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Hoffmann-La Roche and BASF Agree to Pay Record
Criminal Fines for Participating in International Vitamin Cartel

Roche Agrees to Pay $500 Million, Highest Criminal Fine Ever
Swiss Executive Agrees to Plead Guilty and Serve U.S. Jail Time

Department of Justice News Release, May 21, 1999

WASHINGTON, D.C. -- A Swiss pharmaceutical giant, F. Hoffmann-La Roche Ltd today agreed to plead guilty and pay a record $500 million criminal fine for leading a worldwide conspiracy to raise and fix prices and allocate market shares for certain vitamins sold in the United States and elsewhere, the Department of Justice announced. A German firm, BASF Aktiengesellschaft, also will plead guilty and pay a $225 million fine for its role in the same antitrust conspiracy, the Department said.

In separate one-count criminal cases filed today in U.S. District Court in Dallas, the Department of Justice charged the corporations with conspiring to fix, raise, and maintain prices, and allocate the sales volumes of vitamins sold by them and other unnamed co-conspirator companies in the U.S. and elsewhere. The cases also allege that the companies allocated contracts for vitamin premixes for customers throughout the U.S. and rigged the bids for those contracts.

The conspiracy lasted from January 1990 into February 1999 and affected the vitamins most commonly used as nutritional supplements or to enrich human food and animal feed -- vitamins A, B2, B5, C, E, and Beta Carotene. Vitamin premixes, which are used to enrich breakfast cereals and numerous other processed foods were also affected by the conspiracy, the Department said.

"These prosecutions demonstrate that we will not allow international cartels to prey on American consumers in our globalized economy," said Attorney General Janet Reno. "Those currently engaged in or contemplating similar conduct should take note of the high cost of getting caught ñ $500 million is not only a record fine in an antitrust case, but it is the largest fine the Justice Department has ever obtained in any criminal case."

The Department today also charged Dr. Kuno Sommer, former Director of Worldwide Marketing, Hoffmann-La Roche Vitamins and Fine Chemicals Division, with participating in the vitamin cartel and for lying to Department investigators in 1997 in an attempt to cover-up the conspiracy. Dr. Sommer, a Swiss citizen, has agreed to submit to the jurisdiction of the U.S. District Court in Dallas, plead guilty to both charges, serve a four-month prison term, and pay a $100,000 fine.

"This conspiracy has affected more than five billion dollars of commerce in products found in every American household," said Joel I. Klein, Assistant Attorney General in charge of the Department's Antitrust Division. "During the life of the conspiracy, virtually every American consumer paid artificially inflated prices for vitamins and vitamin enriched foods in order to feed the greed of these defendants and their co-conspirators who reaped hundreds of millions of dollars in additional revenues."

Including today's cases, there have been nine prosecutions in the ongoing investigation of the worldwide vitamin industry and the latest in a series of international conspiracy cases filed by the Department's Antitrust Division in the last several years. Hoffmann-La Roche, BASF, and Sommer are cooperating with the investigation.

The Department also confirmed the announcement by Rhone-Poulenc, SA, the French Pharmaceutical Company, that it has been cooperating with the investigation under the Antitrust Division's Corporate Leniency Program. Under the Leniency Program, a company may qualify for protection from criminal prosecution if it voluntarily reports its involvement in a crime and satisfies certain other criteria.

"The cooperation of Rhone Poulenc, together with information being provided by others, led directly to the charges filed today and the decision of the defendants not to contest the charges and to cooperate with our investigation," said Gary R. Spratling, the Antitrust Division's Deputy Assistant Attorney General for criminal enforcement. "Rhone Poulenc conspired with Hoffmann-La Roche and BASF, but the information provided by Rhone Poulenc was what the Division needed to crack the largest antitrust conspiracy uncovered to date." Spratling also said that once Hoffmann-La Rouche and BASF decided to step forward and accept responsibility for their actions, they each provided a level of cooperation nothing less than exemplary.

According to the charges, Hoffmann-La Roche and BASF agreed with the world's other major vitamin manufacturers to suppress and eliminate competition in the U.S. and elsewhere. The criminal cases charge that Hoffmann-La Roche, BASF, and Sommer, with unnamed co- conspirators:

The two-count criminal case against Sommer charges him with participating in the same vitamin conspiracy and lying to the Department of Justice by providing false, fictitious and fraudulent information to investigators when he was questioned about the vitamin conspiracy.

