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Biomet: Charged with Foreign Bribery

Biomet 3I do Brasil26-03-2012. The Securities and Exchange Commission (SEC) today charged Warsaw, Indiana-based medical device company Biomet Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries and agents bribed public doctors in Argentina, Brazil, and China for nearly a decade to win business. Biomet, which primarily sells products used by orthopedic surgeons, agreed to pay more than $22 million to settle the SEC’s charges as well as parallel criminal charges announced by the U.S. Department of Justice today. The charges arise from the SEC and DOJ’s ongoing proactive global investigation into medical device companies bribing publicly-employed physicians.


The SEC alleges that Biomet and its four subsidiaries paid bribes from 2000 to August 2008, and employees and managers at all levels of the parent company and the subsidiaries were involved along with the distributors who sold Biomet’s products. Biomet’s compliance and internal audit functions failed to stop the payments to doctors even after learning about the illegal practices. “Biomet’s misconduct came to light because of the government’s proactive investigation of bribery within the medical device industry,” said Kara Novaco Brockmeyer, Chief of the Enforcement Division’s Foreign Corrupt Practices Act Unit. “A company’s compliance and internal audit should be the first line of defense against corruption, not part of the problem.” According to the SEC’s complaint filed in federal court in Washington D.C., employees of Biomet Argentina SA paid kickbacks as high as 15 to 20 percent of each sale to publicly-employed doctors in Argentina. Phony invoices were used to justify the payments, and the bribes were falsely recorded as “consulting fees” or “commissions” in Biomet’s books and records. Executives and internal auditors at Biomet’s Indiana headquarters were aware of the payments as early as 2000, but failed to stop it.

Biomet3I do Brasil Centro Profissional
The SEC alleges that Biomet’s U.S. subsidiary Biomet International used a distributor to bribe publicly-employed doctors in Brazil by paying them as much as 10 to 20 percent of the value of their medical device purchases. Payments were openly discussed in communications between the distributor, Biomet International employees, and Biomet’s executives and internal auditors in the U.S. For example, a February 2002 internal Biomet memorandum about a limited audit of the distributor’s books stated:


Brazilian Distributor makes payments to surgeons that may be considered as a kickback. These payments are made in cash that allows the surgeon to receive income tax free. …The accounting entry is to increase a prepaid expense account. In the consolidated financials sent to Biomet, these payments were reclassified to expense in the income statement.


According to the SEC’s complaint, two additional subsidiaries – Biomet China and Scandimed AB – sold medical devices through a distributor in China who provided publicly-employed doctors with money and travel in exchange for their purchases of Biomet products. Beginning as early as 2001, the distributor exchanged e-mails with Biomet employees that explicitly described the bribes he was arranging on the company’s behalf. For example, one e-mail stated:


[Doctor] is the department head of [public hospital]. [Doctor] uses about 10 hips and knees a month and it’s on an uptrend, as he told us over dinner a week ago. …Many key surgeons in Shanghai are buddies of his. A kind word on Biomet from him goes a long way for us. Dinner has been set for the evening of the 24th. It will be nice. But dinner aside, I’ve got to send him to Switzerland to visit his daughter.


The SEC alleges that some e-mails described the way that vendors would deliver cash to surgeons upon completion of surgery, and others discussed the amount of payments. The distributor explained in one e-mail that 25 percent in cash would be delivered to a surgeon upon completion of surgery. Biomet sponsored travel for 20 Chinese surgeons in 2007 to Spain, where a substantial part of the trip was devoted to sightseeing and other entertainment.


Biomet consented to the entry of a court order requiring payment of $4,432,998 in disgorgement and $1,142,733 in prejudgment interest. Biomet also is ordered to retain an independent compliance consultant for 18 months to review its FCPA compliance program, and is permanently enjoined from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Biomet agreed to pay a $17.28 million fine to settle the criminal charges.

Sources: SEC; Photos: Biomet 3i do Brasil;

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OECD Bribery Follow-up Report on Switzerland

12.01.2012. OECD recognises Switzerland’s commitment to the fight against foreign bribery and recommends further improvements. The OECD Working Group on Bribery congratulates Switzerland on its first conviction of a company for foreign bribery and recommends that it continue its enforcement efforts. However, the OECD is concerned that there has been only one other conviction, of an individual, for foreign bribery since Switzerland enacted the offence in 2000. The report notes that Switzerland is particularly exposed to the risks of bribery of foreign public officials due to its important financial sector and the large number of multinational enterprises based there.


The OECD Working Group on Bribery has just completed its evaluation of Switzerland’s implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments.


The Working Group recommends that Switzerland:


·    Better equip law enforcement authorities by way of specialised training on the enforcement of corporate criminal liability; 
·    Establish systematic mechanisms allowing for the exclusion of companies convicted of corruption from public procurement and official development assistance contracts;
·    Review its policy concerning small facilitation payments to foreign public officials;
·    Undertake awareness raising on the risks of foreign bribery that is even more targeted towards Swiss SMEs that are active in foreign markets; 
·    Adopt a regulatory framework to protect whistleblowers in the private sector that report in good faith and on reasonable grounds suspected acts of foreign bribery.


The report also highlights positive aspects of Switzerland’s efforts to combat foreign bribery, and notes in particular its proactive policy on the confiscation of the bribe and proceeds of foreign bribery, as well as the restitution of illicit assets that are held in Switzerland. The Working Group congratulates Switzerland for its effort to respond to requests for mutual legal assistance and considers that these efforts provide a significant contribution to enforcement actions against foreign bribery in other jurisdictions. The Group also welcomes the recent introduction of measures to facilitate detection of suspected foreign bribery cases by law enforcement authorities, such as the introduction of a general obligation for most federal officials to report allegations of foreign bribery, as well as a framework to protect federal officials who report in good faith.

The Working Group notes with interest the extension of external auditing requirements to a larger number of categories of legal entities and also notes the efforts to consult and train auditors and accountants on the issue of the detection of fraud associated with bribery. In general, the Group notes that Switzerland has made significant efforts, in partnership with professional associations and civil society, to raise awareness in the business, accounting and auditing sectors. In this regard, the Working Group encourages Switzerland to undertake even more focused awareness raising with SMEs, on internal control mechanisms to prevent the payment of bribes to foreign public officials. In relation to external audit, the Group also recommends that Switzerland require external auditors to report allegations of foreign bribery to competent authorities outside of the company. In addition, the Group considers that, given the importance of the country in the international economy and the number of influential Swiss companies, Switzerland should undertake a regular review of its policy in relation to small facilitation payments.


The report and its recommendations reflect findings of experts from Austria and Hungary and were adopted by the Working Group on Bribery. Switzerland will submit a written report on the implementation of all recommendations within two years. The Phase 3 report is based on legislation and other materials provided by Switzerland, as well as the information obtained by the evaluation team during the three-day on-site visit to Bern from 28 to 30 June 2011, during which the evaluation team met representatives from the federal and cantonal administrations, the private sector and civil society.

Source: OECD Anti-Corruption Division

References

OECD (2011): Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Switzerland. Working Group on Bribery. December. Paris, published January 12, 2012.

 

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