Private International Cartels

John M. Connor

Purdue University
West Lafayette, Indiana

jconnor@purdue.edu

April 2003
 OBJECTIVES
• Analyze economic dimensions of recently discovered
private international cartels
• Types and structures
• Durability
• Affected commerce
• Economic harm caused

• Evaluate the deterrence power of public and private

sanctions on cartels
• Fines in U.S., Canada, and EU
• Treble damages
• Optimal deterrence
 DATA SET
• 100 private cartels with participants (corporate or
individual) from at least two countries
• “Discovered” since 1990: investigation is public,
indictments handed down, or fines imposed. (1990 is the
first year that present Sherman Act sanctions operated).
• As of March 2003, 78 were fully or partially prosecuted;
investigations public on 22 others.
• Approximately 35 secret investigations of international
cartels ongoing in the United States.
 Product Characteristics
• 50% organic chemicals
• 42% food, feed, or agricultural uses } high overlap

• 33% other manufacturers (Mostly Metal and metallic, plastics,

graphite products)
• 17% construction, transport, finance, other services

• Food-and-agricultural accounted for 80%+ of sales of cartels

discovered before 2000
• Since 1999, large majority discovered in nonfood industries
 Geographic Characteristics
• 43% “global” operated in two or more continents, most of
them in North America, Europe, and Asia (51% of
affected sales)
• 33% intra-European Union, multiple Member States
(44% of sales)
• 23% other regions or single countries: U.S., Canada, UK
(5% of sales)
 Structural Characteristics
• In cartelized markets, top 4 or 5 producers supplied
more than 80%
• Cartels typically controlled more than 90% of supply, but
broke down when control dropped below 65%
• On average 5.6 corporate participants per cartel
• 56% had 4 or less
• 22% had 7 or more

• Homogeneous products virtually universal

 Average Durability (months)
Discovered

1990-1995 1996-1999 2000-2003

Organic chemicals 82 85 65
Other manufacturers 61 76 77
Services -- 61 73

Global -- 85 70
Regional Eu 59 71 73
Other regional 64 73 32

All types 60 79 65
 Affected Sales
Million dollars
• Sales by type:
Organic chemicals (36) 101,736
Other manufacturers (16) 115,570
Services (6) 8,250

Global (30) 109,410

Regional EU (13) 86,814
Other Regional (14) _13,846

All types (57) 210,045

• Sales unavailable for 43 cartels

• Average cartel affects $3.7 billion in commerce, global the
largest, other regional the smallest
• Approximately 30% in North America, 35% in EU, 35% rest of
world
 Average Percentage Overcharges
• By type:
Organic chemicals 25%
Other industries 35%
All industries 28%*

• Available for 31 cartels, from a variety of sources: published

economic analyses, statements of public prosecution, and
court or EC decisions.
• Even allowing for some upward bias, these overcharges are
well above the 10% assumed for U.S. Sentencing
Guidelines and 10%-of-sales maximum EU fine.
• Excludes the 1900-3000% overcharge in Mylar
Laboratories
 U.S. Prosecution of International
Cartels, 1990-2003
• 33 cases from Aluminum Phosphide (1993) to Magnetic
Iron Oxide (2003)
• 97 companies fined, 42 more indicted (65% non-U.S.)
• 61 executives fined in 64% of cases, 39 fugitives indicted
• Of the 61 fined, 30 given prison sentences in 36% of
cases averaging 11.1 months
• Contrary to DOJ statements, there is no upward trend in
length of prison sentences
• Total individual fines $24.4 million, but median only
$50,000. Four fines above $350,000, one litigated
(Taubman)
 Canadian Prosecutions of
International Cartels

