S54 Bid Collusion LTC2013
Transcript of S54 Bid Collusion LTC2013
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U.S. Department of TransportationOffice of Inspector General
Investigations
SA Ryan Lefort
USDOT-OIG, JRI-4 NOLA
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OIG Investigations Division
U.S. DOT and OIGs Mission Authority Role of OIG Investigations Division Investigative Regions Investigations Breakdown Enforcement Mechanism/Tools USDOT Modes Enforcement Priority Areas
Antitrust/Bid Rigging Defined Case Examples DOT/OIG Hotline Contacts
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U.S. DOTMission
Serve the United States by ensuring a fast,
safe, efficient, accessible and convenienttransportation system that meets our vitalnational interests and enhances the qualityof life of the American people, today andinto the future.
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U.S. DOT/OIG Mission
To conduct objective audits and investigationsof DOTsprograms and operations
To promote economy, effectiveness, and efficiency within DOT
To prevent and detect fraud, waste, and abuse in theDepartments programs
To review existing and proposed laws or regulations affecting the
Department and make recommendations about them
To keep the Secretary of Transportation and Congress fullyinformed about problems in departmental programs andoperations
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OIG Authority
Establishes the OIG as responsible for
conducting criminal, civil and administrativeinvestigations concerning allegations of fraudwaste and abuse against DOT programs,operations and personnel.
Establishes a Hotline Center to receive andcoordinate complaints of fraud, waste andabuse from employees and public citizens.
The Inspector General Act of 1978
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OIG Authority (contd)
Gives the Office of Inspector General
autonomy to do its work without interference.
Requires the IG to keep the Secretary ofTransportation and Congress informed of
findings.
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Role of OIG Investigations
Division
Conduct investigations of allegations and
complaints regarding fraud, waste, and abuse. Coordinate with other Federal & State law
enforcement agencies.
Refer matters for criminal and civil prosecution
or suspension/debarment action.
Conduct pro-active reviews unrelated to anyinvestigation.
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DOT-OIG CriminalInvestigative Regions
North DakotaMinnesota
SouthDakota
Wyoming
Colorado
Nebraska
KansasMissouri
Iowa
Wisconsin
Illinois
Kentucky
Indiana
(Includes Puerto Rico,
Virgin Islands)
(Includes Wake, Samoa, and Guam)
Montana
Idaho
Washington
Oregon
California
Nevada
Arizona
Utah
New Mexico
Texas
OklahomaArkansas
Louisiana
Florida
Georgia
Alabama
M
i
s
s
North Carolina
South
Carolina
Virginia
West
Virginia
Maryland
Pennsylvania
New YorkConnecticut
Mass
VermontMaine
Ohio
Rhode Island
Delaware
Alaska
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NH
New Jersey
Michigan
Tennessee
4Hawaii
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Enforcement Mechanism/Tools
Code of Federal Regulations (CFR 49)
IG Subpoenas Federal Search Warrant Federal Grand Jury Subpoenas Federal Criminal Code (Titles 18 and 49,
U.S. Criminal Code) Undercover Operations Consensual Monitoring
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Federal Criminal Statutes
18 USC 287/286 Criminal False Claims/Conspiracy
18 USC 371 Conspiracy to Defraud the U.S.
18 USC 1001 False Statements (including onUSDOT contracts/grants)
18 USC 1020 Highway Projects False Statements
18 USC 1341 Mail Fraud
18 USC 1343 Wire Fraud
18 USC 1519 Obstruction of Justice
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Federal Criminal Statutes
18 USC 201 Bribery 18 USC 207 & 208 Conflict of Interest
18 USC 209 Gratuities 18 USC 641 Theft of Government Property 18 USC 666 Theft or Bribery Concerning Programs
Receiving Federal Funds 18 USC 1505 Obstruction of Proceedings before an Agency
or Department
18 USC 1510 Obstruction of Criminal Investigation 18 USC 1516 Obstruction of a Federal Audit (must be of
program receiving more that $100K)
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USDOT Modes
Federal Aviation Administration
Federal Motor Carrier Safety Administration
Federal Highway Administration
Federal Railway Administration
Federal Transit Administration
Maritime Administration National Highway Traffic Safety Administration
Saint Lawrence Seaway Development Corporation
Research and Special Projects Administration
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Enforcement Priority Areas
Transportation Safety Aviation Safety and Security Motor Carrier Safety
HazMat Violations Contract & Grant Fraud DBE Fraud Anti-Trust Bid Rigging Procurement Integrity Act Violations Qui Tams
Employee Integrity Other Investigations
Consumer Fraud HHG Investigations Motor Fuel Tax Evasion Congressional Requests Computer Fraud Odometer Rollback Fraud Gray Market Vehicle Fraud
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Shared Roles in
Fraud Detection and Investigation
State or Local Engineers and Inspectors
Front Line
Observe fraud indicators
Listen to disgruntled employees
Report concerns to FHWA and/or OIG
OIG Special Agents
Interview witnesses, obtain and analyze documents andother physical evidence, and present facts to Federalprosecutor
Assistant U.S. Attorney
Assess case facts and prosecute cases when warranted
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Common Goal in Fraud Detection
and Investigation
Most contractors, LADOTD personnel,
FHWA personnel, and OIG Special Agentshave the same overall objectives To spend the limited transportation $$$$ to improve roads and
bridges
Not to line the pockets of the small % of unscrupulous
contractors To remove the bad apples from the transportation
construction industry
Criminal/civil prosecution, suspension/debarment
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Common Types of DOT Fraud Schemes
Bid Rigging and Collusion (Antitrust)
Materials Overcharging Time Overcharging
Product Substitution
DBE Fraud
Quality Control Testing Fraud
Kickbacks
Bribery
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What is Antitrust?
