Long before Enron, WorldCom and their ilk became synonymous in the public's mind with corporate crime, corruption and the fleecing of stockholders and investors, giant corporate agribusiness cartels were ripping off consumers with nary a murmur of outrage from the victims.
In fairness to the consumer, though, it can be said that their silence was due in large measure to the fact that the corporate media, in assuming its role as a defender of the corporate state, was all but silent when it came to the exposure and prosecution of such cartels.
As an example, in his authoritative book, Rats in the Grain: The Dirty Tricks and Trials of Archer Daniels Midland, author/lawyer James Lieber relates "in a tabloid culture, trials of gruesome crimes generate the most news [and] become diverting gladiatorial spectacles ... but bloodless white collar trials say more about how the world works ... This is not a view shared by most in the media ... my agent approached Court TV about the possibility of my covering the [ADM] trial while I wrote the book. She was told that the case was 'not slutty enough' for the cable audience."
Yet despite this apparent prurience on the consuming public's part it is still a sad commentary that when such cartels that deal with the everyday necessities of life -- food and medicine -- as opposed to stock options and junk bonds -- we don't see greater public outrage and demands that these price fixing cartels be more vigorously prosecuted by those government agencies designed to protect the public trust and our pocketbooks.
It was this subject, the milestones in international price-fixing cartels, US and European Union enforcement trends, successful anticartel techniques, how the law can deter such cartels in the future and suggested remedies that John M. Connor, the distinguished professor of agricultural economics at Purdue University and long-time champion of greater corporate accountability in agribusiness, addressed in a recent paper, "The Globalization of Corporate Crime: Food and Agricultural Cartels of the 1990s."
Professor Connor reminds us at the outset that since 1997 some 85% of all fines for price fixing have been imposed on food and agriculture cartels. "Affected commerce" (sales by members of a price-fixing conspiracy) of global cartels discovered since 1996 is a startling $76 billion, of which $20 billion (26%) were in the US. Currently, there are 35 federal grand juries investigating alleged international price fixing.
It was Connor earlier who estimated that farmers buying lysine from ADM and its co-conspirators between 1992 and 1995 paid prices elevated due to the conspiracy in the range of $150 million to $160 million. While ADM and its co-conspirators early on offered to settle for $45 million, which implied a $15 million overcharge, Connor estimates the actual overcharge was ten times higher, despite the fact that the government only fined ADM $100 million.
Connor in his recent paper quotes Marion Monti, EU's competition commissioner, when he points out that price fixing bears all the hallmarks of a contagious disease, for it is a "cancer" on free markets as once one conspiracy has generated profits, it spreads from one division of a company to another and from one company to its industry's rivals.
When the 7th Circuit US Court of Appeals affirmed the convictions of Michael D. Andreas and Terrance Wilson, two former ADM executives who were at the time serving two-year prison terms, it noted that "the facts involved in this case reflect an inexplicable lack of business ethics and an atmosphere of general lawlessness that infected the very heart of one of America's leading corporate citizens.
"Top executives at ADM and its Asian co-conspirators throughout the early 1990s spied on each other, fabricated aliases and front organizations to hide their activities, hired prostitutes to gather information from competitors, lied, cheated, embezzled, extorted and obstructed justice," said the opinion by Judges Michael S. Kanne, Ilana Diamond Rovner and Terence T. Evans.
At the outset of their decision the appeals court duly noted that "for many years, ADM's philosophy of customer relations could be summed up by a quote from former ADM President James Randall: 'Our competitors are our friends. Our customers are the enemy.' This motto animated the company's business dealings and ultimately led to blatant violations of US antitrust law."
The decision also noted that "ADM, the self-professed 'supermarket to the world,' is a behemoth in its industry with global sales of $14 billion in 1999 and 23,000 employees. ... The Andreas family has long controlled ADM. ... Michael D. Andreas, commonly called 'Mick,' was vice chairman of the board of directors and executive vice president of sales and marketing ...
"ADM's market power gave Andreas the ability to coerce the other cartel members into submission, and the evidence is clear that he used that power to lead the conspiracy," the court said. It also said the fact that his power was not absolute "does not negate the conclusion that Andreas was the ultimate leader of the price-fixing cabal."
The Connor paper goes on to show that international price-fixing cartels are not new, flourishing during the 1920-1940 period; however, scores of them were successfully prosecuted by the US Department of Justice in the late 1940s. After 1950, the DOJ routinely filed 20-60 price-fixing cases per year, but until the lysine feed additive convictions of 1996, only three or four international cartels were prosecuted and the DOJ lost all those cases.
During 1988-1992, Connor adds, "more than 20 global cartels were formed by manufacturers from Europe, Asia and North America -- mostly in food/feed ingredients industries. Truly different from the earlier international cartels: global price-setting, non European members, scale of operations, and durability."
Readers of this column are already familiar with the circumstances that led the Department of Justice to learn about lysine price fixing in November 1992 when ADM corporate executive Mark Whitacre became an undercover informant and whistle-blower with tapes and videos documenting the price fixing activities of his company. His activities ended in June 1995 with FBI raids on ADM headquarters and four Japanese and Korean company co-conspirators.
Corporate convictions ended in October 1996 with the then-record-setting $100 million fine imposed on ADM with the four co-conspirators paying $23 million more in addition to 1996 personal convictions of three Asian executives who pled guilty and paid small fines and the 1998 convictions of three ADM executives who were found guilty at trial and paid $1,050,000 in fines and were given 99 months in prison.
The record fine for price fixing prior to 1993 was $2 million. In 1999 pharmaceutical giant Hoffman-LaRoche paid a $500-million fine to the US government. The first foreigner ever convicted for US price fixing was in 1993, Connor notes, whereas today "executives from 12 nations have been convicted, and several of them in residence abroad traveled to the US to be imprisoned." Before 1990, prison sentences of more than 30 days were rare; in 2001 the average US prison sentence was 15 months.
Between 1996 and 2002 five global cartels have had corporate fines totaling $2.89 billion imposed on them jointly by the US, the EC and Canada. They are (M=millions):
• Lysine (US $92.5M, EC $97.9M, Canada $11.5M)
• Citric Acid (US $110.4M, EC $120.4M, Canada $7.9M)
• Vitamins (US $906.5M, EC $756.9M, Canada $64M)
• Sodium Gluconate (US $32.5M, EC $51.2M, Canada $1.6M)
• Graphite Electrodes (US $436.0M, EC $182.0M, Canada $15.5M).
A.V. Krebs operates the Corporate Agribusiness Research Project, PO Box 2201, Everett, WA 98203; email avkrebs@earthlink.net; see website www.ea1.com/CARP/