Who Is Archer Daniels Midland?
Archer Daniels Midland Company (ADM) is one of the world's leading processors and distributors of agricultural products for food and animal feed, with additional operations in transportation and storage of such products. Archer Daniels Midland was founded in 1902 and incorporated in 1923. Since then, ADM has made a major impact in American productions. In 1902, the founders George A. Archer and John W. Daniels began a linseed crushing business in Minneapolis, Minnesota. In 1923 the company bought Midland Linseed Products and the Archer Daniels Midland was formed. Archer Daniels Midland is headquartered in Decatur, Illinois, and operates processing and manufacturing facilities across the United States and worldwide. ADM currently operates in more than 140 countries including the Middle East, Europe and Asia.1 With 30,000 employees, the people of Archer Daniels Midland strive to turn crops into renewable resources. The company specializes in converting corn, oilseeds, wheat and cocoa into products for food, animal feed, industrial, and energy uses. ADM also offers a variety of investment opportunities as well as career opportunities within the corporation and manufacturing. According to Archer Daniels Midland’s company website, their vision is “To be the most admired global agribusiness. Creating value. Growing responsibly. Serving vital needs.” With more than 265 processing plants, 400 crop procurement facilities, and the world’s premier crop transportation network, ADM helps connect the harvest to the home in more than 140 countries.1 Archer Daniels Midland made international headlines in the mid-1990s when a lysine price fixing scandal came to light after an FBI raid of ADM headquarters. The crimes are were in violation of Section 1 of the Sherman Antitrust Act. At the center of the scandal was Mark Whitacre, an ADM executive who was a mole for the FBI from 1992-1995. Thanks to a wiretap and a video camera inside of a lamp, Whitacre produced hundreds of audio and video recordings of international price fixing meetings. The lysine price fixing scandal of ADM is the most egregious crime committed by a business in the past 100 years because of the lasting effects the scandal has had on businesses, the impact the price fixing had on each consumer, and the scale and duration of the scandal.
The Beginning of a Scandal The price-fixing scandal in which Archer Daniels Midland participated dealt mainly with lysine. Lysine is one of the essential amino acids. According to ORFFA, being “essential” means that lysine cannot be synthesized by humans or animals. For that reason, lysine has to be supplied into the feed that hogs, fish, cattle, and other livestock eat. This amino acid helps stimulate growth and lean muscle development in the livestock that consumes it2. Towards the end of the 1980’s, three major companies dominated the production of lysine: Ajinomoto of Japan (60% of world sales), Kyowa Hakko of Japan (20% of world sales), and Sewon of South Korea (15% of world sales). At this time, the U.S. imported the majority of its animal-feed lysine from these companies. ADM’s wet-corn milling was a major producer of dextrose, one of the main inputs for producing lysine.3 In 1991, ADM opened up a lysine plant, and by December of that year was producing enough lysine to meet US demand. By 1993, this same plant could produce 30% more than the other largest ten plants in the world together.2 Because ADM could produce lysine domestically and in great quantities, the price of lysine dropped from $1.63 per pound in 1989 to $.60 in 1993. The economic conditions of lysine during the early 1990’s also help facilitate the price fixing scandal. For example, there were only four suppliers of lysine, high U.S. sales concentration, low buyer concentration, perfect product homogeneity, very few substitutes, and huge barriers to entry.2 All of these factors produced the perfect environment for cartels to conspire.
In April of 1992, ADM met with the officials of the two aforementioned Japanese companies to see about creating an “amino acids trade association”. ADM wanted to form this association because the lysine industry is a concentrated industry, meaning one or a small number of firms controls a large percentage of sales. The two officials from ADM were Mark Whitacre and Terrence Wilson. After the association’s first meeting, two other Korean companies joined and the group became a forum for the discussion of prices, levels of production, and sales share allocations.3 At these meetings, Wilson was often heard saying “The competitor is our friend, and the customer is our enemy”, a saying that would become a creed for ADM over the next 3 years of price fixing talks. It was at this time in late 1992 that Whitacre told his wife what was being talked about at these meetings. She convinced Mark to go the FBI the next day and turn himself in. Over the next three years, Whitacre acted as an informant for the FBI by attending these price fixing meetings all over the world and recording what was said via wiretaps and video cameras. By June of 1995, the Department of Justice convened a grand jury to examine evidence of a price-fixing scandal, and on June 27th, the FBI raided ADM’s offices to gain documents and information related to price-fixing. It is estimated the ADM profited hundreds millions of dollars by fixing the world prices of lysine during those three years.

