Canadian COMPETITION LAW

On February 23^rd, the U.S. Department of Justice (“DoJ”) announced that two financial investors that purchased municipal tax liens at auction in New Jersey pleaded guilty to conspiring to rig bids for the sale of tax liens auctioned by municipalities in New Jersey.

In making the announcement, the DoJ said:

“Two financial investors who purchased municipal tax liens at auctions in New Jersey pleaded guilty today for conspiring to rig bids for the sale of tax liens auctioned by municipalities throughout the state, the Department of Justice announced.

A felony charge was filed today in U.S. District Court for the District of New Jersey in Newark, N.J., against Robert W. Stein of Huntington Valley, Pa., and David M. Farber of Cherry Hill, N.J. Under the plea agreements, which are subject to court approval, Stein and Farber have both agreed to cooperate with the department’s ongoing investigation.

According to the felony charge against Stein, from as early as 1998 until approximately spring 2009, Stein participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to allocate among certain bidders on which liens to bid. According to the felony charge against Farber, from as early as the beginning of 2005 through approximately February 2009, Farber also participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey. The department said that both Stein and Farber proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates.

“Today’s guilty pleas demonstrate that the Antitrust Division will not tolerate those who manipulate the competitive process in order to harm home and property owners,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.

The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates. When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent homeowners will pay upon redemption. By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached.”

In Canada, the federal Competition Act contains standalone bid-rigging offences under section 47 of the Competition Act. This is unlike some other major jurisdictions, where bid-rigging falls under general conspiracy (i.e., cartel) prohibitions.  Under section 47 of the Competition Act, it is a criminal offence for bidders or tenderers to agree to:

1.  Not submit a bid or tender;

2.  Withdraw a bid or tender already submitted (an offence recently added to the Competition Act following wide-ranging amendments to the Competition Act in 2009 and 2010); or

3.  Submit a bid or tender arrived at by agreement.

Bid-rigging in Canada is also a “per se” criminal offence, in that, like conspiracy agreements under section 45 of the Competition Act, it is not necessary to prove any anti-competitive effects on a relevant market (or markets) to make out an offence.  All elements of the offence do, however, need to be established on the standard criminal burden of proof – i.e., beyond a reasonable doubt.

Some of the common types of bid-rigging that can violate section 47 of the Competition Act include:

“Cover”, “courtesy” or “complementary” bidding: Some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the party calling for bids, to protect an agreed upon low bidder.

Bid suppression: One or more bidders that would otherwise bid agree to refrain from bidding (or withdraw a bid that has previously been made).

Bid rotation: All parties submit bids but take turns being the low bidder according to a systematic or rotating basis.

Market division: Suppliers agree not to compete in designated geographic areas (or for specified customers).

Subcontracting: Parties that agree not to submit a bid (or submit a losing bid) are awarded subcontracts or supply agreements from the successful low bidder.

The penalties in Canada for bid-rigging, as in the U.S., can be severe and include unlimited fines (i.e., fines in the discretion of the court), imprisonment for up to 14 years, or both.

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