Wiretap use in cartel probes likely to remain an exception

On May 8, 2024, the Antitrust Division of the US Department of Justice announced that it had obtained a plea agreement in U.S. v. Tomlinson in the US District Court for the District of Idaho involving bid rigging, territorial allocations, and a conspiracy to monopolize related to wildfire-fighting services provided to the US Forest Service.

In many ways, the case was unremarkable. Bid-rigging charges involving federal procurements have become stock pieces in the DOJ's criminal antitrust enforcement efforts. And even the monopolization claim (which was not included in the original indictment but added later in a superseding charging document for the pleading defendant) is consistent with numerous recent proclamations from Antitrust Division officials about their intent to pursue monopolization as a criminal matter.

As the first Antitrust Division case in many years to acknowledge the use of a court-authorized wiretap as part of a criminal antitrust investigation, however, the case is exceptional.

In announcing the plea, Antitrust Division head Jonathan Kanter pledged that division prosecutors and their law enforcement partners "will deploy every appropriate law  enforcement tool – including court-authorized wiretaps – to prosecute blatant monopolistic conduct that harms the public." His announcement echoed other senior officials from the division, who, even before announcing the December 2023 indictment in the case, have trumpeted their intent to deploy wiretaps more frequently in criminal investigations.

Whether or not the Antitrust Division and its law enforcement partners make good on these promises remains an open question. The division's historical use of wiretaps, however, suggests that their use in cartel investigations is – at least for now – the exception, and not the rule.

Nonetheless, wiretaps' potential to capture damning evidence of antitrust conspiracies suggests why the Antitrust Division has signaled its renewed interest in using this aggressive and invasive investigative tool. And the DOJ is not alone in this interest, as it joins a limited but growing number of competition enforcers globally who have shown a willingness and ability to deploy wiretaps to prosecute cartel violations.

Background on US wiretaps in cartel investigations

In the US, so-called Title III warrants, which include wiretaps, allow the government, upon court authorization, to record calls and obtain electronic communications without the consent of either party to the communication.

The use of court-authorized wiretaps by the DOJ and state prosecutors is most common – and recognizable to viewers of the popular TV show The Wire – in narcotics and conspiracy cases, according to available data from the US courts. Yet, despite the fact that antitrust cartel investigations by their nature involve conspiracies and US law has allowed their use in criminal antitrust investigations for nearly 20 years, evidence of the Antitrust Division's use of them has been rare.

Authorization to use wiretaps in antitrust investigations came with 2006 amendments to the Patriot Act, the statute originally enacted to deter terrorism in the wake of the 9/11 attacks. These amendments expanded statutory wiretap authority to investigations of the Sherman Antitrust Act violations of:

• Section 1: price-fixing, bid rigging and market allocations
• Section 2: illegal monopolization, and
• Section 3: antitrust offenses in federal territories and the District of Columbia.

Wiretaps differ from communications recorded with the consent of one of the participants in the conversation, for which court authorization is not required. The Antitrust Division long has used consensually recorded conversations as a key tool in its investigations, often leveraging leniency for applicants' cooperation during the covert phase of investigations to capture the inner workings of active cartels – recognizable to readers of Kurt Eichelwald's The Informant.

Wiretaps are highly intrusive and implicate individuals' Fourth Amendment rights against unlawful search and seizure, so DOJ policy restricts their use. Federal courts likewise closely scrutinize wiretap applications. In order to conduct a wiretap, a judge must find both that there is probable cause that a specific crime in the wiretap statute has been committed and that the tapped phone is being used in connection with that crime. Further, courts also must find that "normal investigative procedures have been tried and have failed or reasonably appear to be unlikely to succeed if tried or to be too dangerous," under Title 18 of the U.S. Code, Section 2518(3)(c).

This so-called necessity requirement is daunting in light of the large number of investigative procedures that investigators must exhaust before a court will authorize a wiretap. These procedures include a wide variety of tools frequently used in cartel investigations: physical surveillance, use of grand juries, confidential sources, undercover agents, search warrants and seizures, financial investigation, witness interviews, and review of toll records – ie, analysis of the details regarding, but not the content of, calls. Additionally, court orders authorizing wiretaps must specify, among other things, the type of communication that may be intercepted and the period of time – which may not exceed 30 days but may be extended – for which investigators may intercept tapped communications.

The Antitrust Division's limited history of wiretapping

The Tomlinson case alleged a conspiracy to rig bids and allocate territories for fuel truck services provided to the US Forest Service from March 2015 until March 2023. The indictment details some of the specific evidence obtained from the wiretap, in addition to a large amount of additional evidence obtained via other means, including text messages, toll records, and information likely obtained from a cooperating witness.

