FCPA enforcement in the past year left no doubt that Latin America, especially the dynamic economies of countries like Brazil and Mexico, continues to present considerable corruption risks to the companies and businesspeople operating there. Here is a recap of key developments in 2012:
Wal-Mart (Mexico, Brazil): Growing FCPA Awareness. The New York Times reporting on allegations of bribery by Wal-Mart in Mexico (here [1] and here [2]) shook not only the United States but Latin America as well. Before the case broke, many Latin American businesspeople had a vague notion of the FCPA. Now FCPA-compliance conferences are starting to fill up and businesspeople are asking targeted questions. Governments are responding too. It only took the Mexican Federal Government a few days to change course after initially announcing that it did not have jurisdiction over the alleged wrongdoing.
Why is this case such a big one? First and foremost is this awareness. Compliance practitioners understand that awareness can be half the battle when building support for anti-corruption programs. Wal-Mart is a great case study, especially given some of the detail uncovered by the Times. There are multiple other reasons too. FCPAméricas has discussed notable FCPA aspects [3] of the reporting, the specific corruption risks [4] that the case highlights, the reasons [5] the case has received so much attention, what WalMart should have done [6], and how the company can use the investigation as an opportunity to innovate [7] in compliance. These posts have been some of the blog’s most-read.
BizJet (Mexico, Panama): Extraordinary Cooperation. Oklahoma-based BizJet settled [8] FCPA charges with the DOJ for bribing officials in Mexico and Panama to secure contracts. The company agreed to pay $11.8 million in criminal fines and to enter into a three year deferred prosecution agreement (DPA). Tom Fox has discussed [9] how, despite the egregious nature of the corruption that included literally bags of cash carried across the border to Mexico, the company received a fine that was less than a third of the suggested minimal fine in the Sentencing Guidelines. This was due in large part to the company’s extraordinary cooperation, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the DOJ. FCPAméricas also discussed [10] how the settlement documents provide insight into the psychology of corruption. Bribes start small. They quickly get bigger.
Biomet (Brazil, Argentina): Internal Audit’s Compliance Role. The Indiana medical device maker settled [11] with the SEC and DOJ for $22.8 million and entered into a three-year DPA for bribes paid by its subsidiaries, employees, and third parties to publicly owned hospitals to secure business. The company’s subsidiaries were aware that their distributors were paying doctors between 5 and 25 percent of the value of the medical devices in exchange for purchases of their product. The case demonstrates the failure of internal audit to exercise its necessary FCPA compliance function. Things like conducting adequate reviews of documentation to make sure they support commission payments to doctors and reviewing proof that the doctors actually provided the services claimed, and correctly classifying the payments in the company’s books and records. FCPAméricas highlighted other lessons learned [12] from the case.
Orthofix (Mexico): Local Language Essential to Compliance. The Lewisville, Texas-based medical device company paid $7.7 million to settle [13] with the SEC and DOJ and entered into a three-year DPA based on charges that its Mexican subsidiary bribed public doctors there to win business over a seven-year period. The case highlights several important aspects of the FCPA, including the nature of accounting violations (the payments were incorrectly described as “promotional expenses”), improper use of third parties to pay the bribes, improper gift-giving of things like cash, computers, and televisions, and special compliance precautions that companies must take when the majority of their business (in this case 60%) is with the government. Most of all, the case shows the essential nature of local language [14] in FCPA compliance. Codes of conduct must be translated in local languages. Trainings must utilize multiple languages.
Eli Lilly (Brazil): Distributor Risks. The Indianapolis-based pharmaceutical maker paid $29.4 million to settle [15] with the SEC for improper payments in Brazil and other countries. Its Brazilian subsidiary “allowed” one of its pharmaceutical distributors to pay bribes to public officials to win $1.2 million in sales to the Brazilian government. The SEC stated that, when Eli Lilly gave an unusually large discount of 17% and 19% to the distributor, the company failed to apply additional safeguards to ensure that the savings were not being used for bribes. The SEC found that the distributor used approximately 6% of the purchase price (approximately $70,000) to bribe officials. FCPAméricas discussed [16] this case and the not-so-obvious nature of distributor risks under the FCPA.
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com [17].
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