NATIONAL AFFAIRS: by Patrick J. ByrneNews Weekly
Foreign takeover bid for Australia's GrainCorp..
ADM'S murky history
, November 23, 2013
If the Australian grain-trading company AWB Ltd’s culpability in the oil-for-wheat scandal — involving kickbacks to the former Iraqi dictatorship of Saddam Hussein — warranted the dismantling in 2008 of Australia’s wheat single-selling desk, then the government should reject U.S. corporation Archer Daniels Midland’s takeover bid for Australia’s GrainCorp, given ADM’s long history of corruption.
Archer Daniels Midland (ADM)’s CEO,
In 1997, a U.S. court imposed a $100 million antitrust corruption fine on ADM, an American global food-processing and commodities-trading corporation, with headquarters in Decatur, Illinois. The fine was the largest of its kind in U.S. history to that time.
Today, ADM is the subject of yet another bribery investigation. It has set aside $54 million in anticipation of reaching a settlement soon with the U.S. Department of Justice (DoJ) and the U.S. Securities and Exchange Commission (SEC).
Corruption, price-fixing, bribes and political patronage are part of a culture and ethos of ADM stretching through its history, as the following examples show. Much of this took place under Dwayne Andreas, who served as ADM’s CEO for 26 years, from 1971 to 1997.
Since 2007, ADM’s CEO has been Patricia A. Woertz, whose annual compensation was estimated at $14.7 million in 2009.
ADM is owned by a complex trust structure, which is dominated by two families. Alone and through joint ventures, it buys ships and sells agricultural commodities in more than 75 countries, and is a top trader of corn, wheat, soya beans and cocoa.
If ADM takes over GrainCorp, it will give ADM a pre-eminent role in Australia’s food-producing sector.
This year, ADM has allocated $54 million in anticipation of reaching a settlement with the U.S. Department of Justice and the U.S. Securities and Exchange Commission over bribery charges.
This sum is to cover potential penalties for violations of the Foreign Corrupt Practices Act (FCPA) of 1977, a law that the U.S. Department of Justice and the Securities and Exchange Commission have in recent years started enforcing aggressively.
In August 2013, it was reported that talks had been underway for at least nine months.
In 2008, ADM initiated its own investigation into whether it made improper payments to foreign officials to secure an advantage in the grain and feed export markets. Subsequently, according to Wall Street analyst Jim Jell, “the company warned this could end in civil penalties and maybe even criminal fines”.
ADM, in its Form 10-Q FCPA disclosure, filed with the U.S. Securities and Exchange Commission on May 7, 2013, declared the following:
“The Company initially disclosed this review to the U.S. Department of Justice, the Securities and Exchange Commission, and certain foreign regulators in March 2009, and has subsequently provided periodic updates to the agencies. The Company engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures.…
“In connection with this review, government agencies could impose civil penalties or criminal fines and/or order that the Company disgorge any profits derived from any contracts involving inappropriate payments.
“Included in selling, general, and administrative expenses for the quarter ended March 31, 2013, was a $25 million provision for the estimate of potential disgorgement, penalties or fines that may be imposed by government agencies pertaining to this matter.…”
The allocation for a possible settlement has since been increased to $54 million.
The U.S.-based international law firm, Alston & Bird LLB, warns in one of its newsletters for clients that the case of ADM could be the tip of the iceberg in the U.S. grain-trading industry.
It says: “Historically, FCPA ‘industry sweeps’ — such as those that targeted the oil and gas and pharmaceutical and medical device industries — have grown from an FCPA investigation into one company that led DoJ and the SEC to explore whether there was a broader industry-wide pattern of wrongdoing.”
James B. Lieber documents the huge 1990s anti-trust case against ADM in his book, Rats in the Grain: The Dirty Tricks and Trials of Archer Daniels Midland, the Supermarket to the World (New York: Basic Books, 2000). Lieber explains that ADM was attempting to fix the price of the $650 million worldwide market in lysine, a soya bean additive containing an amino acid essential for human health.
