Lysine Scandal
Levi Cushing
Bus 670 Legal Environment
Dr. Jason Lum
January 19th, 2015

Archer Daniels Midland (ADM) was started in 1902 as a small linseed crushing business. As time moved forward ADM began acquiring other small agricultural companies. As more and more time move forward ADM began to branch into other parts of the agricultural business and added more and more products that they deal with. In 2015 ADM has grown to have several joint ventures and owning several other smaller agricultural, nutrition, and food related companies. ADM has also expanded globally and has more than two hundred and sixty five locations worldwide. As ADM has grown over the years different types of management has came and gone at ADM, but for a long time the owning families were the main people running the company full time. Over time ADM was caught doing small price fixing deals around the world. In the early 1990’s a large scale price fixing operation was unveiled by Mark Whitacre, who at the time was President of the bio-products division. Whitacre was an FBI informant for most of the early 1990’s, helping the FBI build a case against ADM’s top management at the time. The overall purpose of this paper is to identify the ethical and legality issues with price fixing related to ADM. ADM in relation to me is my main place of work and the price fixing issues still haunt the business today. ADM has started working on implementing stringent rules every year to help the company avoid more legal actions. One item that has affected my job directly from this is audit materials that we must save now. Everything that I work on every day there must be an audit trail, so that we can prove that we are following the rules properly. The accounting and business side of things are also, regulated more now, and they have to go thru several channels to approve anything that is must be done. Price fixing in its simplest form is a few parties, in the same segment of the market, getting together and coming to an understanding to maintain prices on products or the market. If you look at price fixing in terms of gas prices it can be a little more understanding. If there is a small town with two gas stations in it competing for the business in that area and the two owners want to keep the price moving up and not down for profit. They are not allowed together and determine on prices and market prices that they want to keep the gas prices at. Price fixing was split into two different types of price fixing, vertical and horizontal. Vertical price fixing includes a buyer and a seller agreeing on what price the products should be resold, while horizontal takes two or more parties in the same part of the market to agreeing what prices to pay or charge for certain products. In the early 1992 the FBI were looking into corporate espionage and sabotage, when Mark Whitacre decided to inform the FBI of a lysine price fixing scandal. Whitacre released the information about the price fixing operation over several years ultimately resulting in several arrests at the end of the investigation. ADM was working on a deal between a couple Japanese and Korean companies in the lysine production industry, who could fix the price of lysine and potential drive up the price of hundreds of products all over the world, but ultimately increasing the profits of the large players in the price fixing scandal. ADM wound up paying over 500 million dollars in legal fees and fines by the end of the case. Several of the higher up ADM executives were prosecuted and spent time in prison for several different charges, relating to price fixing and corporate espionage. Whitacre also spent several years in prison because he was found guilty of embezzlement of 9 million dollars. Since then Whitacre has written several books, starred in documentaries, and had a hit movie, The Informant starring Mat Damon, written about the whole scandal and showing Whitacre as the main character in the movie.
There are several different laws and acts that pertain to price fixing. These acts and laws include the antitrust law, criminal law, business crimes, Sherman Act, and restraints of trade. Analyzing all the different laws and acts we can determine the legality of price fixing. While analyzing all the laws and acts we will take all of the laws and view them pertaining to ADM in the early 1990’s and now. The first law to law to analyze is the antitrust law, which is a collections of smaller laws that pertain to companies working together to be fair in the favor of consumers all around the globe. The central focus of the antitrust law is price fixing. When ADM was fined at the end of the case they had to pay 50 million dollars to the antitrust authorities of Canada, Mexico, and European Union. While also being fined a total of 100 million due to antitrust laws, which at the time was the largest antitrust law fine in US history. Criminal law relates to crime regulating social conduct and prescribing things that are threatening, harmful, endangering to property, health, safety, and moral welfare of people. When it comes to ADM and the price fixing accusations the main thing that comes across the criminal law is the moral welfare of the people or consumers. Lysine was a major factor in dog food, but also several other products all over the world in different industries. Raising the prices of the lysine would cause the dog food industry to raise their price and consistently stay at that price or increase as the price fixers determine the price to go up or down. Business crimes or white-collar crimes are crimes committed by professionals often through their occupations or by exploiting the power of social, economical, or technological powers for personal or corporate gain. In terms to ADM most of the crimes committed were white-collar crimes. The crimes that were committed by ADM and Mark Whitacre were all for personal and corporate gains. Looking at Whitacre side of things, he was involved in all the of the price fixing relating meetings, but also he was embezzling millions of dollars over several years. The white-collar crimes were all over the scandal and were the reason most of the individuals got in trouble for the crimes they committed. The Sherman Act is part of the antitrust laws and was passed by congress in 1890. The basic purpose of the act is anti-competitiveness regarding companies. The main purpose of this is to defeat pricing fixing and other competition based corruption related crimes in the business industry. ADM was breaking the Sherman Act pretty much in its entirety in several different countries. The main purpose of the act in the first place was to go against monopolies and help prevent them from being able to take over. The main thing that the Sherman Act put against ADM was price fixing and stopping them from agreeing with them competition to monopolize of the lysine business. Restraint of trade is basically interfering with another person’s ability to do business freely. Also, it is part of the Anti-trust laws and can be found as a separate act under the law. When looking at ADM and restraining businesses or other people and their ability to work at or with ADM, it is pretty obvious that ADM wanted to be very powerful with these deals and pushed several of these companies into doing what they wanted to do. When ADM got these meetings together with companies from several different countries, they then did push these companies to make sure that the deals did go through the way ADM wanted them too. Legally the head executives knew that what they were doing over time was bad and illegal, but they still decided that they wanted to do it the way that they did it. When they decided to start this price fixing scandal they felt that they were untouchable and that they had it hidden enough that no one would find out. Most of what these high up executives were looking at personal and corporate advancement, resulting in a vast amount of white-collar crimes. Whitacre was the only executive that was charged with embezzling money from the company, even though it is thought many of the other executives were doing it as well.