Main Entry: antitrust
Pronunciation:"an-ti-'tr&st, "an-"tI-
Function: adjective
: of, relating to, or being legislation against or
opposition to trusts or combinations; specifically
: consisting of laws to protect trade andcommerce from unlawful restraints and
monopolies or unfair business practices
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The Sherman Act, 15 U.S.C. 1
Every contract, combination, in the form of a
trust or otherwise, or conspiracy, in restraint oftrade or commerce among the several States, or
with foreign nations, is declared to be illegal [a
violator] shall be deemed guilty of a felony, and,
on conviction thereof, shall be punished by a finenot exceeding $100 million if a corporation, or if
any other person, $1 million, or by imprisonment
not exceeding ten years.
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Additional Statutes
General Fraud
Mail Fraud, 18 U.S.C. 1341
Wire Fraud, 18 U.S.C. 1343
Crimes of Other Principals
Aiding and Abetting, 18 U.S.C. 2
Conspiracy to Defraud, 18 U.S.C. 371
Fraud Against the Federal Government
Bribery of a Public Official , 18 U.S.C. 201
False Claims Against the Government , 18 U.S.C. 287
Tax Fraud , 26 U.S.C. 7201 Theft/Bribery on Federally Funded Programs, 18 U.S.C. 666
Crimes Relating to Hindering an Investigation
Perjury , 18 U.S.C. 1621
Subornation of Perjury , 18 U.S.C. 1622
Obstruction of Justice , 18 U.S.C. 1503
False Statements to the Grand Jury , 18 U.S.C. 162319
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Who Investigates?
U.S. Department of Justice
U.S. Department of Transportation-OIG Federal Bureau of Investigation
State Attorneys General
Often Joint Investigations
Other Countries
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Criminal Antitrust Offices
Field Offices
Chicago New York
Dallas
San Francisco
National Criminal Enforcement Section(NCES) Washington, DC
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Antitrust Criminal Prosecutions by
Industry
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65
68
165
195
668
0 200 400 600 800
Food Brokers
Utilities Construction
Chemicals
Graphics Displays
School Milk
Electrical Contracting
Road Building
Number of Defendants
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Investigations into Antitrust
Antitrust Violations
Identifiers Case Examples
Investigative Practices and Techniques
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Collusion
Conspiracies are often lengthy
The result is overcharging, higherprices, and limited competition
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Elements of a Sherman Act
Violation
Agreement
Interstate Commerce
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Criminal Violations
Acts that are considered illegal agreements
Price Fixing Market Allocation
Bid Rigging
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What is Price Fixing?
Agreement to raise, lower, or maintain prices
Agreement not to negotiate on price Agreement to limit discounts, rebates, or
promotions
Agreement on price formulas or guidelines
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What are Market Allocation
Schemes?
Any agreement not to compete for specific:
Territories Customers
Products
Volume
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What is Bid Rigging?
An agreement to rotate bids
An agreement to submit complementary orinflated bids
An agreement not to bid or engage in bidsuppression
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Bid Rigging & Collusion
Definition
Contractors misrepresent that they are competing against each other
when, in fact, they agree to cooperate on the winning bid to increasejob profit.
Example
Three asphalt-paving contractors agreed at the beginning of theconstruction season on which company would win each job. Theythen shared winning bids by telephone immediately in advance of
electronic bidding, so the other two contractors could ensure their bidswere higher than the winning bid.
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Sources of Antitrust Cases
Employees
Contracting Officials Competitors
Self reporting under the DOJ AmnestyProgram
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The DOJ Corporate Leniency Program
(a/k/a The Amnesty Program)
Unlike immunity, it provides protection forcorporations
Open to one corporation per conspiracy
Requires full cooperation
Requires a commitment to pay civil restitution
Cannot be the organizer of the conspiracy Agrees to terminate its participation in the
illegal conduct
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The DOJ Corporate Leniency Program
(a/k/a The Amnesty Program)
NO CRIMINAL PROSECUTION!!!
