The United States Securities and Exchange Commission (SEC) has announced that medical device company Orthofix International (Orthofix) has agreed to pay US$5.2 million to settle SEC charges relating to violations of the Foreign Corrupt Practices Act. The SEC alleged that Orthofix's Mexican subsidiary Promeca bribed officials at Mexico's government-owned health care and social services institution Instituto Mexicano del Seguro Social in the form of cash, laptop computers, televisions and appliances, terming these bribes as "chocolates". Promeca allegedly recorded the bribes as "cash advances" and as "promotional and training costs", and created false invoices to support the expenditures. According to SEC, the bribery, which began in 2003 and continued until 2010, allowed Promeca to earn US$5million in illegal profits. Upon becoming aware of the bribe payments, Orthofix reported the matter to the SEC and undertook "significant remedial measures".
SEC's media release (10 July 2012)
Related news item:
Wall Street Journal: Orthofix to Pay $7.4 Million to Resolve FCPA Probe.(10 July 2012)
(Source: SEC; Wall Street Journal)
According to a new online survey from Deloitte LLP (Deloitte), only one tenth of respondents are concerned about a U.K. Bribery Act (UK Act) enforcement action being brought against their company. 57% of respondents indicated they were not concerned and one third said they did not know. Those surveyed included representatives from the financial services, consumer and industrial products, technology, media and telecom industries. Only one enforcement action has been brought under the UK Act, against a law clerk for taking small bribes in exchange for fixing traffic tickets. Chris Georgiou, a partner in Deloitte’s forensic and dispute services practice, said that much has not been learned regarding the UK Act because of the lack of enforcement actions. About one-fourth of respondents indicated their companies have changed their compliance programs because of the UK Act, while 22% indicated their companies have not changed their compliance program. The remaining respondents indicated they did not know if their compliance programs have changed or the UK Act did not apply. While concerns about the UK Act might be low, the survey indicated that there is heightened concern regarding enforcement actions against individuals, especially in the U.S. More than half of respondents said that the number of enforcement actions brought against executives will increase, while seventy-five percent of respondents to March survey by AlixPartners indicated they had increased their compliance related to the U.S. Foreign Corrupt Practices Act. Additionally, almost half of respondents participating in the Deloitte survey indicated that corruption risk had increased over the past year in emerging markets.
Wall Street Journal: Companies Show Little Concern about UK Bribery Act Enforcement. (25 June 2012)
(Source: Wall Stret Journal)
The United States Department of Justice (DoJ) has announced that health care company GlaxoSmithKline (GSK) has agreed to pay US$3 billion to settle charges relating to its unlawful promotion of "certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices". GSK has pleaded guilty to two counts of introducing misbranded drugs, Paxil and Wellbutrin, into interstate commerce and one count of failing to report safety data about the drug Avandia to the Food and Drug Administration.
Data Systems & Solutions (Data Systems) has agreed to a settlement with the U.S. Department of Justice (DOJ) regarding allegations the company violated the U.S. Foreign Corrupt Practices Act (FCPA). According to court documents, the company bribed high level officials, through subcontractors in the U.S. and abroad, at the Ignalina Nuclear Power Plant, a state-owned power plant in Lithuania, in order to win contracts. According to the DOJ, one incident involved a Data Systems executive paying for the Florida vacation of an Ignalina official. The executive also sent an email to other executives about his feeling nervous about the incident. In another instance, the company purchased a $2,700 Cartier watch for another Ignalina official. The agreement requires Data Systems to pay $8.8 million in criminal penalties, implement an improved compliance program and report to the DOJ regarding its efforts. The DOJ cited the company’s cooperation with the investigation, its firing of those responsible for the payments and its implementation of a more rigorous compliance program. The revamped compliance program includes improved third party due diligence, training, and increased review of most foreign transactions.
Wall Street Journal: Data Systems & Solutions Pays $8.8 Million to Settle FCPA Violations. (18 June 2012)
(Source: Wall Street Journal)
FalconStor Software (FalconStor) has agreed to pay US$5.8 million to settle bribery charges. It was reportedly alleged that FalconStor offered in excess of $300,000 in FalconStor shares stock options, gambling vouchers, gift cards and golf perks to JP Morgan executives to obtain contracts worth US$12.2 million. According to Reuters, the company was also charges with "falsifying records to cover up the bribes", by labelling payments to JP Morgan executives as "employment bonuses" or "compensation to an advisor".
Reuters: FalconStor to pay $5.8 mln to settle bribe charges (27 June 2012)
David Edmonds, former vice president of worldwide customer service for Control Components Inc. (CCI), pleaded guilty last week to violating the Foreign Corrupt Practices Act (FCPA). He admitted to making corrupt payments to a government official in Greece. Edmonds’s sentencing is scheduled for November 19th. He faces up to 15 months in prison. He was accused of participating in a global bribery scheme aimed at winning contracts for CCI. Edmonds is the seventh of the eight CCI employees charged in the bribery conspiracy to plead guilty. In 2009, CCI pleaded guilty to violating the Travel Act, which prohibits commercial bribery, and the FCPA, and paid US$18.2 million in fines. CCI admitted to bribing officers and employees of state- and privately-owned customers in more than 30 countries.
