The recent article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement” highlights that part of the DOJ’s rhetoric surrounding such alternative resolution vehicles is that such agreements “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe” and that “the result has been, unequivocally, far greater accountability for corporate wrongdoing — and a sea change in corporate compliance efforts.”
However, as highlighted in the article the DOJ’s policy justification for NPAs and DPAs rings hollow as there is no data to suggest that resolving alleged instances of corporate criminal liability through NPAs or DPAs achieves any meaningful deterrence.
As further highlighted in the article through reference to specific companies, despite the DOJ’s statement that companies resolving enforcement actions through NPAs or DPAs have “undergone dramatic changes,” several companies that resolved FCPA enforcement actions through alternative resolution vehicles have subsequently resolved additional FCPA enforcement actions or become the subject of additional FCPA scrutiny.
Recent posts here and here have chronicled how Biomet (a company that resolved a prior FCPA enforcement via a DPA) is soon to join the inauspicious “FCPA Repeat Offender” club and this post highlights how Orthofix International (another company that resolved a prior FCPA enforcement action via a DPA) is also poised to join the club.
In this recent quarterly filing, Orthofix provide a nice summary of the relevant background and discloses:
“In 2012, the Company entered into definitive agreements with the U.S. Department of Justice (the “DOJ”) and the SEC agreeing to settle a self-initiated and self-reported internal investigation of our Mexican subsidiary, Promeca S.A. de C.V. (“Promeca”), regarding non-compliance by Promeca with the U.S. Foreign Corrupt Practices Act (the “FCPA”). As part of the settlement, we entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ and a consent to final judgment (the “Consent”) with the SEC. Under the DPA, the DOJ agreed not to pursue any criminal charges against us in connection with the Promeca matter if we complied with the terms of the DPA. The DPA took note of our self-reporting of this matter to the DOJ and the SEC, and of remedial measures, including the implementation of an enhanced compliance program, previously undertaken by us. The DPA and the Consent collectively required, among other things, that with respect to anti-bribery compliance matters we would continue to cooperate fully with the government in any future matters related to corrupt payments, false books and records or inadequate internal controls. In that regard, we represented that we have implemented and will continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws, which includes a system of internal controls. We periodically reported to the government during the terms of the DPA and Consent regarding such remediation and implementation of compliance measures.
In August 2013, during the terms of the DPA and Consent, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to its Brazilian subsidiary, Orthofix do Brasil Ltda. The Company engaged outside counsel to assist in the review of these allegations, focusing on compliance with applicable anti-bribery laws, including the FCPA. Consistent with the provisions of these agreements, the Company contacted both the DOJ and the SEC Enforcement Staff in August 2013 to voluntarily self-report the Brazil-related allegations.
On June 15, 2015, the Company and the DOJ agreed to extend the term of the DPA for two months (through September 17, 2015) to permit the DOJ additional time to evaluate the Company’s compliance with the internal controls and compliance undertakings in the DPA and to further investigate the Brazil-related allegations. On September 17, 2015, the DOJ extended the term of the DPA for an additional ten months (through July 17, 2016), stating that the Company’s efforts to comply with the internal controls and compliance requirements of the DPA during the first eighteen months of the DPA were insufficient. On July 17, 2016, the DPA expired. The terms of the DPA require that DOJ notify the court and file a dismissal of the underlying Promeca-related case within 30 days of such expiration. This dismissal was filed on July 28, 2016. Since the self-report regarding allegations in Brazil, the Company has cooperated fully with the DOJ’s investigation of those allegations.
The Company also has fully cooperated with the SEC’s investigations of the allegations in Brazil. We are currently engaged in discussions with the SEC Enforcement Staff regarding a resolution of the Brazil-related allegations as they relate to the SEC’s jurisdiction. The Company has recorded a charge of $4.6 million in the second quarter of 2016 to establish an accrual, which the Company believes represents the minimum range of loss, in connection with a potential negotiated resolution to this matter. Based on information available at this time, the Company estimates that the final resolution to the matter could result in an additional loss of up to $1.5 million in excess of the loss accrued. The Company will continue to evaluate the accrual pending final resolution of the matter and the related settlement discussions with the government.”
Just remember, in the words of the DOJ, alternative resolution vehicles such as DPAs “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe” and that “the result has been, unequivocally, far greater accountability for corporate wrongdoing — and a sea change in corporate compliance efforts.”
There are actually two ways to view instances of FCPA recidivism as highlighted in this prior post regarding Biomet.