• 15 cases prosecuted 1991-2003, 11 following

U.S. actions
• 62 corporations fined U.S. $125 million total
• 4 individuals fined U.S. $600,000 total
• First Canadian prosecutions lag U.S. convictions
by an average of 8 months
• Corporate fines about 6% level of U.S. fines
 EU Prosecutions of International
Cartels, 1990-2003
• Prosecuted 34 cases, of which 14 were global cartels
• 396 corporations were fined (or given amnesty)*
• 19% of sanctioned corporations from outside EU (30%
excluding Euro-Zone Banks)
• EU decisions lag U.S. prosecutions by 30 months
• Decisions take average 28 months after raids
• EU fines about 85% size of comparable U.S. fines

* Includes 149 banks in the Euro-Zone case

 Many Repeat Offenders in 100
Cartels
Top 10 # of Intl. Cartels*

Hoffman-LaRoche 13
BASF 12
Aventis/Hoechst/Rhone-Poulenc 10
Akzo Nobel 8
Mitsubishi 7
Elf Atofina 6
Archer Daniels Midland 5
Bayer 5
Takeda Chemical 5
Degussa-Huels 5

*Includes targets of announced ongoing investigations

 Deterrence of Global Cartels
• Optimal deterrence occurs if at point of cartel formation:
• Affected by probability of discovery (10% to 33%)
• Affected by probability of conviction (50% to 90%)
• Considering U.S. fine discount policy, U.S. fines are expected to be
127. to 64% of πus
• EU fines are in range 20% to 70% of πeu
• Rest-of-World fines are virtually 0% of πother
• Total effective cartel π are 25% from U.S., 30% EU, 45% elsewhere
• Treble-damage suits (U.S. and Canada) add 60% to 200% of π us
• To be conservative, ignore Net Present Value and Statute of
Limitations
• Bottom Line: optimal deterrence is from 5 x π to 55 x π
• No international price fixer has paid 5 x π ex post
 The Cost of Collusion: The Lysine
Case
$Million
1990-1991 Price War due to ADM entry* 9.2
1993 Price War, ADM disciplinary move 5.5
1992-95 Direct management costs 1.0

Total costs $15.7

As a % of monopoly profits a trivial 4-5%

* Somewhat doubtful
 International Cartel Fines Collected by the U.S.
Department of Justice, 1996-1999 Calendar
Years
1200 1134.7

1000 Other
Cartels
millions of dollars

800

Vitamins
600

400
Vitamins
236.2 203.2
200 118.7
92.5 53.5 35.4
0 Citric
Acid
1996 1997a 1998 1999 2000 2001 2002
Lysine
Proportion of Corporate defendants in U.S.
Criminal Cartel Cases that were Foreign, 1987-
1999
80
70
60
Percent Foreign

50
40
30
20
10
0
7
88
89
90
91
92
93
94
95
96
97
98
99
00
01
8
19

19
19
19
19
19
19
19
19
19
20
20
19

19
19
Five Global Cartels with Corporate Fines Imposed
by U.S., EC, and Canada, 1996-2002

Cartel EC U.S.
Canada
Million U.S. dollars
Lysine 92.5 97.9 11.5
Citric Acid 110.4 120.4 7.9
Vitamins 906.5 756.9 64.0
Sodium gluconate 32.5 51.2 1.6
Graphite electrodes 436.0 172.0 15.5
Total 1,577.9 1,213.3 100.5

Sources: Posner (2001), Shepherd (1985), Connor (2001), DOJ (2002).

Note: These are the only five global cases for which all three jurisdictions had taken actions
by mid-2002. The list of overlapping cases ought to double or triple by 2004.
Potential and Actual U.S. Sanctions Applied to the
Lysine Conspirators 1996

