LYSINE

Product
Commercially introduced in 1960, lysine has expanded into a major biochemical product
market, part of starch industry
An amino acid essential for the growth of muscle tissue in humans and animals
90% of volume of lysine produced in 90s bought by producers of mixed animal feed
Stimulates growth rate and lean muscle development of poultry, swine, fish, etc.
Swine and poultry bred to absorb more lysine has increased demand
Substitutes soymeal, fishmeal, oilseed meals put ceiling on lysine prices
Duration of cartel
1992 until the FBI raids of June 27, 1995
Origins of cartel
ADM committed to enter lysine manufacturing in July 1989, built a huge plant in Decatur,
Illinois, by February 1991, greatly hurting Ajinomotos and Kyowas positions
ADM gave plant tours to Ajinomoto, Kyowa, and Sewon to demonstrate its capacity
These Asian firms had participated in at least three price-fixing conspiracies before 1991
(Connor 168-169).
Major price war 1991-1992, from $1.32/lb to $.68/lb 18 months later, caused by increased
capacity from ADM
ADM supplying 39% of U.S. demand by the end of 1991
Worried about huge sales losses, the three Asian firms agreed to discuss joining ADM in a
cooperative arrangement
April 1992, Mark Whitacre and Terrance Wilson met with Ajinomoto and Kyowa managers,
proposed forming a world lysine association to collect and distribute production and marketshare information
Within a year or two, a lysine association formed that met quarterly for these purposes
Cartel Arrangements
First meeting in June 1992 in Nikko Hotel in Mexico City, reps of ADM, Ajinomoto, and
Kyowa
Two phases of conspiracy: 11/92 3/93 and 10/93 7/95
o Phase 1: agreed on prices but not market shares, raised US prices to $.98 for three
months; price war in spring 93 lowered prices to $.62 by June
o Phase 2: agreements by October on global sales quotas, compromise between M. Andreas
and K. Yamada gave ADM less than its goal of one third of the global market
Monitoring: Kanji Mimoto prepared monthly scorecards for the five cartel members to
track adherence to volume share agreements
Volumes calculated for four regions (N America, Latin America, Europe/Middle East and
Asia/Oceania)
Market Shares by Region

1994 Asian market shares: Ajinomoto, 34%; Sewon, 24%; ADM, 27%; Kyowa, 19%; and
Cheil, 11%
1994 US and Canada: ADM, 40%; Ajinomoto and Kyowa, 25%
1994 Europe, Ajinomoto 45%; Latin America, Kyowa nearly half (207)

US market shares, 1990-1996 (Connor 239)

Ajinomoto Co.
Archer Daniels Midland
Kyowa Hakko
Sewon America
Cheil Jedang

1990
46%
0%
32%
22%
0%

1991
32%
19%
32%
17%
0%

1992
23%
44%
23%
11%
0%

1993
18%
57%
15%
9%
0%

1994
20%
56%
16%
8%
0%

1995
20%
57%
16%
6%
1%

1996
18%
57%
15%
8%
4%

Archer Daniels Midland

Largest publicly traded agribusiness company in the US and second largest in the world
Sales of $12.7 billion in fiscal 1995
Dwayne Andreas CEO 1965-1997, although by 1990 his son Michael Andreas, his appointed
successor before the prison sentence, was effectively acting in that role (Connor 111)
Ajinomoto Co., Inc.
Japans largest manufacturer of foods and seasonings, notably MSG
Sales of $6.4 billion in FY 1998, up 83% since 1990
R&D of 3.3% of sales by late 90s, a high level for a food processing company
Employs about 5,100 people
Six plants worldwidebiggest in France (1974), smaller ones in Iowa (1982), Thailand
(1994), Italy (1993), Brazil (1995), and China (1997)
Oldest plant, in Japan, ceased production in 1995
Kyowa Hakko Kogyu Co., Ltd.
One of worlds leading firms in research in biotechnologies and genetic engineering and in
production of amino acids
Major lines of business pharmaceuticals and agricultural chemicals; also processes foods
and alcoholic beverages
Sales of $3.1 billion in fiscal 1998
Eight manufacturing plants in Japan
Subsidiaries in US, UK, Mexico, Belgium, and Hungary
Plants in Missouri, Mexico, and Hungary
Sewon Company
Second or third largest manufacturer of food and agricultural products in South Korea in 80s
and 90s
Split from Miwon Group in 1994, still loosely tied but traded separately

Renamed Daesang Corporation in 1997, becomes holding company of Miwon and Sewon
One lysine plant, expanded capacity five times between 1990 and 1995, second largest in the
world by 1993
By 1995, Sewon and Miwon deeply in debt (debt/equity ratio of 6.5 in 1997)
Daesang sold the lysine business to BASF for $600 million in March 1998 to reduce debt

