19 $500,000, 000 to $999, 999, 999 4 6 $1,000,000,000 to $ 1, 499,
999, 999 4 6 $1.5 billion and over 8 13 Unknown b 16 25 Not completed 1 2
Total for amount of commerce affected 64 100 a
a Unknown indicates that at the time the PI memorandum was submitted,
Division staff did not have information on the amount of commerce affected.
b Does not add to 100 percent due to rounding.
Source: GAO analysis of data from opening and closing memorandums.
Table 11 shows the breakdown of the primary SIC categories for each of the
64 PIs. As can be seen, food manufacturing is the largest overall category
and accounted for 41 of 64 PIs. No other primary industry code had more than
5 PIs.
Appendix IV: Characteristics of Matters for Which Only a PI Was Done
Page 74 GAO- 01- 188 Antitrust Division's Operations
Table 11: SIC Categories for Agriculture- Related Matters Closed at the End
of the Preliminary Inquiry, Fiscal Years 1997 - 1999
SIC category Number of matters Percent of total matters
All crop production 3 5 All food manufacturing 41 64 All livestock
production 2 3 Farm machinery 2 3 Food products 1 2 Retail food stores 2 3
Wholesale beverages 1 2 Wholesale farm supplies 2 3 Wholesale farm/ garden 1
2 Wholesale farm/ raw materials 2 3 Wholesale grocery 5 8 Multiple SIC codes
2 3
Total 64 100 a
a Does not add to 100 percent due to rounding. Source: GAO analysis of data
from opening and closing memorandums.
Table 12 shows the number of days the PI was open for each matter
classification for matters closed after staff conducted a PI. According to
the Division manual, the normal time period required to conduct a PI ranges
from a few weeks to a few months. Table 12 shows that about 66 percent of
the matters were closed within 3 months. All of the matters that closed
within 3 months were HSR merger matters. The PI for each of the criminal
matters lasted more than 6 months.
Table 12: Number of Days Preliminary Inquiries Were Open for Agricultural
Matters Closed at the End of the Preliminary Investigation, Fiscal Years
1997 – 1999
Number of days HSR merger Non- HSR merger Civil
nonmerger Criminal Total Percent of total
0 to 15 days 12 0 0 0 12 19 16 to 30 days 18 0 0 0 18 28 31 days to 3 months
12 0 0 0 12 19 Over 3 months to 6 months 5 0 1 0 6 9 Over 6 months 5 1 2 8
16 25
Total 52 1 3 8 64 100
Source: GAO analysis of data from opening and closing memorandums.
Appendix IV: Characteristics of Matters for Which Only a PI Was Done
Page 75 GAO- 01- 188 Antitrust Division's Operations
As can be seen in table 13, 58 (91 percent) of these matters were closed
because the Division found insufficient evidence of potential antitrust
violations.
Table 13: Reasons Agriculture- Related Matters Were Closed at the End of the
Preliminary Investigation, Fiscal Years 1997 – 1999
Reason matter was closed Number of matters Percent of total matters
Insufficient evidence 58 91 Matter resolved 4 6 Parties abandoned merger 2 3
Total 64 100
Source: GAO analysis of data from opening and closing memorandums.
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 76 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 77 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 78 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 79 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 80 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 81 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 82 GAO- 01- 188 Antitrust Division's Operations
Appendix V: Comments From the Department of Justice, Antitrust Division
Page 83 GAO- 01- 188 Antitrust Division's Operations
Appendix VI: GAO Contacts and Staff Acknowledgments
Page 84 GAO- 01- 188 Antitrust Division's Operations
Richard M. Stana, (202) 512- 8777 William O. Jenkins, Jr. (202) 512- 8777
In addition to those named above, Chan My J. Battcher, Cathy Hurley, Jan
Montgomery, Tim Outlaw, Anne Rhodes- Kline, Maria Strudwick, and Bonita
Vines made key contributions to this report. Appendix VI: GAO Contacts and
Staff
Acknowledgments GAO Contacts Acknowledgments
(182084)
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