Corporate Fines Individual Sanctions

Maximum under
Company Numberb Prison Time Fines
Guidelinesa
Name
20% Twice
Sales the Actual Max. Actual Max. Actual Max. Actual
Rule Harm
Million dollars Months Thousand dollars
ADM 54-108 156 70 8 3 288 78 2,800 700
Ajinomoto 80-160 231 10c 14 2 504 0 4,900 75
Kyowa 45-90 129 10c 5 1 180 0 1,750 75
Sewon 32-65 94 1.25c 7 1 252 0 2,450 50
Chcil 15-30 43 1.25 6 0 216 0 2,100 0
Total 225-448 559 92.5 40 7 1,440 78 14,000 900
Proportion of Global Treble Damages
Recovered by Plaintiffs or Government
Fines
$20.1 billion
6%
8%

6%
8%
86%

86%

Vitamins
Proportion of U.S. Treble Damages
Recovered by Plaintiffs or U.S. Fines

$3.5 billion

28% 28%

28%
17%
27%
28%
17%
27%

Vitamins
Does Crime pay? ADM and the Lysine Cartel,
1992-1995

Actual Maximum
Income Statement
Liability Legal Liability
Million dollars c
United States:
Revenues (Monopoly Profits) 80 80
Costs:
U.S. Government criminal fines 70 160
Federal civil settelments 45 240
Suits by attorneys general 0 120
State-level indirect buyers unitsa 15 30
Legal Services 20 20
Total U.S. financial costs 150 530
Net U.S. revenues from price fixing -70 -490
Rest of the World:
Revenuesb 100 100
Costs:
European Union fines 45 1,200
Canadian government fines 8 10
Canadian Civil suits 10E 25E
Other national agencies 10E 25E
Total non-U.S. financial costs 73 1,260
Net non-U.S. revenues from price fixing 27 -1,120
Global net revenues -43 -1,610
Costs of Collusion: 3 Examples of Overcharges
• All three cartels caused substantial economic injury to buyers. The
direct global overcharges due to collusion were:

Lysine $330 million (20% sales)

Citric Acid $690 million (17% sales)
12 Bulk Vitamins $6,710 million (25% sales)
(Vitamins range was 4% to 33%)

I believe there are exceptionally precise estimates.

• North American Buyers bore about one-third of the global amounts,

Europe one-third, Asia one-third
Two Examples of the U.S. Department of Justice´s
Leniency Program for Corporate Price Fixers

Normal Leniency Actual Fines Paid

U.S.
Proportion Discount
Sentencing Proportion
CASE: Company of from
Guidelines´s Amount Amount of Affected
Affected Guideline
Fine Range Sales
Sales s
Vitaminsa: Million Dollars Percent $ million Percent
First to plea (Rhône-Poulenc) 120-240E 120-240E 0 0 0 100
Second to plea (Roche) 1312-2624 360-900 10-25 500 14 62-81
Second to plea (BASF) 409-818 160-420 10-25 225 14 45-72
Third to plea (Daiichi) 80-180E 25-40 25-35 25 24 69-86
Fourth to plea (Eisai) 150-320E 55+ 30+ 40 22 73-88

Graphite Electrodesb:
First to plea (Carbide/Graphite) 90-250E 0 0 0 0 100
Second to plea (Showa Denko) 65-135 32-82 10-25 325 10 50-76
Third to plea (UCAR Intl.) 125-275E 175-250 25-35 110 15-18 12-60
Last to plea (SGL Carbon) 100-240E 150+ 30+ 135 24-28 0-44
Linkages
Roche & BASF:
January 1990 Roche & BASF
Vitamins A&E
executives
Mid 1990 Andreas Hauri
Kuno Sommer Rhône-Poulenc, Eisai,
January 1991 Takeda, Daiichi, etc:
Terry Wilson Vitamins B1, B2, B5, B6, C
etc.
March 1991 Barrie Cox

Roche, ADM, Bayer,

Summer 1991 Jungbunzlauer: Citric Acid

Terry Wilson
April 1992 Mark Whitacre

ADM,
Ajinomoto,
June 1992
Kyowa Hakko:
Lysine

Ajinomoto &
July 1992 Kyowa Managers

Sewon and Cheil

Late 1992 Join: Lysine