How ADM Affected Business
Following the ADM price fixing scandal, there were three impactful observations that other corporations could take away to be watchful of price fixing. The impact that this case brought to other corporations was eye opening and could be seen around the world as a warning to other companies committing this type of crime. The three things that companies can take away from this is that price fixing can lead to strict penalties and fines, whistleblowers are on the rise, and ways to detect price fixing have innovated and become a large task for federal agencies.
First, the penalties for price fixing are amongst the largest of any corporate scandal a company can commit. Joel I. Klein, Acting Assistant Attorney General in charge of the Antitrust Division, states “This $100 million penalty—the largest ever criminal antitrust fine—should put price fixers around the world on alert, if you engage in criminal collusive behavior, you will pay a high price for your illegal actions.” This quote sums up the warning corporations have been given for price fixing. Price fixing is not taken lightly in court and high fines are common for this type of corporate crime. This is not the first time a company has been fined for price fixing but the AMD scandal is the first to issue this large of fine for price fixing. Yet, companies are still committing these crimes. In September of 2013, an article titled, “GM Suppliers in Japan Guilty in $5 Billion Cartel Case”, Mitsubishi Electric co. plead guilty to price fixing parts and other charges that negatively impacted GMC and Ford motor companies, the penalties included $740 Million in fines and 17 of the 21 executives involved were sentenced to jail time. The penalties for price fixing are substantial and as fines increase the motivation to commit price fixing crimes has decreased. Secondly, whistleblowers have become an up and coming way of reporting crime. The act of whistleblowing is not new, but it wasn’t until the late 1990s that federal laws such as the Whistleblower Protection Act of 1989 were amended. Also, since the ADM case, countless agencies such as the Office of Special Council and the Merit System Protection Board offer protection to those that come out and report against their own companies. Not only does that company get in trouble, but also it helps other companies that are doing business with them back out and protect their own well-being. For example, Michael Cohn, a journalist for Accounting Today writes, “The corporations who were helped by Whitacre’s actions include Coca-Cola, Pepsi, Kellogg’s and Tyson Foods”. These are huge companies that lost millions of dollars because of ADM’s price fixing, so having laws to protect whistleblowers not only offers services to the whistleblower, but releases information to help companies.
Lastly, ways to detect price fixing has been improved and studied to detect the crime as soon as possible. There must be substantial evidence or testimonies related to the price fixing if it is available. But for most cases, it is difficult to find this type of evidence. The US Department of Justice released an article related to help determine price fixing. One of the indicators in the article is looking for trends in price increases or decreases. Tracking a company’s prices is the best way to determine if a company is fixing prices. For example, suspicious behavior such as increasing prices at certain time intervals or patterns gives grounds for potential price fixing. Having investigators hired to look for these trends is becoming more prevalent and finding these trends can help begin the process of discovering price fixing.
The use of strict fines and penalties, increasing willingness of whistleblowers, and improved ways of detecting price fixing are all effects of the ADM scandal. It has helped corporations realize that they can lose substantial revenue and clientele by committing this crime. No other scandal has produced such a deterrent to crime than that of ADM. The impact that price fixing has on corporations is changing the ethical and legal practices of business to offer competitors and consumers a fair competitive market.

Impact on the Consumer One of the largest faults that made the Archer Daniels Midland price fixing scandal the most egregious business crime in the past 100 years was the terrible effects that their crimes had on the everyday individual. As an FBI agent states in the 2009 movie “The Informant” about ADM, “Everyone in this country is a victim of corporate crime by the time they finish breakfast.” ADM carried the slogan “Supermarket to the World” at the time of their scandal. Clearly they showed just how big of an impact that they had on society, and hence their price fixing negatively affected consumers. As stated earlier, lysine is an amino acid that is used in animal feed to help development of pigs and other animals commonly raised for human consumption. Citric acid as well as high fructose corn syrup are found in a very wide range of products from sodas to makeup. These products are all subconsciously purchased and consumed daily by most individuals worldwide. In his 1998 study on ADM, Dr. Ronald Cotterill of the University of Connecticut concluded “100 percent or more of the common overcharge will be passed through to consumers” in price fixing situations.4 He proves this by arguing that when ADM sells citric acid to Coca-Cola for example, they pass on the difference to the consumers to keep their markup the same. It was so subtle because “Only 19 percent of shoppers, for example, know the price of Coca Cola within 5 percent of the actual price.”4 Over time this pass on to the consumer adds up to astounding numbers, as ADM stole over 100 million dollars worldwide. In addition to the wrongdoing done to normal household consumers, the department of justice found that “farmers—paid millions more to buy the lysine additive”5 That is a pretty significant amount considering that the lysine market is $600 million annually.5 Given the amount of farm subsidies the government issues, the higher prices the farmers paid to ADM due to the company’s efforts to eliminate competitors from the market could have resulted in the government providing more farm aid. This connection could hit the average American once again as now ADM could have been taking taxpayer dollars.
During the whole period of the scandal, consumers were stuck paying higher prices for everyday products because of the greediness of the ADM executives. Farmers were forced to pay ADM’s offering price because they eliminated their competition and fixed prices for their gain. Their illegal activity had an impact on arguably every single consumer in America and most consumers worldwide. Their negative effects on consumers is just another reason why they committed the most egregious white collar crime in the history of the United States.

