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Supermarkup to the World: How food processor ADM got caught in a price-fixing scheme

THE INFORMANT: A TRUE STORY

Kurt Eichenwald, 2000
Broadway Books

RATS IN THE GRAIN: THE DIRTY TRICKS AND TRIALS
OF ARCHER DANIELS MIDLAND, THE SUPERMARKET TO THE WORLD

James B. Lieber,
2000 Four Walls Eight Windows

In 1996, the Decatur-based agribusiness behemoth Archer Daniels Midland acknowledged it had broken the federal Sherman Antitrust Act and paid a $100 million fine. The corporation pleaded guilty to conspiring with its supposed competitors, Ajinomoto, Biokyowa, Sewon and Cheil Jedang, to fix prices and allocate sales of lysine, an amino acid animal feed additive it manufactures.

Two years later, a federal jury in Chicago convicted on the same charge three of the company's top executives: vice chairman Michael "Mick" Andreas, president of corn processing Terrance "Terry" Wilson and president of bioproducts Mark Whitacre. They are now in prison. So ended one of the biggest and most successful antitrust cases ever prosecuted by the U.S. government.

The feds found out about this crime only because they had an executive-level informant inside the company. That story has more twists than a Scott Turow mystery, and, despite the convictions and guilty plea, a more ambiguous ending.

The intricate plot has filled two books so far: The Informant: A True Story by New York Times reporter Kurt Eichenwald and Rats in the Grain: The Dirty Tricks and Trials of Archer Daniels Midland, The Supermarket to the World by Pittsburgh attorney James Lieber. The Informant is the more readable of the two, but has neither a table of contents nor an index. Rats in the Grainoffers more context and criticism, and gives a more thorough description of the executives' trial, but is poorly organized and less well edited. Neither book goes much beyond the plot to tell us what the case means. Did the government nail an evildoer, or let it off easy? Was ADM a rogue corporation, or a typical one?

Plot first. ADM is a food processor. It takes raw crops and turns them into such proto-foodstuffs as high-fructose corn syrup and soybean oil that better-known food manufacturers, including Coke and Gerber, use as ingredients. About 12 years ago, ADM decided to branch out into biotechnology. It would grow microbes in a sterile environment and the microbes would produce salable products - a sort of high-tech farming. "As people in the business liked to say," writes Eichenwald, "the bugs ate dextrose and crapped lysine." Once added to hog feed and chicken feed, lysine caused meat animals to bulk up faster.

To start and run its new lysine plant, the world's largest, ADM hired Mark Whitacre in 1989 as president of its bioproducts division. Whitacre, a 32-year-old Ph.D. in nutritional biochemistry from Cornell University, had his hands full getting the plant to work properly. A virus kept turning up and killing the microbes before they could produce lysine.

But this was not his only problem. In 1990, he invited his vice president, Marty Allison, into his office and excitedly waved a letter. (Eichenwald tells this story, Lieber does not.) The letter came from someone who claimed to be connected to the Nigerian Ministry of Petroleum Resources. The writer claimed he had gained access to millions of dollars that could be freed up with the help of someone like Whitacre. He wrote that he needed from Whitacre some company letterheads, some bogus invoices, a bank account to send the money to - and an "investment" that seemed small compared to the forthcoming riches. Whitacre sent tens of thousands of dollars, and eventually pressed Allison to kick in $20,000 of his own on Whitacre's promise to cover any loss. 

By the time it became obvious that he would never get anything back, Whitacre had been bilked out of more than $200,000. Allison asked for his $20,000, and Whitacre devised a plan to repay him. Whitacre would submit an invoice for $81,250 for nonexistent services to ADM, and ADM would pay the money to a chum of Allison's who would get half, while Whitacre and Allison split the rest. Allison worried their employer might find out. "Marty, I'm the division president," Whitacre replied. "Nobody will question me."

Sure enough, nobody did. Whitacre was emboldened to continue perpetrating his own version of the Nigerian fraud on ADM, submitting a variety of phony invoices and establishing foreign bank accounts under phony corporate names to receive the money. (Whitacre later claimed that it had been ADM corporate policy to pay executives under-the-table bonuses in this way, a claim that both the FBI and Eichenwald found extremely implausible. Lieber is not so sure.)

Whitacre continued to struggle with the virus infecting the lysine factory. As if he didn't have enough to do, in 1992 Michael Andreas assigned him to work with Terry Wilson, ADM's president in charge of corn processing. Wilson knew nothing about lysine, but he had something else to teach Whitacre. Wilson had set up a price-fixing scheme for citric acid, in which several mutually suspicious competitors had managed to agree on the amounts each would sell and the prices each would charge. It was Wilson's job to attend meetings of the world's lysine producers and show Whitacre how the thing was done.

This criminal enterprise might never have come to light had it not been for Whitacre's greed, which remained unslaked by the bogus invoices his employer kept paying. Later in 1992, he concocted a more ambitious illicit money-making scheme based on the problems in his lysine factory. He told Michael Andreas that Kotaro Fujiwara from the competing firm Ajinomoto had called him. Fujiwara supposedly had introduced a deadly contaminant into ADM's new factory, and had offered to tell what it was and how to fight it - if the company would pay $10 million to a certain overseas bank account.

