South Korea Military Fuel Bid-Rigging Cases: The Alleged Deal Behind the Bids

South Korea military fuel bid rigging cases brought approximately $154 million in civil payment agreements from SK Energy, GS Caltex and Hanjin Transportation in November 2018. The Justice Department alleged that the suppliers suppressed competition for U.S. military fuel contracts and made false statements about their agreement not to compete. If you worked on the prices, the bids or the communications between suppliers, you may recognize the difference between the competition a buyer saw and the decisions made inside the business.

Hyundai Oilbank and S-Oil later agreed to civil payments in the same investigation, bringing the civil resolutions in 2018 and 2019 to more than $205 million. Jier Shin Korea followed with a settlement that also covered its president. The companies’ payment terms differed, but the civil cases shared a central allegation: the government paid for fuel supply services after suppliers had agreed not to compete for the work.

How the Military Bought the Fuel

The Defense Logistics Agency and the Army and Air Force Exchange Service contracted with South Korean companies to supply fuel to U.S. military bases throughout South Korea. The three felony charges described in the Justice Department’s announcement alleged that petroleum and refinery companies and their agents suppressed competition from approximately March 2005 into 2016. The contracts served Army, Navy, Marine Corps and Air Force bases.

For an insider, the useful comparison is between the bid the agency received and the decisions behind it. Proposals, negotiation records and payment requests connect those decisions to the price the government paid.

The Defense Department inspector general’s Semiannual Report to the Congress for April through September 2018 identifies price fixing and bid rigging among procurement fraud risks that can undermine military readiness. Here, the Justice Department alleged a direct financial injury: the military paid substantially more for fuel supply services than it would have paid if the suppliers had competed.

The South Korea Military Fuel Supplier No Competition Agreement

The government alleged that fuel suppliers agreed not to compete and made false statements about that agreement. The antitrust claim concerned the suppression of competition and the resulting overcharge. The False Claims Act claim concerned the false statements to the government.

That puts the bid’s apparent independence at the center of the case. We find the alleged bargain particularly brazen: suppliers seeking military business were supposed to compete for it, yet the government alleged they had agreed among themselves to remove that competition. The buyer was paying a price that the bidding process was meant to test.

For an insider, the important decisions may sit in communications that never reached the purchasing agency. Who prepared a competing quote, who discussed a price with another supplier and who approved the submission can explain how an apparently competitive bid came together.

SK Energy, GS Caltex and Hanjin’s Civil Payments

The Justice Department’s November 14, 2018 announcement set out separate civil payment amounts for the first suppliers. Its proposed antitrust settlements called for the following payments to the United States:

Each payment also resolved the government’s False Claims Act claims through a separate agreement. The Justice Department said each supplier’s civil payment exceeded its individual overcharge.

The department also said the amounts reflected the value of cooperation commitments and the savings from resolving the cases. The companies agreed to cooperate with the continuing civil investigation and undertake antitrust compliance requirements.

Hyundai Oilbank and S-Oil Joined the Civil Resolutions

Hyundai Oilbank agreed to pay $39.1 million and S-Oil agreed to pay $12.98 million in civil resolutions announced on March 20, 2019. These payments likewise covered civil antitrust and False Claims Act claims arising from the alleged agreement not to compete. The companies also agreed to cooperate with the continuing civil investigation and follow antitrust compliance requirements. The civil investigation resulted from a whistleblower’s qui tam lawsuit, a case brought on the government’s behalf.

The same announcement described a criminal indictment charging the companies and seven individuals with conspiring to suppress competition and defraud the government’s procurement process. The Justice Department identified the individuals by their roles as associates, managers and executives of participating companies. It reported that Hyundai Oilbank and S-Oil had agreed to plead guilty to the antitrust charge.

Jier Shin’s Settlement Reflected Cooperation and Ability to Pay

Jier Shin Korea and its president were covered by the civil resolution announced on April 8, 2020. The $2 million settlement resolved civil antitrust and False Claims Act claims involving alleged false statements about an agreement not to compete for U.S. military fuel supply contracts. The Justice Department described it as the investigation’s sixth False Claims Act settlement.

Cooperation and ability to pay helped determine that amount. The agreement also allowed further recovery if material financial misrepresentations had understated the defendants’ ability to pay.

How Do You Identify Bid Rigging?

Evidence of bid rigging connects supposed competitors’ communications and pricing decisions to the bids the buyer received. The useful records can include competing quotations, who created them, discussions between suppliers and payments for bids intended to give the appearance of competition. Contract and payment records then connect that conduct to government money.

Agilent Technologies provides a parallel involving measurement instruments. The November 5, 2014 settlement announcement described alleged coordination between Agilent, distributors and resellers about who would bid and at what price. Those arrangements allegedly created the appearance of compliance with requirements to obtain three bids. Agilent agreed to pay $849,678 to resolve the allegations.

The comparison is useful because it shows how several quotations can carry a decision already made between the supposed competitors. In the South Korea fuel cases, the alleged agreement not to compete similarly put the suppliers’ dealings with each other at the heart of the government’s claims. Someone who knows how a price or a competing offer came into existence may be able to explain what the purchasing paperwork leaves out.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For a fuel-contract insider, the starting point with us is the connection between what you know about the bidding and what the government was told.

When You Know How the Bids Were Decided

If you worked on fuel bids and know that supposed rivals coordinated their offers, speak with our whistleblower experts about how those bids were decided. We bring procurement knowledge to your case and find defense contractor fraud whistleblower lawyers who understand antitrust investigations and False Claims Act claims. We stay beside you through the process, working to turn that inside knowledge into your strongest defense contractor fraud whistleblower case.