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From Antitrust Law Daily, March 21, 2019

U.S. announces additional charges, settlements in bid rigging probe of military fuel supply contracts

By Matt Pavich, J.D.

South Korean companies agree to plead guilty and pay fines.

South Korea-based companies Hyundai Oilbank Co. Ltd. and S-Oil Corporation have agreed to plead guilty to criminal charges and pay a total of approximately $75 million in criminal fines for their involvement in a bid rigging conspiracy that targeted contracts to supply fuel to United States Army, Navy, Marine Corps, and Air Force bases in South Korea, the Department of Justice has announced. The companies also agreed to plead guilty to an antitrust charge contained in a superseding indictment that was unsealed yesterday and will pay a total of approximately $52 million to the United States for civil antitrust and False Claims Act violations related to the bid-rigging conspiracy (U.S. Hyundai Oilbank Co., Ltd., Case Nos. 2:19-cv-01037-MHW-KAJ; 2:18-cr-00152-EAS).

Since 2005, the United States has procured fuel for its military installations in South Korea through a competitive solicitation processes in which oil companies, either independently or in conjunction with a logistics company, submit bids. The conduct at the heart of the case relates to two types of fuel contracts: Post, Camps, and Stations (PC&S) contracts, administered by the Defense Logistics Agency (DLA), and Army and Air Force Exchange Services (AAFES) contracts. The DLA contracts listed requirements for each installation and each installation was a separate line item. The AAFES contract was awarded to the lowest bidder and covered all locations as a single unit.

Criminal case. The three-count superseding indictment in the U.S. District Court for the Southern District of Ohio, that was returned in September 2018 and unsealed contemporaneously with the agency’s announcement, alleges that Hyundai Oilbank, S-Oil, and the seven individual defendants (associates, managers, and executives of companies) conspired to rig bids for fuel supply contracts the companies had with the DLA and the Army and Air Force Exchange Service to supply fuel to U.S. bases in South Korea.

The government specifically alleges that the defendants secretly met and communicated with other large South Korean oil refiners and logistics companies, and pre-determined which would win each contract. It further alleges that the defendants went through the contracts line by line and for each line item allocated to a different co-conspirator, the other conspirators agreed not to outbid the chosen conspirator. The defendants fraudulently submitted collusive bids to the U.S. military and allegedly cost U.S. taxpayers more than $100 million, according to the charge.

The first count charges the companies and the seven individual defendants with participating in a combination and conspiracy to suppress and eliminate competition during the bidding process for the contracts. The second count charges all defendants with participating in a conspiracy to defraud the U.S. by impairing, obstructing, and defeating the lawful function of the procurement processes for the fuel supply contracts. However, pursuant to the plea agreement, the second count against the companies will be dismissed upon sentencing. The third count charges one of the individual defendants, Hee-Soo Kim, with witness tampering with a witness through use of intimidation, threats, or corrupt persuasion.

The companies have agreed to cooperate with the ongoing criminal investigation. These are the fourth and fifth pleas resulting from an ongoing federal investigation into bid rigging, price fixing, and other anticompetitive conduct regarding U.S. military fuel contracts in South Korea.

Last November, the Justice Department announced that it had reached an agreement with three other South Korean companies to plead guilty to criminal charges and to pay a total of $82 million in criminal fines for their involvement in this long-running bid rigging conspiracy. SK Energy will pay approximately $34 million, GS Caltex will pay approximately $46.6 million, and Hanjin Transportation will pay approximately $1.3 million. In addition to these criminal fines, all three companies agreed to cooperate with the ongoing criminal investigation and to pay a total of approximately $154 million to the United States for civil antitrust and False Claims Act violations related to the conspiracy.

Civil case. The Justice Department also filed a civil antitrust complaint and filed proposed settlements that, if the court approves them, will resolve the lawsuit against the companies. Under the proposed settlements, Hyundai Oilbank would pay $39.1 million and S-Oil would pay $12.98 million to resolve the civil antitrust violations. Both will cooperate with the ongoing civil investigation and abide by antitrust compliance program requirements.

The payments will also resolve False Claims Act civil claims that the United States has against the companies for making false statements to the government in connection with their agreement not to compete. The Civil Division has entered into separate settlement agreements with the companies to resolve these claims.

Attorneys: Andrew M. Malek and Mark T. D'Alessandro, U.S. Attorney's Office, J. Richard Doidge and Andrew A. Steinberg, U.S. Department of Justice, for the United States. Kathryn M. Hellings, Gejaa Gobena and Andrew J. Lee (Hogan Lovells US LLP) for Hyundai Oilbank Co., Ltd. Sonia K. Pfaffenroth, William J. Baer, James W. Cooper, Wrede H. Smith III and Andy T. Wang (Arnold & Porter Kaye Scholer LLP) for S-Oil Corp.

Companies: Hyundai Oilbank Co., Ltd.; S-Oil Corp.

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