Antitrust Podcast Details Landmark Prosecution of Cartel Enterprise
10.12.2023
Price fixing, bid rigging, and market manipulation are the tactics you might see at the heart of a financial thriller or a case of corporate corruption. A federal investigation to break up a coordinated conspiracy involving all three rocked the oil industry in 2006. The Marine Hose Cartel was an organized criminal enterprise made up of six international marine hose manufacturers who fixed prices and rigged contract bids for rubber hoses that connect oil tankers to storage facilities in ports around the world.
“Undercurrents Unveiled: The Marine Hose Cartel Odyssey” is a four-part podcast detailing the investigation, prosecution and sentencing of corporate leaders in this landmark antitrust case. The series is hosted by members of the New York State Bar Association’s Antitrust Law Section with in-depth interviews with law enforcement, federal prosecutors and defense attorneys involved in the case.
The first episode, hosted by Juan Arteaga, lays out the case starting with the tip to law enforcement that prompted the investigation. It premieres Oct. 19 with new episodes following each Thursday.
The Operation
“It was a pretty sophisticated operation where the corporate executives along with a handsomely paid consultant agreed in advance who would submit winning bids on marine hose contracts,” said former federal prosecutor Portia Bamiduro. “Those conspirators took turns submitting the lowest bid while the others agreed to submit higher bids or those with terms that wouldn’t be acceptable to the buyer.” The leaders of the six companies also agreed not to compete against each other in certain geographic areas.
According to prosecutors with the Department of Justice Antitrust Division, the cartel operated successfully in secret for decades. It created the illusion of fair competition, but underneath it all was a well-coordinated operation with its own paid ringleader. The six corporations paid Peter Whittle to coordinate the cartel codenamed “the club.” He would determine which company would make the winning bid and instructed the other companies how they should bid in order to lose out on the contract. The winning bid was codenamed “the champion.” Whittle created an allocation formula based on market share, creating a market share conspiracy.
“One of the reasons they kept it a secret for so long is that they used codenames. Alpha numeric names were used in their communications. This was [in the 1990s and early 2000’s] when fax machines were prevalent,” said former federal prosecutor Jon Jacobs. “They would use faxes and later on, when email became more prominent, they would use third party, non-company emails to communicate.“
The Investigation and the US DOJ Leniency Program
The Department of Justice employs self-reporting programs to encourage tips with the promise of leniency in both prosecution and sentencing for those who cooperated with the government. In 2006, the cartel began to unravel when a Japanese businessman came forward with information on the cartel and applied for the leniency program.
With the information provided, the DOJ Antitrust Division and FBI were able to set up video surveillance and wiretapping of a meeting of the cartel during an oil business trade conference in Houston in 2007. With bugs in place and cameras rolling, the six industry leaders met with Whittle.
Jacobs remembers being scolded by agents to be silent as they sat in the room next to the conference room watching the video feed. “We had very strict orders, do not make any sounds, do not turn on the water faucet or flush the toilet. We had very strict rules because we wanted to avoid detection.” What happened next was a prosecutor’s dream come true.
Bamiduro recounts being stunned as Whittle began the meeting and reiterated how the conspiracy works and why it should continue. “It was quite remarkable how he walked through how they’d been through this together for so long,” she said. “When that happened, I think my mouth dropped open. You just don’t get that kind of evidence hardly ever in a case.”
In “Undercurrents Unveiled: The Marine Hose Cartel Odyssey,” each prosecutor details what it was like to be a part of the sting and the operation to simultaneously arrest cartel members in Houston the next day and seize its property in ports around the world.
What followed was an avalanche of arrests, confessions and guilty pleas in the federal antitrust case. “A lot of people confessed right away and the people who didn’t confess that day, a few days or weeks later, they did confess,” said former prosecutor Craig Lee.
