German healthcare firm Fresenius Medical Care AG (a company with American Depositary Receipt shares traded on the NYSE) has been under FCPA scrutiny since 2012 (no that is not a typo).
Today the DOJ and SEC announced (here and here) an approximate $232 million enforcement action ($84.7 million to the DOJ and $147 million to the SEC) against the company for alleged bribery schemes involving physicians and other healthcare personnel in Angola, Saudi Arabia, Morocco, Spain, Turkey, Gabon, Benin, Burkina Faso, Senegal, Ivory Coast, Niger, Cameroon China, Serbia, Bosnia, and Mexico.
While not specified in any of the resolution documents, the DOJ’s non-prosecution agreement and SEC’s administrative order make generic reference to the Angola and Saudi Arabia conduct involving ‘agents and employees utiliz[ing] the means and instrumentalities of U.S. interstate commerce, including the use of internet-based email accounts hosted by numerous service providers located in the United States.”
DOJ
In summary fashion, the NPA states:
“Between in or around 2007 and in or around 2016, FMC [Fresenius Medical Care], through its agents and employees, engaged in various schemes to pay bribes to publicly-employed health and/or government officials to obtain or retain business for and on behalf of FMC. In Angola and Saudi Arabia, these agents and employees utilized the means and instrumentalities of U.S. interstate commerce, including the use of internet-based email accounts hosted by numerous service providers located in the United States. With respect to these schemes, as well as in connection with conduct in Morocco, Spain, Turkey, and West Africa, FMC, through its agents and employees, knowingly and willfully failed to implement reasonable internal accounting controls over financial transactions or failed to maintain books and records that accurately and fairly reflected the transactions.”
Under the heading “FCPA Anti-Bribery Violations” the NPA references conduct in Angola and Saudi Arabia.
As to Angola, the NPA states:
“Between approximately 2010 and 2014, FMC, through FMC Portugal [described as a wholly-owned subsidiary of FMC] and FMC Angola [described as being overseen by FMC Portugal], offered or provided things of value to the Angolan Military Health Officer [described as a high-ranking officer in the Medical Services Division of the Angolan Armed Forces] and his family, as well as prominent Angolan government-employed nephrologists, specifically shares in a joint venture, storage contracts, and consultancy agreements, for the purpose of securing an improper advantage and assisting FMC with obtaining and retaining business in Angola.”
Specifically, the NPA states that certain Angolan doctors (alleged to be “foreign official) received share capital in an FMC Angola joint venture and that “in exchange for their shares .. [the foreign officials] directed customers to FMC Angola. In addition, the NPA states that “FMC Angola entered into an oral contract with the Shareholder Company [owned by the sons of the Angolan Military Health Officer] to provide warehousing space … however, no FMC Angola products were ever stored at the Shareholder Company warehouse.” Furthermore, the NPA states that “FMC Portugal and FMC Angola also made improper payments to government doctors through sham consulting contracts for which no services were ever performed.” The NPA states:
“As a result of improper payments made to Angolan health officials, FMC benefited by approximately $12.6 million during the relevant time period.”
As to Saudi Arabia, the NPA states:
“Between 2007 and 2012, FMC, through Saudi Distributor, made improper payments to publicly-employed doctors and others in order to expand its market share in KSA.
During the relevant period, Saudi Distributor GM employed a check cashing scheme in order to funnel cash to publicly-employed doctors. Specifically, Saudi Distributor GM instructed employees to cash checks that had been made payable in their names and return the cash to him. Saudi Distributor GM then arranged to have the cash delivered to Saudi government doctors and others.
Saudi Distributor GM concealed the true purpose of these transactions by falsely recording them as “Project Marketing Expenses” or “Collection Commissions” in Saudi Distributor’s financial records, which were ultimately consolidated with FMC’s. In total, FMC made approximately $1.7 million in payments through the check writing scheme.
Saudi Distributor also often made improper payments to government doctors through sham consulting and commission agreements for which no services were ever performed.
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Saudi Distributor paid more than $90,000 to a government charity run by Saudi Doctor 3. Saudi Distributor GM understood that such payments were necessary in order to win contracts.
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FMC also channeled improper payments through fake collection commission agreements. Despite having salaried employees responsible for collecting outstanding debts, Saudi Distributor entered into a commission collection agreement with the relative of a Ministry of Health (“MOH”) official in connection with bidding on MOH dialysis machine tenders, which FMC ultimately won. In total, Saudi Distributor made over $200,000 in improper payments in connection with this contract.
Another method by which Saudi Distributor made improper payments to Saudi government doctors was by providing gifts and paying for travel with no business or educational justification. Often times, the payments were made using the credit card of Saudi Distributor GM and included luxury accommodations for the doctors and their families.
For example, Saudi Distributor purchased laptops as gifts for two nurses at government hospitals. According to FMC emails, the nurses specifically requested the laptops as gifts and an FMC consultant recommended Saudi Distributor make the purchases because otherwise the nurses could report to MOH the fact that their hospitals did not receive certain parts from Saudi Distributor.
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In other instance, which occurred in or around January 2010, Saudi Distributor paid for a six-night stay at the Atlantis Palm Hotel in Dubai for Saudi Doctor 2 and his wife. The trip was recorded as related to a medical congress in Saudi Distributor records, but no evidence exists that Saudi Doctor 2 participated or attended any such congress. The total cost of the trip was $7,579.20.
