Fraud is an act of criminal deception for the purpose of financial or personal gain. Over the last decade, there have been a lot of corporate fiascos and alleged frauds in big companies. Corporate fraud is fulfilled by either employees together with the managers committing fraud with the organization or by premeditated misrepresentation of financial statements. Archer Daniels Midland Co. is one of the largest agribusiness companies in the USA. This company grew rapidly in the mid-1960s due to the diverse products is produced in the market and the profits it generated during that time. ADM has four major product sections: oilseed products, cornstarch products, bioproducts, and other grains. In those years, ADM was one of the most admired American manufacturing plants. However, in 1995, the lysine price-fixing scandal broke. The scandal was termed as a corporate crime with the best documentation in USA history. The following paper is a discussion and analysis of the nature and type of fraud that involved ADM, the parties responsible, the details of the entire investigation, and the outcome that this crime brought.
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Events of the Citric Acid Conspiracy
Archer Daniels Midland Co. success in the early years was credited to Dwayne O. Andreas, the company’s CEO. He was known for his bold key moves in the investment of new ventures. He also cultivated friendships with the main figures in the political scene, a move that saw the company enjoy government contracts and subsidies. In the next three decades, Andreas built an immense network of very powerful business people and government contacts. Under the leadership of Andreas, ADM made aggressive decisions on investment and entered the citric acid business (Hoover, 2009). In order to obtain the production technology, the company bought two aging Pfizer plants. ADM invested heavily in expanding lysine and citric acid plants to the largest feasible scales. Problems occurred in the manufacture of lysine, and ADM hired engineers from their closest competitor, Ajinomoto.
Mark Whiteacre was a former vice-president in ADM and was of the opinion that the company had a culture that fostered price fixing. People working in the agribusiness industry, including the competitors of ADM, were of the view that the firm did business practices that were close to the edge. ADM was sued multiple times about price fixing allegations (Friedrichs, 2009). At one particular occasion, they paid to settle civil suits in charges of conspiring in fixing carbon dioxide, which was a byproduct of one of its fermentation processes.
Citric acid is transported internationally because it sells at very high prices, considering the fact that it can also be stored for a long time. International trade patterns help in evaluating the economic as well as operational impact of the global dimensions of the commodity’s conspiracy (Connor, 2007). Since one cannot control the currency exchange rates because of their unpredictability, price fixing globally is more complicated than domestic conspiracy. The lysine price fixing cartel began fraud by only setting high prices using the U.S. dollar. Later, with much-gained experience, the conspirators set target prices in several national currencies.
Parties Responsible for the Citric Acid Conspiracy
Terrence Wilson, an ADM Corporate Vice President, together with Barry Cox flew to Europe in 1991 to meet with representatives of the three largest manufacturers of citric acid in Europe, i.e., Hoffman-La Roche, Jung-blazer, and Bayer (Lieber, 2002). These meetings were planned by Cox to introduce Wilson to the three top managers. Wilson’s objective was to elaborate ADM’s plans for modernizing the Pfizer’s biggest plant through reducing the costs by vertically integrating ADM’s production of the primary ingredient in the manufacturing process called liquid dextrose with citric acid manufacturing. It was not long until Wilson gained advantage of his new contacts and arranged a sit down with four of the largest citric acid manufacturers in the world.
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Crimes Committed by the Citric Acid Cartel
On 6th March 1991, Wilson and the three other top managers, which had jokingly called themselves the G-4, met in Switzerland to discuss ways in which they could raise prices in the globe (Lieber, 2002). This was the official running of the Citric acid cartel. Cargill was another company with a high manufacture rate of sweeteners obtained from the fermentation of corn, just like ADM. Both companies branched out to sweetener-based chemicals from their corn refining capabilities. The evidence seen before concerning price fixing conspiracy by top Swiss managers shows that the Swiss firms, as well as Pfizer, were both co-conspirators (Connor, 2007). The G-4 would hold their meetings unofficially and in secret. They made sure that no physical evidence remained by destroying all documents to cover up their activities. As a matter of fact, Cox later testified that he got a warning from Wilson that he would be on his own if price-fixing were ever discovered and that his legal expenses would not be paid by ADM.
The secret G-4 meetings became routine events whereby full-scale meetings were arranged every eight weeks. These meetings developed a standard structure. First, they discussed sales report by the Cartel sales, which gave information about growth. They then considered the price levels and choose whether to hike rates or keep them level. Analysis of competitor companies was done, and finally, the group discussed the problems they faced. However, cheating accusations on volume agreements made the team eventually fall apart. The impact the G-4 group had made over the four years was strong enough to affect the raising prices.