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Two Types of Amnesty:
No Open AntitrustInvestigation
Amnesty almostautomatic
Includes all officers,directors, and
employees whocooperate
Open AntitrustInvestigation
Amnesty is discretionary Open to the first
company that comesforward
Could not otherwise
sustain a conviction Not unreasonable
Individual immunity is notautomatic
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Some things to look for
What is the bidding history? Trends? Is there competition?
Does the contractor subcontract a substantial portionof work which they would normally perform?
Are there identical line items amongst competitors?Why?
Are there identical misspelled words amongcompeting bids?
If a search is conducted of the companys bid files, isthere supporting documentation of its number? Howdid the company arrive at the bid number?
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The Conspiracy
Antitrust violations require an agreement tocollude, not the actual act.
The agreement is the crime.
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The Complementary Bid
The participants agree to submitcomplementary bids in an effort to providethe appearance that there was competition.
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Case Example: Vinton et al
Company executives from Vinton Construction,Streu Construction, and an area manager from
James Cape & Sons (unbeknownst to hisemployer) agreed to rotate bids and submitinflated bids on projects totaling over $100million.
The illegal activities spanned several years.
By engaging in a bid rotation and acomplementary bid scheme, the trio gave the falseperception of competition.
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How it all began
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Cape & Sons that it suspectedone of its employees wasengaged in some kind of illegalactivity
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Based upon limited initial information, the FBIattended a bid workup session at JamesCape & Sons in a covert capacity.
After observing furtive activities on behalf ofthe employee, the FBI confronted him.
Upon being confronted, the employeeinformed the FBI of a scheme to rig bids andagreed to co-operate with the Government.
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The FBI notified the U.S. Department ofJustice Antitrust Division (DOJ ATR) andU.S. Department of Transportation Office ofInspector General.
A joint investigation began examining the
methods used, contracts affected, and theon-going conspiracy.
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Methods used by the players
The co-conspirators would talk via phone,cell phone, Nextel direct-connect, and inperson.
When talking over the phone, the co-conspirators would talk in code.
Additionally, in person meetings occurred todiscuss who wanted what projects.
What the co-conspirators did not expect was federal agents were there too
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On several occasions the participants of thescheme met at various locations to discussand agree upon what companies wouldreceive certain projects.
Including a situation at the Holiday Innparking lot in Fond Du Lac, WI.
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Upon learning of what was planned for the (then)upcoming January 13, 2004 bid letting, several
plans were put into action
It was determined to initially let the riggedbids go through to WisDot and notify them
the morning of the letting. At the same time the letting occurred, DOT
OIG and FBI agents conducted simultaneoussearch warrants at Vinton Construction and
Streu Construction locations. DOT OIG and FBI agents also served arrest
warrants on Ernest Streu, John Streu, JamesMaples and Michael Maples.
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Streu Construction, Vinton Construction, andthe five individuals pled guilty
All were removed from bidding on Federallyfunded projects
Approximately $3 million in fines and restitution
Three defendants jailed, one home confinement
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Techniques Utilzed Extensive Market Research Bid Analysis and Trends (Bid Analysis Management System (BAMS)) Undercover Work
Informants Interviews The knowledge of bid rigging is often limited to the
executives (and estimators) of a company. Consensual Recordings Surveillance
Things to note: Where do contractors stay before lettings?
Although relationships are established long before lettings, thesharing of numbers often occurs the night before, or the day of,lettings.
Subpoenas (telephone records, credit cards, etc.) and SearchWarrants
Body Wires Computer Forensics
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Common Excuses of Conspirators
But, no one was harmed
But, the state received a lower price But, our bid was within the engineers
estimate
But, other companies could still beat us
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The Reality
Collusion always causes higher prices byreducing competition.
Reducing competition is after all thedefinition of collusion.
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Agencies involved in the case:
U.S. Department of Justice - Antitrust Division
U.S. Attorneys Office
U.S. Department of Transportation - Office of Inspector General Kent Byers, Senior Special Agent, Chicago
Office 312-353-0106; [email protected]
Federal Bureau of Investigation
Wisconsin Department of Justice - Attorney Generals Office
Federal Highway Administration - Office of Chief Counsel
Federal Highway Administration - Wisconsin Division
Wisconsin Department of Transportation
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DOT/OIG Hotline
CALL: OIG Hotline 1-800-424-9071 or 202-366-1461 E-Mail: [email protected]
Write: USDOT-OIGP.O. Box 23178
Washington, DC 20026-0178
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Contacting Us:
USDOT/OIG JRI-4
ATLANTA (Main Office):
61 Forsyth, SW 17T60
Atlanta, GA 30303
404-562-3875
ASAC Ray Sanchez
LOUISIANA (Post of Duty)504-816-3019
SA Ryan Lefort
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QUESTIONS?