After what appears to be a lengthy investigation, in the days leading up to the Forest Service's 2023 bidding deadline, the court authorized wiretaps of two individuals' mobile phone lines. The indictment outlines five total intercepted conversations, involving four separate people, in which the alleged co-conspirators discussed coordinating their bids. Their discussions included the rates that they intended to bid for specific Forest Service dispatch centers, as well as their intent to "drown" and "squeeze out" other competitors. They also agreed that a specific territory was one conspirator's "home" and "turf." In one indicative example, the indictment quotes an alleged co-conspirator as saying "[s]o, we agreed with [a defendant] … that he was going to go to 2,500 a day, and we were going to do like 2,505 or something like that."

The value of these communications for prosecutors is obvious. Criminal cartel cases require proof beyond a reasonable doubt of an agreement to rig bids, fix prices, or allocate markets. Intercepted communications between co-conspirators as they form and implement those agreements – in their own words – are likely to be compelling evidence of such agreements to any finder of fact.

Despite the power of this evidence, however, the Antitrust Division's publicly acknowledged use of Title III warrants to investigate cartel matters is scant. The most prominent examples involve the division's investigation and prosecution of the marine hose cartel and an investigation known as Operation Rotten Tomato, both more than 15 years ago.

Marine Hose Cartel

In May 2007, the division used its wiretap authority for the first time in its investigation of price-fixing, bid rigging, and market allocation in the US market for marine hose. A 2007 affidavit that accompanied a criminal complaint in the case confirmed that a cooperator through the division's leniency program provided numerous documents and witnesses to the DOJ, in addition to consensually recording calls with co-conspirators. Through this earliest stage of the investigation, agents learned of an in-person meeting that was planned incident to an annual industry conference in Texas.

Investigators trained their focus on this May 1, 2007 meeting. In addition to having executives from the cooperating company consensually recording their own conversations in the meeting, the DOJ obtained court authorization to wiretap the entire meeting between the suspected co-conspirators, thereby allowing them to intercept conversations that did not involve the cooperating executives.

According to the criminal complaint, investigators' surveillance of the meeting provided evidence of how the alleged co-conspirators planned to keep market prices high and their plans to better secure their communications in order to avoid detection. Further, the co-conspirators discussed rules to ensure their compliance with the unlawful agreements.

The evidence obtained in the meeting was put to immediate use, with a criminal complaint sworn out the same day and eight industry executives arrested and charged for their roles in the conduct the following day. Ultimately, the Antitrust Division prosecuted five companies and 12 executives for their involvement in the cartel, obtaining more than $44 million in criminal fines. Despite the evidence of the meeting, however, two individual defendants were acquitted after a multiweek trial.

Operation Rotten Tomato

“Operation Rotten Tomato,” an investigation involving the Antitrust Division (as well as the US Attorney’s Office, IRS, and FDA), also utilized wiretaps around the same time as the marine hose investigation. As outlined in an affidavit filed with a criminal complaint in the matter, investigators obtained four court-authorized wiretaps in 2007 and 2008 as part of their investigation of bribery, fraud, and price-fixing in the food industry, the first of which was authorized just a month after the marine hose Title III warrant.

Like the marine hose case, investigators worked their way up to the wiretap. Operation Rotten Tomato was built off a government cooperator, who recorded communications and engaged in monitored discussions with other subjects of the investigation in exchange for more lenient treatment with respect to his own wrongdoing.

Unlike the marine hose case, Operation Rotten Tomato did not initially charge antitrust violations, and the investigation started before the 2006 amendments that allowed the interception of conversations based an underlying antitrust offense. Superseding charges, however, added multiple counts of price-fixing, and the court in declining to suppress the wiretap evidence recognized that its purpose included gathering information about price-fixing.

Through the wiretaps, investigators captured discussions between the conspirators about pricing, open bids, bribes, and kickback payments, as well as the conspirators' efforts to conceal their activity. Shortly after the fourth and final authorized wiretap, the DOJ took its investigation overt, executing numerous search warrant operations and interviewing a variety of targets of the investigation and other witnesses.

Numerous individuals ultimately pled guilty to a variety of offenses as a result of the investigation, including a former CEO, who was sentenced to six years in prison for racketeering, fraud, and antitrust offenses.

A counter-example: California foreclosure cases

In another Antitrust Division case, FBI agents acting without a Title III warrant captured conversations at public real estate foreclosure auctions that were conducted in front of a courthouse, bugging the area with hidden devices placed in a sprinkler box, planter, and backpack, and on nearby unmarked police vehicles. Over nine months of use, these devices captured more than 200 hours of audio recordings, some of which captured incriminating conversations involving the defendants.

Like the marine hose and Operation Rotten Tomato surveillance, the record developed in the case showed that these bugs were only one of several covert investigative techniques that the DOJ deployed in its investigation, which included undercover federal agents and cooperating witnesses.