Whitacre seems to have had no sense of when he was overreaching. This time, his own fraud cost him more than the Nigerians' had. Instead of shelling out, company CEO Dwayne Andreas asked the U.S. Central Intelligence Agency to look into the matter. The CIA decided it was really a domestic case and referred it to the Federal Bureau of Investigation, represented in Decatur by Brian Shepard.

Whitacre panicked at this and told an even clumsier lie in hopes of stampeding the company into paying and thus rendering the FBI's services irrelevant. He said that an 'Asian-sounding man" had called his 15-year-old daughter at boarding school and told her that Fujiwara wanted to be paid now or she would be in trouble. Under questioning the story collapsed and the FBI investigation proceeded.

Whitacre seemed oddly nervous on the evening of November 5, 1992, when Shepard came to his home to set up the equipment to record the extortionist's next call. As Shepard left the house, Whitacre followed him to his car. There he explained the real reason - well, one of them - why he was so jumpy. It had nothing to do with Fujiwara's extortion, he said.

"I've been involved in several meetings with our Japanese and Korean competitors, where the sole purpose is to fix prices," he told the astonished agent. "I've been instructed to go by the company." As Shepard struggled to take notes in the dark, Whitacre explained that the FBI was almost certain to stumble over the price-fixing as it looked for the (nonexistent) extortionist.

So he confessed.

Whitacre agreed to be a cooperating witness - CW in FBI jargon - and for the next two and one-half years he taped conversations with Wilson, their boss Mick Andreas and various competitors at meetings from Tokyo to Paris to California. The tapes and associated videos showed top executives in the act of breaking U.S. law.

At the same time, Whitacre continued with his job of getting the lysine plant running, and with his scam of submitting false invoices. In the end, he was reimbursed for at least $9 million. Along the way, he told the FBI enough whoppers that if his cooperation had not given them clear audio and videotapes of ADM officials committing crimes, it might have been difficult to convict them on his testimony alone. Fortunately it wasn't needed.

The FBI raided ADM offices on June 27, 1995. That ended Whitacre's undercover work, but not the story. Vast confusion ensued once everyone learned, first that Whitacre was an informer, and then that he was an embezzler.

Cooperating witnesses are rarely paragons of virtue, but Whitacre may have set some kind of record in triplicity, acting simultaneously as employee, thief and government informant.

Whitacre's exploits are so dramatic and improbable that it's easy to lose sight of ADM's criminal conduct. Was the company properly punished? Even for an outfit that in 2000 made $13 billion in sales and $300 million in profit, a $100 million fine was no slap on the wrist. But after ADM's guilty plea, the U.S. Department of Agriculture treated it differently than other criminal corporations by not debarring it from USDA contracts. 

"Twenty years before," writes Lieber, "ADM had been debarred after it engaged in bid rigging of products for the Food for Peace program.

"Sun-Diamond Growers, a big California fruit and nut growing cooperative convicted in 1996 ... for giving 'improper gifts' to then-agriculture secretary Mike Espy, was debarred. ... At the time of its plea, [ADM] held $83.5 million in annual federal contracts in programs ranging from school lunches, to nutrition for Native Americans, to Food for Peace (where ADM had 31.5 percent of the total business), to grain storage. It was banned from none of them." Eichenwald does not mention this strange leniency.

Anti-corporate populists, including A.V. Krebs of the Agribusiness Examiner, tend to see ADM as an unrepentant criminal enterprise, similar to many food corporations except in being unlucky enough to get caught. They may be correct, but they don't tell the whole story. For decades, even back in the McCarthy era, ADM's chairman Dwayne Andreas had staked out a maverick policy position, promoting peaceful trade with the Communist bloc and making something of a crusade of feeding the world. On these issues, during the Cold War, Andreas made ADM the closest thing we had to a left-wing corporation.

Andreas publicly mocked the idea that there was a "free market" in commodities - just as many liberals and radicals still do. He acted on that belief when he sought and obtained government subsidies for ethanol. Dwayne Andreas and his son Michael spoke three to five times a day, and talked about everything, according to E.J. Kahn Jr.'s 1991 book about the company, Supermarketer to the World: The Story of Dwayne Andreas. It's reasonable to suspect that Dwayne knew his son was making deals with competitors so that ADM could, in Eichenwald's words, "steal hundreds of millions of dollars from its own customers." Yet the FBI appears not to have interviewed him. We don't need an interview to see that ADM's corporate culture encouraged the making of deals that did consumers no favors. Some of the deals were technically legal, as when Dwayne Andreas worked with politicians from Hubert Humphrey to Robert Dole to pass laws favoring his business - such as the high sugar tariffs that enable ADM to sell its high-fructose corn syrup to Coke and Pepsi for more than sugar would cost on an open market. And some of the deals were illegal, as when Michael Andreas conspired with competing firms so that ADM could sell its lysine for higher prices than would have prevailed on the open market.

Both kinds of deals are immoral, and both are ways of making money without producing a better or cheaper product. Perhaps, after all, ADM would have been a better corporate citizen if its leaders had prized free-market competition more than political influence-peddling. 

Harold Henderson is a writer for the Chicago Reader. His most recent piece for this magazine, "Save the planet, make money," appeared in the July/August issue.

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