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Wiretap City

S. M. Oliva | January 9 2006

The recent Democratic criticism of President Bush's use of warrantless wiretaps might lead one to conclude that the opposition party is genuinely concerned with protecting individual rights and, concurrently, restraining executive power. But when it comes to wiretaps, Democratic and Republican lawmakers have been equal partners in expanding the scope of federal power; the present Democratic objection is limited to the absence of pro forma judicial oversight.

In October 2005, the Senate unanimously passed a bill that would vastly expand the ability of the Justice Department to spy on American businesses via wiretaps. Not a single senator rose to speak against this bill. Even the most rabid Democratic critic of the White House's warrantless wiretapping, Wisconsin Sen. Russell Feingold, embraced an unprecedented expansion of unsupervised, albeit warrant-enabled, wiretaps.

So what does this bill do? S. 443, the "Antitrust Criminal Improvements Act of 2005," would add criminal antitrust investigations to the list of "predicate offenses" that can justify the use of wire and oral communication intercepts. This list originated with the passage of the Omnibus Crime Control and Safe Streets Act of 1968, and over the past four decades, Congress has continually added new predicate offenses, everything from terrorism to bribery in sporting contests.

Sen. Mike DeWine, Ohio Republican and chairman of the Senate Judiciary Committee's antitrust subcommittee, co-sponsored S. 443 along with his Democratic counterpart, Herb Kohl of Wisconsin. In his statement to the Senate introducing the bill, DeWine argued that wiretaps were necessary to fulfill the DOJ's mission of investigating and punishing criminal antitrust activities, such as "bid-rigging" and "price-fixing." DeWine said that although Congress had enacted tough penalties for such crimes, "we have not given the Department of Justice all of the tools it needs" to fully enforce the law. He said that the DOJ needed "access to the inner workings" of antitrust conspiracies, and that the Antitrust Division's current tools – primarily voluntary witness statements and offering leniency to targets in exchange for cooperation – were inadequate to the task.

Finally, DeWine offered an "everybody is wiretapping" argument. He said that there were already over 150 predicate offenses on the authorized list, and that other countries, such as Canada, already allowed wiretaps in antitrust cases.

DeWine gave the impression that criminal antitrust enforcement is in a state of paralysis. Quite the contrary: From 1995 through 2004, the DOJ won 97% of all criminal antitrust cases decided, amassing a record of 449 wins against just 16 losses. During this period, the DOJ obtained more than $2.3 billion in criminal fines, and numerous individual defendants served prison sentences averaging 376 days each. Nor has a lack of wiretap power discouraged the DOJ's Antitrust Division from commencing criminal investigations. During President Bush's first term, 121 grand juries were convened to consider possible criminal antitrust violations, a 17% increase from Bill Clinton's second term.

Beyond the numbers, the greatest danger posed by S. 443 is that it will actually expand the scope of what is considered a crime under the Sherman Act. Antitrust law is notoriously subjective, and the difficulty in investigating cases is one of the few checks on prosecutors. Currently, most criminal antitrust cases are built on testimony provided by targets in exchange for amnesty from prosecution. The Antitrust Division's own head of criminal enforcement attributed 90% of convictions to such amnesty agreements. Prosecutors have virtually unlimited discretion, however, to decide whether to charge a target with civil or criminal violations. The text of the Sherman Act itself provides little guidance on this subject. Hence, many cases that have been handled as civil matters, such as the long-running Microsoft prosecution, could be treated in the future as criminal prosecutions, because wiretap authority will make it easier for the DOJ to amass evidence and coerce pleas, particularly from corporate defendants that wish to avoid the cost and uncertainty of trial.

The likelihood of abuse cannot be understated. Section One of the Sherman Act has been interpreted to prohibit "cartels" and other overt "price-fixing" activities, which are generally treated as criminal violations. But Section Two outlaws "attempted monopolization" in any market. These are the cases where the DOJ's discretion to charge a civil or criminal offense is the greatest. There is virtually no business decision or practice that could not be spun as "attempted monopolization" by creative prosecutors. Wiretap authority would therefore create a pretext for the Antitrust Division to spy on any business for any reason. For example, had wiretaps been available at the start of the Microsoft investigation, the DOJ could have intercepted company conference calls where product development was discussed, because prosecutors believed that Microsoft was illegally "tying" Internet Explorer to the Windows operating system. Or the DOJ could listen in on merger negotiations between two firms to ascertain whether the deal is "anti-competitive." Wiretap authority will ultimately encourage Antitrust Division officials to go on fishing expeditions, particularly against businesses, such as oil, that are unpopular with legislators.

Under S. 443, the only check on the DOJ's spying are the courts that approve wiretap requests. The absence of this check is at the heart of the current uproar over the administration's "national security" wiretaps. But judicial approval has largely been a formality in other cases. According to the Administrative Office of the United States Courts, of the more than 14,000 wiretap applications filed under existing law between 1994 and 2004, only four were rejected by federal judges. There is little reason to believe that judges would be any more skeptical of antitrust-based wiretap requests, despite the high likelihood of prosecutorial abuse.

The Antitrust Division wants wiretap authority so that it can reduce its reliance on amnesty agreements, a practice that itself is unconstitutional, as I explained in a recent paper. While amnesty has been successful in generating convictions, there is a trade-off for prosecutors: They have to let one defendant go in order to get its alleged co-conspirators. This means that the DOJ is foregoing millions in potential fines from the amnesty recipient. S. 443 is an attempt to further tilt the antitrust laws in favor of prosecutors, so that the government can obtain the maximum number of guilty pleas with a minimum of actual trials where evidence can be scrutinized.

It's also important to note that the consequences of criminal antitrust prosecution contradict the proffered rationale for the antitrust laws. Congress and the DOJ have long maintained that criminal prohibitions of price-fixing and similar activities benefit consumers by "protecting competition." But when the common penalty for an antitrust violation is a large corporate fine, this actually harms competition, because it removes private capital from the market and gives it to the government, which simply adds it to the large pile of confiscated tax revenue that it doles out annually. Removing this capital not only punishes shareholders for the acts of a few corporate officers, it also makes the firm – and thus the market – less competitive by weakening the company's ability to innovate and become more efficient. Put another way, the more a company spends paying antitrust fines (as well as the firm's own attorneys), that much less is spent finding ways to make consumer goods more abundant and cheaper. "Competition" and consumers are not the beneficiary of antitrust laws, prosecutors and government bureaucrats are


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