The main reason Whitacre was caught for embezzlement was it came out that he was the FBI informant and the other executives released information against Whitacre to get him in in trouble as well. When it came out that Whitacre was embezzling all this money during his time as an informant, they turned the case against him saying that he was not a reliable witness like the FBI had said he was. ADM is a major part of the of the agricultural, nutrition, food, and oil industries on a global scale and being so large allows ADM to be very powerful in several industries. Being so large and powerful puts ADM in a position to want to push other companies to do what they want. Even in today’s business with basic vendors, we are very demanding it what we want to get out of the service that the company can or will be providing us. Every vendor we deal with on the IT side of things, knows how demanding the company can be and is generally ready for ADM to come to the table with the deal. Knowing how the company is ran today, you can see where it would have been very possible for the ADM executives to get wrapped up in price fixing and embezzling. With the amount of power that comes with the high level positions in ADM the pressure to make these poor choices could be very easily to come by. As many people in the business world know there are countries all over the world that are very corrupt compared to the US. Since ADM is global there is so much availability to the corruption all over the world. Looking at this situation from an ethical stand point, from Mark Whitacre, you see this situation from a whole different point of view. Since Whitacre was the president of Bio-products at ADM he had to do a lot of traveling, meeting clients and going to different countries all the time. Since this was in the early 1990s there was not any internet communications and it made doing business globally very difficult because of the lack of communication. Since it was the early 1990s and communication was so lacking, Whitacre had to travel all over the world to do work for ADM. Whitacre was also pretending to take checks to different companies all over the world, but was actually cashing those checks in his own accounts, which was the main source of his embezzlement. Which ultimately resulted in why Whitacre got in so much trouble in the first place. The early 1990s the FBI was looking into corporate espionage and sabotage at ADM and Whitacre was aiding in the investigation to help prove the company was innocent, but in doing so Whitacre was afraid they would uncover the large scale price fixing operations, so his wife pushed him to provide the information about the price fixing to the FBI. He then began informing the FBI of all the information that he could provide about price fixing operation. As Whitacre began informing the FBI of more and more information on the price fixing scandal it became very clear that a large amount of the upper level executives were involved in the operations and they were definitely out for personal and corporate gains. Leading to the white-collar crimes being committed by several different individuals. Many of the upper management knew of all the different crimes being committed by the different executives. Since Whitacre was informing the police of everything that he could, he began wearing wires to every meeting that he went to prove more and more involvement within the company. There was more and more evidence and theories coming out every day and with the more tapes that Whitacre provided every day the case began to keep piling up against the ADM executives. The FBI finally got the meeting where all the parties agreed to the price fixing on tape and were able to put the case against all the ADM employees that were involved. Once everyone was arrested and the cases started to pile up the ADM employees started to look at people to blame, and they figured out that Mark Whitacre was behind informing the FBI. Since there was a mass abundance of information also piling up against Mark Whitacre as well it was hard to point fingers at Mark as well. Once the ADM employees realized that whitacre was the informant they instantly started building a case against Whitacre showing him embezzling money from the company. The company lawyers started to point fingers directly at Whitacre and the state began to turn their investigation towards Whitacre, which made Whitacre look like a bad informant and that his information was bad. Ethically Whitacre was trying to do the right thing by turning ADM and all the employees in for doing something wrong. Whitacre thought he would get off easily because of all the informing he did for the FBI over time, but with him embezzling money behind the FBIs back over the entire investigation it really did not bode well for Whitacre. Even though all the ADM employees knew they were in the wrong they still made sure to point fingers and get out of as much trouble as they possibly could. Mark’s main goal throughout the whole thing was to be able to keep his job and still be able to provide for his family. Once it came out that he was the informant, his job was out the window and getting caught embezzling ruined his chances of not getting in trouble. Whitacre did ten years in prison for embezzlement, but most of the other executives that got in trouble did a max of three years with a large fine. Whitacre definitely got the bad end of the stick when it came to the ending results of the case, even more so after being a FBI informant for several years. Since pricing fixing is an issue that companies deal with on a daily basis and we will probably never be able to avoid it in the business world, it just takes very ethical people to say no and to back down when presented with the idea. Even though Whitacre tried to do the ethical thing by turning everyone in and exposing the entire operation, it still doesn’t justify that he was embezzling millions of dollars over the course of the investigation. If Whitacre would have come forward in the beginning about the embezzlement, he would have probably be able to cut a deal and get away with it. My personal recommendation to help fix price fixing is to work in more audit trails. Currently ADM is implementing this and it does cause a little more work in the beginning, but it helps prevent embezzlement and price fixing within the company. Having more and larger audit trails allows our audit teams or just regular workers to go back easily and see where everything comes from and where it goes. Invoicing wise, Whitacre was able to take checks directly to clients, which is no longer allowed. Everything must go through a payment system where several individuals have to approve the payment, then the payment is automatically sent once the final person has approved the charge. Audit trails have been a life saver for the company in terms of money, as it also lets us see where improvements cost wise can be done and where we can potentially cut the budget a little bit. Legally and ethically the ADM scandal was a hard thing for Whitacre to go through and it ended badly for several people and the company losing millions of dollars. Whitacre probably should have come forward with a lot more information about was really going on, but he was afraid of getting himself I trouble as well. But looking at the lysine scandal ethically and legally you can see how several different aspect of the law comes into play in the matter, while also a man’s ethical code.

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