Wall Street Journal: Seventh CCI Exec Pleads Guilty in FCPA Case (15 June 2012)
(Source: Wall Street Journal)
The United States (US) Department of Justice (DoJ) has announced that maintenance and design company Data Systems & Solutions (DSS) has agreed to pay US$8.82 million to settle allegations it breached the Foreign Corrupt Practices Act (FCPA). According to the DoJ, DSS bribed officials at a Lithuanian state-owned power plant, Ignalina Nuclear Power Plant, to obtain contracts to provide services for the plant. Bribes were allegedly routed through a number of US and overseas contractors. In addition to the monetary penalty, DSS is required to report periodically to the DoJ and implement a compliance program and internal controls designed to prevent FCPA violations.
DoJ's media release (18 June 2012)
According to a letter written by two Democratic congressmen, Wal-Mart has expanded their internal bribery investigation into additional countries beyond Mexico. Rep. Henry Waxman and Rep. Elijah Cummings said the company has retained outside counsel to examine the anti-corruption policies and operations in Brazil and China. Additionally, the attorneys recommended further expanding the probe into operations in India and South Africa. The investigation was launched due to allegations that the former CEO of Wal-Mart de Mexico arranged $24 million in bribes to streamline construction projects in Mexico. The letter also criticizes Wal-Mart’s Chief Executive for not handing over relevant documents to the government as well as not allowing Wal-Mart employees to testify in front of the congressional committee investigating the allegations. Through its spokesman, Wal-Mart claims to be fully cooperating with Congress as it looks into the company’s compliance with international corruption law.
CNNMoney: Wal-Mart expands foreign corruption probe (14 June 2012)
While the U.S. government’s enforcement of the Foreign Corrupt Practices Act (FCPA) continues to grow, its recent decision to not prosecute Morgan Stanley for the behavior of a rogue employee offers hope to companies who invest in their compliance program and behave correctly when problems are discovered. Despite the fact that its former employee, Garth Peterson, conspired to bribe a Chinese official in order to obtain business for the company, Morgan Stanley was able to show that it had an effective compliance program in place, convincing the government that the employee acted on his own and contrary to company policy, and avoided prosecution. Peterson had a pre-existing relationship with the chairman of a state owned real estate development arm of a local government office in Shanghai. He used this relationship to gain and expedite business for Morgan Stanley. Peterson and the official were also stealing from Morgan Stanley. When Morgan Stanley discovered Peterson’s conduct the company immediately conducted an intensive nine month investigation with the help of their outside counsel. Morgan Stanley also fired Peterson and voluntarily disclosed their findings to the Department of Justice and the Securities and Exchange Commission. The company went on to notify their shareholders, cooperate with the government’s investigation and further improve its compliance program. This April, the case came to a close when Peterson plead guilty in federal court and agreed to settle the charges filed by the SEC. The government publicly recognized that it chose not to prosecute Morgan Stanly due in part to the robust internal controls the company had in place. The three biggest takeaways from the Morgan Stanley case are:
- Invest in Compliance from Top to Bottom
- Make Sure Your Compliance Program Evolves with New Regulatory Developments and Industry Guidance
- Make Sure the Elements of an Effective Compliance Program are in Place and Working
The Morgan Stanley case proves that the government will credit companies for demonstrating a “consistent, deliberate, and clear” commitment to compliance “with support from the top.”
Law.com: The Big Three FCPA Lessons from the Morgan Stanley Case (14 June 2012)
Security Management: Compliance Program Protects Morgan Stanley in Corruption Probe (27 April 2012)
(Source: Law.com; Security Management)
According to a new survey released by Kroll, compliance professionals have seen investing in compliance increase but continue to be concerned about their companies’ exposure to risk. 95% of respondents stated their company’s vulnerability to bribery risk has remained the same or increased over the past few years. 85% believe this risk will continue to increase or remain the same moving forward. More than 50% of respondents indicated their compliance budgets had increased over the past year and nearly half (49%) stated their compliance departments increased their hiring. Kroll found that most compliance professionals believe that third parties pose the biggest overall risk to their companies, noting that 2011 was the first year in which every FCPA enforcement action involved a third party. While 99% of those responding to the survey stated their company’s code of conduct contained anti-bribery provisions for their employees only 73% had the same provisions for third parties. Kroll also found that the pharmaceutical industry had the most exposure to bribery risk but also found the industry was the most prepared to manage the risk. For example, 100% of respondents in the pharmaceutical industry indicated they screen third parties while only 65% of respondents in other industries screened their third parties.
Wall Street Journal: Kroll Study Finds Concern about Bribery Risk as Investment Increases (6 June 2012)
(Source: Wall Street Journal)
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