For three to four years, the citric acid cartel was operated without detection because its members’ companies were the leading manufacturers of concentrated homogenous-product ownership with many entry barriers in relevant markets. Indirect cooperation of Cargill contributed to helping the cartel sustain monopolistic American prices. The $116 million was the least of the charges imposed on American buyers, which could also rise to $309 million (Connor, 2007). It is also evident that, in spite of business cultures and geographic location, the cartel was still effective.
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Events of the Lysine Conspiracy
Lysine is an amino acid that assists in the formation of lean meat. It was originally sold to the feed manufacturers in America, just like citric acid, as seen before. The people selling lysine established a certain list price depending on truckloads to specified positions. The distance to the location and sizes of the trucks determined how high or low the prices would be. ADM had opened numerous sales offices across America and even sold lysine through brokers operating on commissions in some parts of the world. Heading up ADM’s bio product division, the president of the sprawling corn-products, Terrance Wilson, and a new ADM vice president, Mark Whiteacre, flew to Tokyo, Japan. With a Ph.D. in nutritional biochemistry, Mark Whiteacre was the perfect candidate to handle the technical department of the bio products business. Terry Wilson had a way of fixing world prices, and he was going to teach Mark Whiteacre how to repair the price of lysine.
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The Crimes Committed By the Syndicate
In October 1993, at a meeting in Paris, Sewon Group was accused of aggressively increasing exports to America and even Europe (Friedrichs, 2009). In addition to this, Ajinomoto claims that Sewon group tried to attain 37,000-tone share as opposed to their preferred 34,000-tone allotment (Friedrichs, 2009). Sewon was rebellious and had no plans of sending their monthly volumes of sales to Mi-Moto. All things considered, it was Kyowa and Ajinomoto that held the whole cartel together. When the wife of Mark Whiteacre found out about the cartel and the whole conspiracy, she threatened him to go to the FBI if Mark did not. Mark made a deal with the FBI to work as an undercover informant (Hoover, 2009). He would attend all meetings in Tokyo, Hong Kong, Paris, and the others wearing a wire. During Whiteacre reign as an undercover informant, the FBI collected a number of both audio and video recordings and tapes that documented all the crimes committed by the high-profile managers in fixing prices of food additives.
Details of the FBI Investigation
The majority of FBI agents went to interview the top executives. Terrance Wilson and Vice Chairman Michael Andreas were questioned about their knowledge of the allegations of price fixing citric acid, lysine, and fructose corn syrup in ADM. Both men denied the allegations and their involvement and repeatedly lied about the conspiracy, which is also a federal crime. The FBI agents raided ADM’s corporate headquarters armed with search warrants and subpoenas. They removed many boxes of documents from the offices of Michael Andreas, Terrance Wilson, Barrie Cox, and Mark Whiteacre. The FBI repeated the same exercise in sales offices of nine other mentioned companies. Volume targets of lysine were found in files of Sewon America in New Jersey, Heartland Lysine in Chicago, and Biokyowa in St. Louis. ADM contacted their law firm, DC firm of Akin Gump (Lieber, 2002). They sent lawyers in an attempt to find out the whistleblower. Mark Whiteacre admitted he was the mole and was fired from the company the next month.
The Outcome of the Two Conspiracies
The ADM executives were indicted and charged on federal criminal charges of price-fixing of lysine and citric acid at an international level. Later in 1997, the company was fined $100 million, which was the biggest antitrust fine ever recorded in the USA up to that time (Connor, 2007). The company’s top officials were sentenced to ninety-nine months in federal prison, which at that point was also an antitrust record. The nine-year scandal was closed recently when ADM said they had agreed to pay $400 million to settle a lawsuit on the accusations of price-fixing in the corn sweetener market (Connor, 2007). That money would be distributed to corporate purchasers of high-fructose corn syrup, including some giants like PepsiCo. and the Coca-Cola company.
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Impacts of the Crimes Committed on the Economy and Environment
The lysine conspiracy had major economic effects on prices, international trade, and production levels. Financial estimates of these effects play a major role in legal actions to punish similar cartels. The criminal trial of the three executives released information on lysine prices charged from 1991 to 1995 (Friedrichs, 2009). It has gone to show that, without these legal documents being uncovered, the prices would misbehave up to this time. Internal documents found, which were supposed to be given to the president of ADM’s Biotechnology Division, reveal how various activities profited the company. The calculation of the operating profits for lysine was done monthly. The domestic profit that the firm generated was close to double as compared to that of the other companies.
In the above paper, it is clearly evident that Archer Daniels Midland Co. was at the center of several ongoing price-fixing conspiracies at that time. These conspiracies had huge unexpected legal and economic consequences. The cartels formed operated without detection for almost four years because they were the highest firms in the production of concentrated homogenous-product ownership. In spite of the different business cultures and geographic locations, the cartel was useful. Despite the people having no faith in the FBI at the time, the criminal prosecutions were seen as a significant victory that could restore the Justice Departments for adequate enforcement of fixing prices for the commodity in the international conspiracy context.