After more than a year of litigation following the indictment of the case, however, the court suppressed the evidence gathered from these devices. In the 2016 decision in U.S.A. v. Giraudo, the US District Court for the Northern District of California found that investigators' warrantless recording of conversations violated the Fourth Amendment, as, despite having their conversations in a public place, individuals had a reasonable expectation of privacy in their conversations. In suppressing the evidence, the court further noted that investigators likely would not have been able to show the necessity to obtain a Title III warrant, as they had not exhausted traditional investigative options to prove the alleged bid rigging.

This ruling came just days after another judge in a similar but separate case from neighboring counties reached a different conclusion, finding that there was no expectation of privacy in the defendants' conversations in public places, also recorded by hidden bugs and without a warrant, and declining to suppress the evidence in that matter.

A couple of lessons

This limited record teaches limited lessons, but the first is that the use of wiretaps – or any nonconsensual interception of communications – in US cartel investigations has been historically rare. The second is that in each of these cases – consistent with the law's necessity requirement – the Antitrust Division only used wiretaps after and in conjunction with many other covert investigative techniques and following months of non-wiretap investigation. Finally, based on what has been made public from intercepted communications, on the occasions when it has used wiretaps, the DOJ has obtained strong evidence of cartel offenses that in many cases led defendants to plead guilty.

Use of wiretaps by international authorities

The Antitrust Division's recent use of a wiretap follows a number of recent developments from other jurisdictions' competition enforcers that reflect a broader use of wiretaps in cartel investigations. These include:

France

In June, France's competition enforcer announced that it had imposed fines of over EUR76 million ($81 million) on 11 companies in its investigation of cartel activity involving precast concrete products. The press release noted investigators' interception of phone calls in the investigation, working in conjunction with the public prosecutor and with the approval of a French court.

Chile

In late April, Chile's competition authority filed a lawsuit that alleged a cartel involving industrial and medical gases. According to the complaint, as part of its investigation, the authority intercepted communications between two executives in which they described a "peace and love" situation between their competing companies. The complaint seeks a fine of over $31 million from one defendant corporation.

In announcing the lawsuit, the country's head economic prosecutor noted that the agency had alleged a cartel in the same market nearly 20 years earlier, but at that time it lacked the authority to use wiretaps and other key cartel investigation tools, and the companies were acquitted due to a lack of direct evidence of agreement. This time, however, the agency trumpeted its success "using each and every one of the tools entrusted to [the agency] by Congress."

Elsewhere in Europe

In June 2023, Latvia's Competition Council relied on wiretap evidence provided to it by the national anticorruption agency to fine three companies over EUR4.5 million for their participation in a cartel to rig bids and exchange information about road construction projects.

As of May 2023, new legislation in the Czech Republic allows the country's competition authority to use wiretap evidence obtained by the police to prosecute cartel violations.

Also in May 2023, the European Court of Human Rights upheld the use of wiretap evidence by the Netherlands' Authority for Consumers and Markets to investigate a cartel in the ship waste collection market in 2011.

In 2019, the Italian Competition Authority used recordings from wiretaps provided by in a bid rigging case in which it imposed fines totaling EUR235 million on eight companies for rigging bids on contracts to provide energy, cleaning and maintenance services to public buildings. (An appeals court later annulled the fine against one of the companies).

As in the US, examples from foreign cartel enforcers do not show a pattern of any one enforcer consistently featuring wiretaps in its cartel investigations. Nonetheless, the ability of several enforcers to obtain wiretaps under the right circumstances is patent and leaves no doubt that the risk of cartelists having their conversations intercepted via a wiretap extends beyond the United States' jurisdiction.

Takeaways and conclusions

Given the Antitrust Division's historically limited use of its wiretap authority, its recent use of a wiretap to investigate a cartel offense is best taken – at least for now – as a data point to consider with respect to US criminal antitrust enforcement. When viewed in the context of developments from around the world, however, it is possible to place that datapoint within the beginning of an emerging trendline in cartel enforcement. That trendline may become more unmistakable if the DOJ follows through on its promises to more frequently use this weapon in its investigative arsenal and other competition enforcers continue to demonstrate their own willingness to utilize wiretaps.

Even if this is the beginning of a trend, however, the strict requirements to obtain wiretap authority and the limits on their use – to say nothing of the resources needed to monitor them in compliance with court orders – make it unlikely that wiretaps will become ubiquitous features of cartel investigations in the US or elsewhere. But for crimes that are predicated on unlawful agreements, the promise of wiretaps to capture some of the most powerful evidence of those agreements in the cartelists' own words – something the existing record already demonstrates – gives enforcers a powerful incentive to utilize them when they can.

Businesses should therefore listen up when the DOJ and other enforcers tout their use of this investigative tool, because those enforcers just might be listening in.

A version of this article was published in Law360.