Scale of the Violations
ADM’s lysine price fixing scandal is one of the most prevalent price fixing scandals in our time. The scandal involved 5 international companies dominant in the lysine industry colluding to marginally raise worldwide lysine costs. This scandal resulted in the highest antitrust fines issued at the time, and was estimated to directly cost consumers $150-160 million. The scandal has been called the “best documented corporate crime in American history.”6
In any price fixing situation the cost is received by the consumer. Companies in a controlled market have the ability to fix a price at any level, pushing the increase in cost to the consumer, resulting in personal profit. This process can take an extended period of time, but in the case of ADM and the lysine cartel these decisions would happen immediately. With complete control of the market, any lysine price fixing decisions that were made by the cartel would be implemented on the following day’s prices. (Hammond) While the cost increases were not large, the amount of lysine being dealt was enormous. By the end of the price fixing scandal the estimated cost of the price fixing affecting the end consumers internationally totaled $150-160 million.7
The 5 companies involved were all a part of the international lysine cartel disbanded by the US Dep’t of Justice. The cartel consisted of 2 Japanese companies, 2 South Korean companies, and finally ADM. For 3 years the companies colluded to raise international lysine prices, and did so undetected. However, using information from ADM informant Mark Whitacre the US Department of Justice successfully prosecuted the lysine cartel. This was the first time in over 40 years that the US Department of Justice had prosecuted an international cartel successfully. “The events have spurred the Department of Justice into investigating more than 20 international cartels for criminal price fixing. Since the ADM cases four more cartels have been uncovered and prosecuted.”2 The cartels the US Department of Justice have prosecuted since the ADM case include price fixing in British Airways, DRAM manufacturers (Dell, Gateway, Samsung), and vitamins.8,9
The scale of repercussions ordered for the companies involved were unseen in the past because of the immensity of their price fixing violations. ADM alone was ordered to pay a $100 million antitrust fine for its involvement in the lysine and citric acid price fixing cartel, which at the time was the largest in history.5 Besides the antitrust fine, the lysine cartel paid damages to international buyers of lysine, the amount recovered was roughly $80 million, and the shareholders, $38 million. In regard to the ADM case, the US Department of Justice has acknowledged that “The ADM case has dramatically changed the landscape for corporate antitrust fines.”5 In addition to these fines, three of ADM’s executives were imprisoned for their involvement in the scandal. (Michael Andreas: VC, Terrance Wilson: Division Chief, Mark Whitacre: Division Chief)
ADM was concurrently involved internationally in price fixing for high fructose corn syrup and lysine. This was brought to light after the events of the lysine scandal, and soon after ADM was taken to court by purchasers of high fructose corn syrup. The estimated amount of compensation ADM could have been held responsible for was $4.8 billion. While this case was settled out of court, ADM paid victims a total of $400 million.10

Mark Whitacre and ADM Today In the aftermath of the price fixing scandal, ADM and its employees felt a shock wave move throughout the company. Three of the top ADM executives were sentenced to jail time in 1999. They served two to two and a half years, while Whitacre served nine years as a result of his embezzlement. Companies all around the world that had relations with ADM or ties to the price fixing scheme were eventually implicated.
Some argue that the scandal “proved short-lived,” and that people began to forget about the entire event after a few years.11 This is illustrated by how the market has treated ADM in the years following the scandal. Surprisingly, ADM was able to successfully continue business after everything that had happened. Prior to the discovery of the scandal, ADM shares were trading at $19.90. When the scandal went public, the shares dropped to $7.92. As of today, ADM is stock is priced at $37.55. This is a surprising increase in price of the stock in spite of all that has happened, as many companies simply do not make it through a scandal of the scale that ADM did.
In the years following the scandal, ADM continued to receive penalty fines as a result of their actions. In 2001, they were fined $39.7 million by the European Union relating to the lysine price fixing.11 ADM settled and paid $400 million in a similar federal antitrust suit in which ADM was accused of price fixing their high-fructose corn syrup product in 2004.12 They have recently been subject to an inquiry on corruption in 2011, and are accused of paying large bribes in foreign countries. As of May 2013, ADM has set aside $25 million to cover any of the expected potential fines if they are found guilty of corruption.13
Despite everything that has happened in ADM’s rocky history, they remain today one of the largest agricultural trading companies. They are engaged in activities that would indicate the company is in a very strong financial position, such as a $3.1 billion takeover of an Australian grain company.13 Thus it would seem that the scandal has not such dramatic effects on ADM as one might expect.
Today, Mark Whitacre is currently the Chief Operating Officer and President of Operations at Cypress Systems, Inc. He has also spent time giving lectures on his story at ADM, and how to follow ethical standards in the business world. His lectures encourage students to rise above the moral minimum, and to follow ethical standards when engaging in business activities. We’ve had the chance to listen to Mark Whitacre speak on this topic here at our own college in February.14

