Marc Alain Bohn, Miller & ChevalierOrthofix International in January entered into its second Foreign Corrupt Practices Act (FCPA) settlement in less than 5 years, resolving allegations with the U.S. Securities and Exchange Commission that the company’s Brazilian subsidiary made improper payments to doctors at government-owned hospitals in Brazil to increase sales.
Orthofix consented to the entry of two SEC orders instituting cease-and-desist proceedings against the company: a $6.1 million order centered on alleged violations of the FCPA and an $8.25 million order focused on non-bribery-related securities violations.
The FCPA prohibits corruptly providing anything of value to a “foreign official,” including doctors at state-owned hospitals, for the purpose of obtaining or retaining business. It also requires U.S. securities issuers to maintain accurate books and records and implement sufficient internal accounting controls.
Orthofix (Lewisville, Texas) self-disclosed the FCPA issues at its Brazilian subsidiary per the terms of its 2012 deferred prosecution agreement (DPA) with the Department of Justice (DOJ). DOJ and the SEC followed up with new investigations, and DOJ twice extended the DPA term while the investigation was pending. The DOJ ultimately decided to take no further action and allowed the DPA to expire in August 2016. The SEC came to a different conclusion.
The Orthofix case serves as a cautionary tale for companies trying to stay out of trouble and offers clear lessons. For example, there’s the need to standardize or centralize approval of third party commissions and discounts. According to the SEC, Orthofix’s decentralized structure allowed its Brazilian subsidiary to (a) easily evade existing policies and controls to pay high commissions and discounts that funded improper payments; and (b) record these expenses as legitimate.