The 1993 lysine price-fixing investigation was carried out by the U.S. Justice Department. This led to the FBI raid on ADM’s Illinois headquarters in 1995, and the trial that resulted.
Lieber said that ADM was not an easy target — it’s extremely well connected in Washington and it was a leading recipient of federal largesse. Lieber’s book has a 10-page appendix listing politicians who have received financial contributions from ADM.
He says that behind the façade lies a business eager to fix prices with its competitors and employ prostitutes in corporate espionage.
Senior ADM executives were indicted on criminal charges for engaging in price-fixing within the international lysine market. Three of ADM’s top officials, including vice-chairman Michael Andreas — son and once heir-apparent of CEO Dwayne Andreas — were eventually sentenced to federal prison in 1999.
In 1997, the company was fined $100 million, then the largest anti-trust fine in U.S. history.
At the time, Joel Klein was the U.S. Assistant Attorney-General in charge of the Antitrust Division of the U.S. Department of Justice, under the Clinton administration. Since 2010, Klein has been an executive vice-president of News Corporation.
Klein was interviewed at the conclusion of the ADM case. He said:
“This is not simply the largest fine in the history of antitrust enforcement. It is a whole different order of magnitude. This is close to seven times the previous high fine that we have ever achieved. That’s why we think this is a very big and important day for us in the antitrust enforcement field.
“Now, we insisted on this fine for one reason. We thought it was commensurate with the crimes that we had discovered that Archer Daniels Midland committed here, and based on the cooperation that they have pledged to give us.
“Taking those factors into account, we decided that $100 million was the appropriate number. Now let me say what happened was essentially Archer Daniels Midland illegally overcharged its customers millions and millions of dollars by entering agreements with competitors designed to inflate prices.
“In essence, greed, simple greed, replaced any sense of corporate decency or integrity. This is shameful behaviour that goes to the very essence of a competitive, open free market. And we will not tolerate it.”
Using the investigation as an example, Ronald W. Cotterill, of the Food Marketing Policy Center at the University of Connecticut, showed in 1998 that 100 per cent or more of overcharges resulting from price-fixing are passed through to consumers.
A non-fiction white-collar crime thriller, The Informant, by award-winning journalist Kurt Eichenwald (Random House, 2000), documents the 1993 lysine price-fixing conspiracy case. The book was adapted into the 2009 film The Informant!, starring Matt Damon.
In 1974, the FBI investigated the first incriminating evidence of corruption in U.S. grain companies, including ADM and its partners. One investigation was sparked when steamship agents bribed federally-licensed inspectors, who were responsible for certifying the sanitary conditions of grain ships before they were allowed to transport grain.
According to Dan Morgan, in his 1979 book Merchants of Grain: The Power and Profits of the Five Giant Companies at the Center of the World’s Food Supply, this led to a New Orleans grand jury uncovering all kinds of activities “that showed how company employees schemed to misgrade or diminish the quantities of grain destined for foreign countries”.
Morgan continued: “Adnac (a partnership of Archer-Daniels Midland and Garnac), Continental and Ferruzzi’s Mississippi River Grain Elevator Company were indicted in 1975, pleaded no contest, and paid heavy fines.
“By the end of the year, the grand jury had issued a total of thirty-one indictments, covering 265 federal criminal violations against forty-eight individuals; thirty-eight had been convicted, and the rest were awaiting trial" [in 1979, the year Morgan’s book was published].
Morgan described how the grain companies were corruptly operating.
He wrote: “These indictments painted a sordid picture of everyday activities of grain companies at the grass-roots level. While wealthy merchants and traders in well-tailored suits entertained foreign customers at expense account restaurants in Geneva, Paris, and New York, employees of the companies down on the Mississippi River were rigging scales and tampering with inspection samples so they could ship these same customers ‘junk’, or less grain than they had ordered.
“Intricate accounting methods covered up the skimming. In several cases, the companies accounted for the extra grain they accumulated by entering fictitious deliveries by phantom barges….”