Cheil Food and Chemicals Co. (aka Cheil Jedang)

Operating company for the food and agricultural processing businesses of the South Korean
company Samsung until 1993, Koreas largest conglomerate by mid-70s until Hyundai in late
90s
Monopoly in sugar refining until mid-90s
Focused on sugar and other processed foods during 80s
Sales of $1.3 billion in 1992, making it largest Korean food manufacturer
Split from Samsung in 93 and diversified into pharmaceuticals, household chemicals and
fine chemicals
Sales of $2.1 billion by 1997, avg. 10% growth per year since 1992
Sales by segment (1997): 36% sugar, flour, and oils; 31% frozen foods; 17% chemicals; 11%
animal feeds
Entered lysine market in 1989, forming joint venture with Samsung and Indonesias Astra
Group to form PT Cheil Samsung Astra (CSA), built plant in East Java to produce MSG and
lysine
Expanding capacity six times between 1991 and 1999
Cartel Exposed

The DOJ learned of the lysine cartel through an ADM manager, Mark Whitacre
The FBI first questioned Whitacre about an alleged extortion threat against ADM, which
Whitacre had previously fabricated
Whitacre became a mole for the FBI in 1992, providing audio and video tape evidence of
phone calls discussing cartel activities as well as formal meetings among the conspirators
between 1993 and 1995
When ADM discovered Whitacres role as informant, he was fired
It was also soon discovered that Whitacre had been embezzling millions of dollars from
ADM, whereupon his immunity from the DOJ was revoked

Because the information DOJ received came from a single executive as a unilateral rather than
corporate act, and seeing that ADM was clearly the instigator of this cartel, no firm was granted
full immunity under the Corporate Amnesty Program. However, the DOJ was generous to the
three Asian firms in calculating their fines, particularly to Sewon America.
On June 27, 1995, the FBI raided the homes and offices of ADM executives. They received no
help from executive interviews, but they did uncover evidence of the conspiracy such as travel
and telephone records and score sheets tracking expected and actual monthly sales data for the

cartel firms. Other firms with offices in the US were also raided, including Heartland Lysine
Ajinomoto, Sewon America, and Cheil (Connor 354).
Most companies responded to the FBI searches by keeping quiet, issuing brief press releases
denying guilt and hiring a slew of lawyers. Despite having the tapes from Whitacre, the DOJ
needed help from at least one credible participant who was prepared to testify that they knew that
the purpose of their meetings and agreements was illegal market manipulation.
In negotiating for guilty pleas, the DOJ could offer incentives for firms to cooperate:
Offer downward departures from the US Sentencing Guidelines fine range if a firm or
individual cooperated
Offer immunity from prosecution for cooperating witnesses
Extend immunity to other indictable employees
Reduce the number of counts in the indictment
Agree to phrase the dates of the conspiracy in the plea agreement in ways that are favorable
to the guilty parties.
Favorable Treatment of Firms
Relative to their potential liability under the US sentencing guidelines, Ajinomoto, Kyowa and
Sewon received fairly small fines. All three agreed to plead guilty in July 1996. Ajinomoto and
Kyowa received the statutory maximum at the time of $10 million, while Sewon America paid
only $1.25 million. The DOJ cited Sewon Americas ability to pay in setting its fine, even
though its parent company had ample funds. Connor believes the small fine paid by Sewon
suggests it was the first Asian firm to cooperate.
Ajinomoto
Could have been required to pay from $80 to $231 million under the sentencing guidelines
based on US sales (or $1 billion based on global sales)
Statutory fine of $10 million represented 4 to 12 percent of their liability
Only one Ajinomoto manager, Kanji Mimoto, was fined, $75,000, significantly less than the
statutory maximum of $350,000
The largest of the Asian companies, Ajinomoto potentially faced the largest criminal fines
unless it confessed early and was granted amnesty
Kyowa and Sewon blamed Ajinomoto for pressuring them into joining the cartel
Three important witnesses in the trial were senior managers of Ajinomoto: Kanji Mimoto,
Hirozaku Ikeda, and Alain B. Crouy
Kyowa
Could have been required to pay from $45 to $129 million, paid $10 million
Only one officer, Masaru Yamamoto, was made to plead guilty and pay a modest fine
One senior manager, Masaru Yamamoto, played an important role in the trial
Sewon

Could have been required to pay from $32 to $94 million, paid a mere $1.25 million
Only one officer, Jhom Su Kim, was indicted and fined.
Since Sewon was having the most financial difficulties at the time, prosecutors probably
focused pressure on it, considering it most likely to break ranks and cooperate (Connor 357)