The long-awaited Fresenius Medical Care AG & Co. KGaA (FMC) Foreign Corrupt Practices Act (FCPA) enforcement action was recently announced. It involved massive multi-year and multi bribery schemes by the company in multiple countries. According to the Department of Justice (DOJ) Press Release, the company admitted to earning more than $140 million in profits from the corrupt schemes. In spite of this massive amount of corruption the company was able to garner a Non-Prosecution Agreement (NPA).
The company agreed to pay a total criminal penalty of $84,715,273. FMC settled a related FCPA matter with the US Securities and Exchange Commission (SEC) and paid $147 million in disgorgement and prejudgment interest to the SEC, which the DOJ credited in its resolution, bringing the total amount paid by FMC to over $231 million. This series will begin a multipart exploration of the enforcement action. FMC also agreed to a three-year monitorship, which can be reduced, in the sole discretion of the DOJ, to two-years. Today, I introduce the matter with the background.
This FCPA enforcement action should be reviewed by every compliance professional to understand the bribery schemes and where FCPA enforcement is heading. According to Tracy L. Price, Deputy Chief of the SEC Enforcement Division’s FCPA Unit, who was quoted in the SEC Press Release, “By engaging in widespread bribery schemes across multiple countries, the company prioritized profits over compliance in its dealings with foreign government officials.” US Attorney of the District of Massachusetts, Andrew E. Lelling, said in the DOJ Press Release, “Bribery, in all forms, is corrosive and illegal. As today’s announcement makes clear, this Office will continue its long tradition of aggressively investigating companies and individuals who use bribes and kickbacks to gain an unfair and illicit business advantage, or who deliberately turn a blind eye to that conduct.”
Federal Bureau of Investigation (FBI) Assistant Director Robert Johnson, noted in the same Press Release, “This case shows the continued commitment of the FBI and our partners to investigate bribery and corruption worldwide. The FBI’s dedicated International Corruption Squads across the United States will continue to combat foreign corruption that reaches our shores and send a strong message that, no matter how long it takes, we will not wane in our efforts to uphold the law.”
The SEC settled its portion of this matter with a Cease and Desist Order (Order). The SEC Press Release noted that FMC “engaged in illegal activity in Saudi Arabia, Morocco, Angola, Turkey, Spain, China, Serbia, Bosnia, Mexico, and eight countries in the West African region against a backdrop where the company failed to have sufficient internal accounting controls.” The company made illegal payments through a “variety of schemes, including using sham consulting contracts, falsifying documents, and funneling bribes through a system of third-party intermediaries.” Moreover, the company had “known red flags of corruption since the early 2000s.” Finally, in “many instances, senior management actively engaged in corruption schemes and directed employees to destroy records of the misconduct. All told FMC paid nearly $30 million in bribes to government officials and others to procure business.”
As noted, the bribery schemes were many but varied. They included such basic bribery techniques as direct payments to foreign officials and claiming they were made under a consulting agreement; without the foreign official providing any service or even having a sham contract in place. There were fraudulent gifts and payments to publicly employed doctors for travel with no business or educational justification gifts. In one scheme over $1.7 million in paid by customers brokers on behalf of FMC. But there were some new and novel schemes that every compliance practitioner needs to learn and become familiar with.
For instance, according to the DOJ Press Release, in Angola the company government officials shares “in a joint venture in Fresenius’s local subsidiary, specifically, 15 percent to the Angolan military health officer and 15 percent to a publicly employed doctor. A similar scheme was employed in Turkey where Fresenius entered into joint ventures with publicly employed doctors in exchange for those doctors directing business from their public employer to Fresenius clinics in Turkey.” In one instance, “in or around 2006, Fresenius entered into a joint venture with a publicly employed Turkish doctor, who received 35 percent of the joint venture shares (worth approximately $74,000 at the time) at the time it was formed. In 2010, Fresenius purchased the doctor’s shares and never required the doctor to pay for his shares in the joint venture resulting in $356,000 profit to the doctor.”
Another scheme used in Angola was the creation of fraudulent storage contracts with a company owned by the sons of the Angolan military health officer, to “provide warehousing space” in a warehouse where no FMC products were. Going in a different direction (bribery scheme wise) in Saudi Arabia, the company “engaged in a check-cashing scheme where employees were directed to cash checks that had been made payable in their names and return the cash to the general manager of Fresenius’s distributor and agent where he [the agent] then arranged to have the cash delivered to Saudi government doctors and others.” There were also payments to charities which were owned or controlled by government officials. Finally, in several countries in West Africa, bribes were paid through a combination of direct payments, payments through third parties and payments through a third-party distributorship.
In spite of all these schemes and the length of time it went on, FMC not only obtained an NPA but it also received a 40% discount under the FCPA Corporate Enforcement Policy (Policy), from the bottom range of the Sentencing Guidelines. I will review the conduct in which the company engaged during the investigation which allowed it to obtain this discount even though it did not meet the requirements of the Policy for a full declination. All of this information is instructive for the compliance professional.
So, come along for the ride and join me on this exploration of the FMC FCPA enforcement action and what it means for the compliance practitioner.
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© Thomas R. Fox, 2019