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Air & Expedited
 
Justice by Air
7/7/2008
Michael Fabey
Associate Editor

The rogue's gallery of airlines to plea-bargain their way out from under the U.S. Department of Justice antitrust investigation more than doubled with the total fine amount topping the $1 billion mark.

Five more airlines reached plea agreements worth a total of $504 million with the department last month for conspiring to impose fuel surcharges earlier this decade, the agency announced.

The total number of airlines that have agreed to pleas in the United States is now nine, with fines totaling more than $1.2 billion, the highest total amount of fines ever imposed in a criminal antitrust investigation.

And the Justice Department investigators wants more than just money - it wants corporate heads, too. Qantas' former highest-ranking freight executive in the United States, Bruce McCaffrey, pleaded guilty, agreed to pay a fine and to serve 8 months in jail for his role in the conspiracy. The department is sending a message, say experts, that international companies based outside the United States will pay if they break antitrust and conspiracy laws.

But the message becomes muted to shippers who wound up paying the extra illegal costs. Carrier customers will see none of the fine money and their only recourse is through lawsuits.

In the meantime, the investigation and the pleas are further straining relations between carriers and shippers, who often have to hire an expert to untangle the thicket of complex cost calculations to see if they're getting a fair price.

"It has almost become a requirement to hire someone to understand what your true landed cost is," said Bill Knasinksi, vice president of parcel and logistics solutions at GENCO, a shipper's consultant.

Fuel surcharges imposed by some of the conspirators rose by as much as 1,000 percent during the course of the conspiracy, the Justice Department said, far outpacing any percentage increases in fuel costs during the same time period.

 "This price-fixing conspiracy undermines our economy and harms the American people who, due to lack of true competition in this area, end up footing the bill," said Kevin J. O'Connor, associate attorney general.

 

In the latest plea bargains, Air France, Cathay Pacific Airways, KLM Royal Dutch Airlines, Martinair and SAS Cargo each agreed to plead guilty and pay criminal fines totaling $504 million for participating in a multi-year conspiracy to fix prices for air cargo rates.

Air France-KLM, which now operates under common ownership by a single holding company, agreed to pay a $350 million criminal fine, the second-highest fine ever levied in a criminal antitrust prosecution.       

Cathay agreed to pay a $60 million fine; Martinair agreed to pay $42 million; and SAS has agreed to pay a $52 million criminal fine. The plea agreements are subject to court approval.

Air France-KLM also said it has set aside some $880 million "on the basis of the status of the cargo investigations by U.S. and EU authorities, as the other investigations remain pending." The carrier said it is cooperating with authorities.

The airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments, according to the charges filed in the U.S. District Court for the District of Columbia. The charged conduct affected billions of dollars of consumer and other goods - including produce, clothing, electronics and medicines shipped by these airlines and their competitors in the air cargo industry. 

"The air cargo conspirators artificially raised the prices paid to ship billions of dollars of goods," said Scott D. Hammond, deputy assistant attorney general in charge of criminal enforcement. 

British Airways pleaded guilty in August and was sentenced to pay a $300 million criminal fine for conspiring to fix cargo rates for international air shipments, including to and from the United States, and to fix passenger fuel surcharges for long-haul international air transportation, including between the United States and United Kingdom.

At the same time, Korean Air pleaded guilty and was sentenced to pay a $300 million criminal fine for conspiring to fix cargo rates charged to customers in the United States and elsewhere for international air shipments and to fix wholesale and passenger fares for flights from the United States to Korea.

In January, Qantas pleaded guilty and was sentenced to pay $61 million and Japan Airlines pleaded guilty in May and was sentenced to pay a $110 million fine.




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