founder of Matteson Ellis Law. “Based on
the complaint, information was commu-
nicated to executives, and they weren’t
exercising the oversight role they should
have been exercising to ensure that this
Even in high-risk countries, there’s
nothing wrong in theory with paying
doctors for expert consulting services,
Ellis says. But if that were the case,
Biomet should have had contracts with
doctors clearly spelling out and justify-
ing the level of compensation doctors
received and should have kept accurate
records of the consulting that occurred
and what value it provided the company.
the problem from an FCPA standpoint.”
The SEC may have come down hard
on Biomet’s auditors, but the company
also lacked basic preventive controls.
Traditional internal controls have been
based upon detection, says Henry Mixon,
an FCPA consultant. It’s a concept rooted
in the Sarbanes-Oxley Act and a focus of
financial reporting controls.
“It’s good for financial reporting, but
it’s not what you need to prevent brib-
ery,” Mixon says. “There should be eyes
on [high-risk transactions] before the
money is spent.”
In the case of Biomet, it should have
been pretty clear that the surgeons were
high-risk contacts from an FCPA stand-
point, Mixon says, and in the medical
device industry in particular, it’s not dif-
ficult to analyze historical practices and
figure out where the risks are.
“As a former auditor, I certainly
agree from what I read that different
things could have been done to get to the
substance of the transactions, but even
if Biomet had done all of that, they still
would have only detected something,”
Mixon says. “They still would have
faced a three-year investigation; they
still would have had all the problems.
The accounting would have been a little better, but that wouldn’t have solved
Biomet’s is the third FCPA settlement in
the medical device industry, following
Johnson & Johnson in April 2011 and
Smith & Nephew in February. Medtronic
Inc., Stryker Corp., Zimmer Holdings
Inc. and Wright Medical have also disclosed FCPA investigations.
Johnson & Johnson’s $77 million settlement and Smith & Nephew’s
$22 million settlement also both
stemmed from payments the companies
made to public-sector doctors considered
“government officials” for FCPA purposes.
“The government is interpreting
the Foreign Corrupt Practices Act very
broadly in terms of what constitutes a
foreign official and what constitutes a
payment,” says Thaddeus McBride, a
partner in Sheppard Mullin’s interna-
tional trade group. “It’s also another
example of the government conducting
one of these industrywide investigations.”
Industrywide sweeps are one exam-
ple of the government’s aggressive
enforcement of FCPA violations, McBride
says. In one fell swoop and accumulat-
ing industry knowledge all along the
way, enforcers are able to investigate
numerous companies they think may
be engaged in similar practices because
they’re in the same industry.
The Biome T case is an example of compliance failures a T The lowest and highest levels, which is reflected in the unfolding story of potential
foreign corrupt practices act (fcpa) violations among wal-mart’s mexican unit.
alleged to have paid $24 million in bribes to expand its latin american business,
wal-mart said in april that it’s cooperating with an ongoing investigation.
“The connections between what appears to have happened with wal-mart
[in mexico] and what happened with Biomet are very interesting because they
both involve two breakdowns, one on the ground—the low-level management
side where the sales are taking place—and the other with senior management
just not doing what they should have been doing,” says matteson ellis, an international anti-corruption attorney.
in both cases, it appears that executives or high-level employees knew about
the payments. wal-mart ceo mike duke and former ceo lee scott are alleged
to have been aware of the latin america situation.
when there’s evidence that executives had knowledge of payments and
either turned a blind eye or did nothing to stop it, the seriousness of the violation increases multifold, says michael weinstein, chair of the white collar practice
at cole, schotz, meisel, forman & leonard and a former department of Justice
“sometimes it’s three strikes and you’re out,” weinstein says. “The government is not pleased when a company finds out about payments, executives are
involved, and they do nothing to stop it and nothing to reveal it to the government. Those are not good facts for either of these companies.”