Conclusion
In conclusion, we believe that ADM’s violation of Section 1 of the Sherman Antitrust Act is the most egregious violation of law in the past 100 years. The lysine price fixing scandal had enormous impact on business and how they operate. It was the first major antitrust case in 40 years, and opened the door to more use of fines and penalties in new antitrust cases. It also increased the prominence of whistleblowers as a mean to detect violations of law, and improved the detection of price fixing cartels. In addition to business, the scandal had huge repercussions for the everyday consumer, as the inflated price of lysine carried on to the customer. Almost everyone in the US purchased products that were influenced by the lysine price, and farmers had to pay more for their lysine because of ADM. Lastly, the violation was outstandingly bad because of the scale and range of its impact. It was the largest antitrust violation in the US at the time and impacted businesses globally.

Works Cited

1. Archer Daniels Midland Website http://www.adm.com/en-US/company/Pages/default.aspx

2. Connor, John M. Archer Daniels Midland: Price Fixer to the World. May 1998. http://ageconsearch.umn.edu/bitstream/28680/1/sp98-10.pdf.

3. Forden, Sara and David McLaughlin. GM Suppliers in Japan Guilty in $5 Billion Cartel Case. Sep 27 2013 http://www.bloomberg.com/news/2013-09-26/japan-firms-agree-to-pay-740-million-in-auto-parts-prbee.html

4. Cotterill, Ronald. Study on Market Power in the Retail Food Industry. 1998. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.175.9228&rep=rep1&type=pdf

5. Department of Justice. Archer Daniels Midland Co. To Plead Guilty. Oct 15 1996. http://www.justice.gov/atr/public/press_releases/1996/0988.htm

6. Krebs, A.V. Must Reading. 2000. http://www.populist.com/00.16.krebs.html.

7. Wissman, Angela. ADM Execs Nailed on Price-Fixing, May Do Time Government Gets
Watershed Convictions, But Company Still Dominates Lysine Market. Oct 1998. http://pages.uoregon.edu/bruceb/lysine_l.htm. 8. BBC News. BA's price-fix fine reaches £270m. Aug 12007. http://news.bbc.co.uk/2/hi/business/6925397.stm.

9. The Guardian. Vitamin Cartel Fined for Price Fixing. Nov 21 2001. http://www.theguardian.com/money/2001/nov/21/personalfinancenews.europeanunion.

10. Manor, Robert. ADM settles price-fixing charges for $400 million. http://articles.chicagotribune.com/2004-06-19/business/0406190182_1_lysine-and-citric-acid-mark-whitacre-corn-syrup.

11. Kinetz, E. At Archer Daniels, a bitter taste lingers. Mar 23 2002 http://www.nytimes.com/2002/03/23/your-money/23iht-march_ed3_.html

12. Pritchard, C. ADM settles corn syrup suit for $400M. Jun 18 2004. http://www.marketwatch.com/story/adm-settles-corn-syrup-price-fixing-case-for-400m

13. Meyer, G. ADM sets $25m aside for corruption case. May 1 2013 http://www.ft.com/intl/cms/s/0/e2287d82-b29a-11e2-8540-00144feabdc0.html

14. Daily Nebraskan Staff. ADM ‘whistleblower’ Mark Whitacre to speak at CBA’s business ethics luncheon. Feb 11 2013. http://www.dailynebraskan.com/news/article_73fb9706-7409-11e2-84e4-0019bb30f31a.html

Supplemental Sources

Clarkson, Miller, Cross. Business Law Text and Cases, Twelfth Edition.

Hammond, Scott D. Caught in the Act: Inside an International Cartel. Oct 18 2005. http://www.justice.gov/atr/public/speeches/212266.htm. Henkoff, Ronald. Betrayal Together. Feb 3 1997. http://money.cnn.com/magazines/fortune/fortune_archive/1997/02/03/221557/

Smith, Tony. Memory makers hit by price-fixing claims. Feb 27 2004. http://www.theregister.co.uk/2004/02/27/memory_makers_hit_by_pricefixing/.

Whitacre, Mark. ADM http://www.markwhitacre.com/adm.html