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Medical Device Company Settles SEC Charges for Violating FCPA

joseph.moreno@cwt.com's picture
Commentary by Joseph Moreno

A German medical device and services company agreed to pay $231 million to settle charges of violating the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act ("FCPA").

According to the SEC Order, Fresenius Medical Care AG & Co. KGaA ("Fresenius") made approximately $30 million in illegal payments to government officials in Saudi Arabia, Angola, and eight countries in West Africa between 2009 and 2016, and failed to accurately record such payments in its books and records in Turkey, Spain, China, Serbia, Bosnia and Mexico. These illegal payments were purportedly made through multiple schemes, including "sham consulting contracts, falsifying documents, and funneling bribes through a system of third-party intermediaries." Additionally, the SEC claimed that Fresenius failed to implement adequate internal accounting controls, failed to assign adequate compliance resources to the region, was slow to investigate red flags and instructed employees to destroy records of illegal conduct. The SEC also claimed that, in total, Fresenius benefitted by over $135 million as a result of these improper payments, and required it to pay $147 million in disgorgement and prejudgment interest.

In addition, Fresenius entered into a three-year non-prosecution agreement with the DOJ that required payment of an $84.7 million criminal penalty, implementation of enhancements to its anti-bribery compliance program, and the retention of an independent corporate compliance monitor for at least two years.

Commentary

The Fresenius case contains a “greatest hits” collection of the types of improper activities so commonly found in FCPA matters: sham consulting contracts, improper gifts and hospitality, bribes to customs officials, the use of third party distributors to funnel improper commission payments, and the improper use of joint ventures with public officials in exchange for the referral of business, among others.

Being slow to investigate, slow to remediate, and destroying evidence once an internal investigation had begun were all held against the company. Both the SEC and DOJ noted that, despite the self-disclosure, Fresenius’ cooperation was spotty both in its timeliness and thoroughness. As a result, the company did not qualify for a declination under the DOJ’s Corporate Enforcement Policy, but instead was given a 40% reduction under the U.S. Sentencing Guidelines fine range.

All these types of schemes have become commonplace, which means that, while companies are better equipped than in the past to know what to look for, regulators are also less tolerant of them. This applies even more when companies are viewed as having slow-walked their remediation efforts. Companies across industries should be on high alert for these types of transactions in higher-risk global markets and should take quick and decisive action to address them in event that red flags are discovered.

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