Klein said, "The prosecution of Dr. Sommer should send the message that foreign borders will not serve as a sanctuary from prosecution for individuals who conspire to steal from U.S. businesses and consumers. Those who lie, obstruct, and attempt to cover-up the truth in our investigations will be prosecuted and punished for those crimes as well."

The defendants in all three cases are charged with violating Section One of the Sherman Act, which carries a maximum fine of $10 million for corporations, and a maximum penalty of three years imprisonment and a $350,000 fine for individuals.

Sommer was also charged with providing false statements to a government official, a violation of 18 U.S.C. ß 1001, which carries a maximum penalty of five years imprisonment and a $250,000 fine.

The maximum fine for both corporations and individuals may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

At sentencing, the court will determine the appropriate sentence to be imposed under the U.S. Sentencing Guidelines and whether to accept the plea agreements and impose the agreed- upon sentences. The dollars received from this fine will be deposited into the Crime Victims Fund, which is used to provide financial compensation and direct services to victims of crime and training and technical assistance for victim advocates, criminal justice professionals, and allied professionals across the country. The fund is supported by fines paid by federal criminal offenders, not taxpayers, and is administered by the Office for Victims of Crime (OVC).

The three cases are the result of an investigation conducted by the Antitrust Division's Dallas Field Office and the Federal Bureau of Investigation in Dallas.

Statement of Assistant Attorney General Joel I. Kline

May 20, 1999

The cases that we have just filed demonstrate the Antitrust Division's continuing commitment to prosecute international cartels that fix prices charged to American businesses and consumers. The vitamin cartel is the most pervasive and harmful criminal antitrust conspiracy ever uncovered. The criminal conduct of these companies hurt the pocketbook of virtually every American consumer -- anyone who took a vitamin, drank a glass of milk, or had a bowl of cereal.

These companies have agreed to pay the largest criminal fines in antitrust history -- nearly three-quarters of a billion dollars in all -- because they were caught flagrantly violating the law. In addition, for the first time in our history, a European national will plead guilty and, subject to court approval, will serve four months in prison. This too reflects the serious nature of the illegal activities that we uncovered. This cartel was truly extraordinary. It lasted almost a decade and involved a highly sophisticated and elaborate conspiracy to control everything about the sale of these products. These companies fixed the price; they allocated sales volumes; they allocated customers; and in the United States they even rigged bids to make absolutely sure that their cartel would work. The conspirators actually held "annual meetings" to fix prices and to carve up world markets, as well as frequent follow-up meetings to ensure compliance with their illegal scheme. The enormous effort that went into maintaining this conspiracy reflects the magnitude of the illegal revenues it generated as well as the harm it inflicted on the American economy.

Let me be clear about this: contrary to what some have suggested, these kinds of cartels are by no means transient or unstable. They are powerful and sophisticated and, without intervention by antitrust authorities, will often go on indefinitely.

Indeed, during the past several years the Division has uncovered international cartels operating in a broad spectrum of commerce, including food and feed additives, chemicals, graphite electrodes (used in steel making), and marine construction and transportation services. In many of the prosecutions, the conspirator corporations were fined tens of millions of dollars -- ADM was fined $100 million for its role in the lysine and citric acid conspiracy; UCAR paid a $110 million fine for its participation in the graphite electrodes conspiracy; and SGL recently agreed to pay a $135 million for its role in the graphite electrodes conspiracy -- prior to today, the largest antitrust fine in history. This fiscal year alone, which is less than 2/3 over, we have already secured more than $900 million in criminal fines: more than three times our previous annual record; in fact, more than the total amount of fines in the entire history of U.S. antitrust enforcement.

Fines of this magnitude are absolutely necessary if we are going to deter these illegal cartels. It is now clear that, at least with respect to this conspiracy, even $100 million fines were not an adequate deterrent. Indeed, the members of the vitamin cartel, including Hoffman- LaRoche, continued to regularly meet and carry out their global agreement even while Hoffmann-LaRoche was being investigated, prosecuted, and fined $14 million in March 1997 for participating in the citric acid cartel.

With the imposition of the fines and prison sentence in these cases, we are hopeful that multinational companies who currently are engaged in cartel activity or who are faced with the opportunity to do so in the future will assess their risks differently and will think twice before ripping off America's consumers and businesses.

Class action suit by manufacturers and distributors
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