Airlines Fined, Execs Get Prison Time Over Price Fixing Scam

Federal prosecutors are accusing the airline industry of a <"">wide-scale price fixing scam in which false increases on surcharges for passengers and cargo fuel were made to avoid financial fall-out, said the Associated Press (AP). The scam followed a drop in the airline industry about 10 years ago and occurred from 2000 to 2006.

Prosecutors say the crimes have run into the hundreds of millions of dollars, mostly to U.S. customers and businesses and mostly for international passengers and cargo shippers, wrote the AP. So far, 19 executives have been charged by the Justice Department—five served prison time—and 21 airlines paid over $1.7 billion in fines in what is considered one of the biggest criminal antitrust investigations in American history, said the AP.

British Airways, Korean Air, and Air France-KLM are among the convicted airlines; no major U.S. carriers were charged, noted the AP. Because Lufthansa and Virgin Atlantic came forward and turned in the other airlines, both were able to take part in a leniency program, said the AP.

In 2005, Lufthansa officials told the Justice Department it was part of a conspiracy to set cargo surcharges, prompting raids in 2006 led by FBI agents and their European counterparts, said the AP. When the investigation was made public, Virgin Atlantic admitted to a similar scheme with passenger fuel charges, noted the AP. The investigative team unearthed a comprehensive plan, with agreements to set the surcharges, going back as far as 2000, and with documentation indicating that the U.S., Europe, Asia, South America, and Australia, were involved wrote the AP. Some fuel surcharges rose by a massive 1,000 percent during the conspiracy.

Airlines and executives who did not “come forward, were charged with violating the Sherman Antitrust Act,” said the AP, pointing out, for example:

• Two former executives were sentenced to six months in prison

• Two former executives were sentenced for eight months in prison

• Charges are pending against 15 others executives

• Nine executives are considered fugitives from justice

• Bruce McCaffrey, a Quantas executive, pleaded guilty to conspiracy to restrain trade and was sentenced to six months in prison after admitting to collaborating with other carriers to fix cargo fuel surcharges.

• Keith H. Packer, from British Airways, pleaded to conspiracy to restrain trade and received an eight-month prison sentence after admitting to joining the cargo conspiracy.

• British Airways and Korean Air pleaded guilty to violating the Sherman act receiving fines of $300 million each. British Airways admitted “fixing cargo surcharges from 2002 to 2006 and passenger fuel surcharges from 2004 to 2006. Korean Air admitted “to fixing “cargo and passenger surcharges from 2000 to 2006.”

Published notes from an October 2005 meeting of airline representatives included a panel of executives discussing surcharges then in place; an official, identified in meeting notes as “GF,” suggested the group create “a subcommittee to study this subject and come up with a joint proposal,” quoted the AP. Published documents from another meeting stated “the participants agreed to make uniform policy for such (insurance and fuel) surcharges to be applied,” the AP also quoted. Officials from United Airlines and Northwest Airlines, according to court filings in one class action suit, walked out of the meeting when fare and fuel surcharges were brought up, added the AP.

Pretrial discovery documents also indicate that discussions occurred in large group meetings and smaller meetings and email conversations, reported the AP; however, based on a passenger lawsuit involving Cathay Pacific Airways, Japan Airlines, and All Nippon Airways, a large amount of conversations were more privately conducted, via telephone and email conversations and with evidence proving some executives worked to hide or destroy incriminating documents, the AP said.

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