The SEC reached a settlement agreement on recordkeeping and
internal control violations of the Foreign Corrupt Practices Act with a Texas-based
medical device company. As alleged, a subsidiary of Orthofix International N.V.
paid routine bribes referred to as “chocolates” to Mexican officials in order
to obtain lucrative sales contracts with government hospitals.
According to the complaint, Orthofix’s Mexican subsidiary
Promeca S.A. de C.V., bribed officials at Mexico’s government-owned health care
and social services institution Instituto Mexicano del Seguro Social (IMSS). As
alleged, the “chocolates” came in the form of cash, laptop computers,
televisions, and appliances that were provided directly to Mexican government
officials or indirectly through front companies that the officials owned. The
bribery scheme yielded nearly $5 million in illegal profits for the Orthofix
subsidiary, alleged the SEC. Orthofix agreed to pay $5.2 million to settle the
SEC's charges.
“Once bribery has been likened to a box of chocolates, you know
a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer,
chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit.
“Orthofix’s lax oversight allowed its subsidiary to illicitly spend more than
$300,000 to `sweeten’ the deals with Mexican officials.”
According to the SEC complaint, the bribes began in 2003 and
continued until 2010. Initially, stated the charges, Promeca falsely recorded
the bribes as cash advances and falsified its invoices to support the
expenditures. Later, when the bribes got much larger, Promeca allegedly falsely
recorded them as promotional and training costs.
Orthofix did launch an inquiry into these expenses, but according
to the SEC, the parent company did very little to investigate or diminish the
excessive spending. The complaint also stated that prior to the discovery of
the bribery schemes, Orthofix did not have an effective FCPA compliance policy
or FCPA-related training. Although Orthofix disseminated some code of ethics
and anti-bribery training to Promeca, the materials were only in English, and the
SEC stated that it was unlikely that Promeca employees understood them as most
Promeca employees spoke minimal English. Later, upon discovery of the bribe
payments through a Promeca executive, Orthofix immediately self-reported the
matter to the SEC and implemented significant remedial measures. The company
terminated the Promeca executives who orchestrated the bribery scheme.
The proposed settlement is subject to court approval. Orthofix
consented to a final judgment ordering it to pay $4,983,644 in disgorgement and
more than $242,000 in prejudgment interest. The final judgment would
permanently enjoined the company from violating the books and records and
internal controls provisions of the FCPA. Orthofix also agreed to certain
undertakings, including monitoring its FCPA compliance program and reporting
back to the SEC for a two-year period. Orthofix also disclosed in a Form 8-K
filing that it has reached an agreement with the U.S. Department of Justice to
pay a $2.22 million penalty in a related action.