The $22.5 Million Co-Pay: 5 Lessons from the Biomet Bribery Case

Open (your wallet) wide and say “Aaah” – late last month, medical device manufacturer Biomet, Inc. paid more than $20 million to settle charges that it bribed doctors around the world to boost sales of its products over an eight-year period.

It’s the latest in a long line of recent settlements over violations of the Foreign Corrupt Practices Act, and it provides several valuable lessons for companies doing business across the globe:

1. An Internal audit should not only detect bribery, but prevent it:

“Even if Internal Audit had pursued the Red Flags to a different resolution, their findings would not have had the desired result of an effective Compliance Program — the prevention of bribes, not the detection of bribes.” (The Biomet SEC Complaint: Lessons for Management on the Prevention of Corruption by Thomas Fox)

2. Know your distributors:

“Biomet’s Brazilian and Chinese subsidiaries were aware that their distributors were paying doctors between 5 and 25 percent of the value of the medical devices in exchange for the purchases. Had the subsidiaries conducted appropriate anti-corruption due diligence on the distributors, they would probably have identified such practices before they started.” (Biomet: Lessons from the Latest FCPA Settlement Involving Latin America by Matteson Ellis)

3. Falsifying records to hide corruption won’t work:

“The SEC Complaint reported that the Company’s Internal Audit was not only aware of the bribery program but discussed it in Memorandum to the Company’s home office, including the head of the Company’s Internal Audit Department… The SEC Complaint also noted that “Biomet’s books and records did not reflect the true nature of those payments [which] were improperly recorded as ‘commissions,’ ‘royalties’, ‘consulting fees’, ‘other sales and marketing’, ‘scientific incentives’, ‘travel’ and ‘entertainment.’” (The Biomet SEC Complaint: Lessons for Internal Audit by Thomas Fox)

4. Violations are costly:

“The deferred prosecution agreement requires Biomet (i) to pay a $17.28 million criminal penalty, (ii) to implement a robust compliance program and internal controls, and (iii) to retain an outside compliance monitor for 18 months. Separately, Biomet agreed to disgorge $5.4 million of profits and interest to resolve parallel civil charges brought by the SEC.” (DOJ Reaches FCPA Settlement With Medical Device Company by BuckleySandler LLP)

5. The Department of Justice is just getting started:

“The number one trend/prediction for 2012 looks like it is coming to fruition – DOJ is back to collecting major criminal fines from corporations. It looks like the Justice Department is off to a fast start.” (Off to the Races in 2012: DOJ’s Fast Start in FCPA Enforcement by Michael Volkov)

See also: DOJ’s Strategies – FCPA and Health Care Fraud (Mintz Levin)

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