The first major controversy involving ADM was the Watergate scandal that led to the resignation of U.S. President Richard Nixon in 1974. A payment by then ADM CEO Dwayne Andreas ended up in the account of a Watergate burglar, leading to the investigation being expanded to include President Nixon.
According to the Los Angeles Times (June 6, 1994):
“A $25,000 [Andreas] campaign contribution in 1972 to Nixon fundraiser Kenneth Dahlberg turned him into what he once described to the Washington Post as an ‘innocent bystander’ in the Watergate scandal.
“That money ended up in the bank account of Watergate burglar Bernard Barker, giving investigators the first link between the Watergate break-in and the Nixon campaign committee.”
According to a 1996 Public Broadcasting Service (PBS) Frontline program — which in part dealt with Dwayne Andreas — this donation “became a focus of [the] Watergate inquiry into abuses surrounding unreported campaign money”.
The program continued: “According to an investigative memo uncovered in 1992 that quotes President Nixon’s personal secretary Rosemary Woods, Andreas delivered $100,000 in $100 bills to the White House shortly before the 1972 election. Woods stored the money in a basement safe for about a year, when the President had her return the cash to Andreas.”
Bovard cites The Washington Post (December 8, 1985), which reported: “Andreas said he was raised in a religious tradition that called for ‘tithing’ 10 percent of personal income to the church”. Furthermore, Andreas reportedly added, “I consider politics to be just like the church.”
Andreas likewise declared in 1990, “I was raised to believe you’re supposed to support your mayor and your Congressman and your politicians…. If a fellow is willing to devote his life to public service, and a fellow like me has more money than I ever dreamed existed in the whole world, wouldn’t I be an ass if I didn’t respond to requests?”
Bovard comments: “One should not be surprised that the ‘public services’ that Andreas rewards are services that subsidize ADM.”
A comprehensive list of ADM’s legal cases can be found at the Crocodyl.org company profile of ADM.
In 2010, ADM may have issued a revised 36-page code of conduct. However, corruption and bribery have long been entrenched in its culture. Only a few months ago, it was reported that ADM was facing new corruption charges under the U.S. Foreign Corrupt Practices Act and from claims against it by the Brazilian and Argentinian governments relating to deductions worth more than US$600 million (AUD$654 million).
These cases brings into question whether GrainCorp has conducted due diligence on the ADM proposed takeover, at least on its reputation, and whether such a takeover could represent an unmanageable risk to one of Australia’s largest food-producing sectors.
Patrick J. Byrne is national vice-president of the National Civic Council and co-author of the book, High and Dry: How Free Trade in Water Will Cripple Australian Agriculture (Melbourne: Freedom Publishing, 2006).
 James B. Lieber, Rats in the Grain: The Dirty Tricks and Trials of Archer Daniels Midland, the Supermarket to the World (New York: Four Walls Eight Windows, 2000; New York: Basic Books, reprint edition, 2002).
 Ronald W. Cotterill, “Estimation of cost pass through to Michigan consumers in the ADM price-fixing case”, University of Connecticut: Food Marketing Policy Center: Research Report No. 39, 1998.
 Dan Morgan, Merchants of Grain: The Power and Profits of the Five Giant Companies at the Center of the World’s Food Supply  (Lincoln, New England: iUniverse, Inc., 2000), pp.316-17.
 James Bovard, Archer Daniels Midland: A Case Study in Corporate Welfare (Cato Institute, Washington DC), Policy Analysis No. 241, September 26, 1995.
 Michael Isikoff, “Andreas: college drop-out to global trader”, Washington Post, December 8, 1985, cited in James Bovard, Archer Daniels Midland: A Case Study in Corporate Welfare (Cato Institute, Washington DC), Policy Analysis No. 241, September 26, 1995.
 “Company profile: Archer Daniels Midland”, Crocodyl: collaborative research on corporations (sponsored by CorpWatch, the Center for Corporate Policy and the Corporate Research Project), June 2, 2010.