In addition to the payments discussed above, Saudi Distributor also steered improper payments to customs officials in order to clear shipments more quickly and avoid or reduce associated fees. The improper payments were made through a third-party freight and logistics company that served as a customs clearance agent (“Customs Agent”) and were mischaracterized on invoices as “handling charges” and “miscellaneous expenses.”
For example, in or around July 2011, Saudi Distributor learned of the detention of a shipment by Saudi customs officials for lack of country-of-origin documentation. In order to release the shipment, Customs Agent sought the approval of a $3,200.00 payment. Saudi Distributor approved the charge for the stated purpose of “expediting the mentioned shipment.” Records of the transaction show that the payment was subsequently booked as a miscellaneous “handling charge.” In total, there were over $1.7 million in payments to Customs Agent that lacked supporting documentation for the services rendered.
Finally, in addition to the conduct discussed above, there is evidence demonstrating that numerous documents and other records were altered or destroyed. After the FMC internal investigation commenced in late 2012, Saudi Distributor GM directed employees to destroy or alter company documents, to create additional fictitious records, and to lie to investigators.
As a result of improper payments made in Saudi Arabia, FMC benefitted by approximately $42.7 million during the relevant period.”
Under the heading “FCPA Accounting Violations,” the NPA references conduct in Morocco, Spain, Turkey, and West Africa.
As to Morocco, the NPA states:
“Between in or around October 2006 and in or around 2010, FMC and FMC Morocco [a wholly owned subsidiary of FMC] paid bribes to Morocco State-Official 1 [a nephrologist responsible for the creation of dialysis centers at state-owned military hospitals] for the purpose of securing an improper advantage and assisting FMC with obtaining and retaining business in Morocco.”
Specifically, the NPA states that various individuals associated with FMC “devised a financial model that included provisions to pay [the alleged foreign official] a ‘commission’ that was 10% of the total order value [… and that] this commission was, in fact, a bribe to be paid in exchange for [the alleged foreign official] selecting FMC Morocco to develop the dialysis center …”. According to the NPA, “as a result of improper payments made to [the alleged foreign official] FMC benefited by approximately $3.7 million during the relevant time period.”
As to Spain, the NPA states:
“Beginning in at least 2007 and continuing until approximately 2014, FMC Spain [a wholly-owned subsidiary of FMC] made payments to publicly-employed doctors and other healthcare professionals in Spain, in connection with public tenders in which FMC Spain sought to compete. Among other things, FMC Spain sometimes accomplished this through (i) fake consulting agreements with publicly-employed doctors or professionals who could influence or provide information about public tenders; (ii) gifts or other benefits such as travel to medical conferences; and (iii) donations to fund projects for the doctors.
In certain public tenders, FMC Spain received advance information about tender specifications from publicly-employed doctors or administrators, some of whom received payments from FMC Spain. In some tenders, FMC Spain intended to influence the publicly-employed doctors or administrators to modify aspects of the tenders before they were publicly announced.
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FMC Spain also provided money and benefits to Spanish Doctor 2.
FMC Spain also entered into consulting agreements with doctors in Spain and provided them with other financial incentives in an effort to get the doctors to influence FMC Spain business. For example, from 2008 to 2014, pursuant to various consulting agreements, FMC Spain paid Spanish Doctor 3 approximately €340,000, paid for his travel to various medical congresses and for a trip to the United States, and paid for a two-week English language course.
FMC Spain also made improper payments to doctors in exchange for patient referrals to FMC Spain clinics. The payments were channeled to the doctors through consulting agreements with entities owned by the same doctors. In other instances, FMC Spain purchased businesses from the doctors and, thereafter, paid the doctors for use of the buildings in which the businesses were located.
For example, FMC Spain made payments and provided benefits to six publicly-employed doctors at Spanish State-Owned Hospital 4. FMC Spain paid approximately €5 million plus 5% of sales for five years for a clinic that was owned by the doctors. FMC Spain also entered into a lease agreement with another entity owned by the six doctors to rent the space in which the original clinic was located.
As a result of FMC Spain’s failure to implement reasonable internal controls, the improper payments to doctors continued until 2014. Many of these payments were improperly recorded as consulting expenses in the books and records of FMC and FMC Spain. During the relevant time period, FMC benefitted by approximately $23.8 million as a result of these payments.”
As to Turkey, the NPA states:
“Between in or around 2005 until in or around 2014, FMC Turkey [a wholly-owned subsidiary of FMC] entered into joint ventures with publicly-employed doctors in exchange for those doctors directing business from their public employer to FMC Turkey clinics.
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As a result of FMC’s lack of reasonable internal controls, improper payments were made to publicly-employed doctors in Turkey through joint ventures and FMC benefitted by approximately $1.3 million during the relevant period.”
As to West Africa, the NPA states:
“Between in or around 2007 and in or around 2016, FMC knowingly paid bribes to publicly-employed health officials in Gabon and other West African countries to obtain and retain business, specifically consisting of direct payments, concealing payments through third parties, and concealing payments through a third-party distributorship.
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[B]etween in or around 2010 until in or around 2013, FMC paid Company B to make similar improper “commission” payments to state-owned hospital employees in the West African countries of Benin, Burkina Faso, Senegal, Ivory Coast, and Niger. Further, between in or around 2010 and in or around 2012, FMC also paid Company C to make improper “commission” payments to state-owned hospital employees in Cameroon.
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As a result of improper payments made to publicly-employed doctors in West Africa through direct payments, concealing payments through third parties, and concealing payments through a third-party distributorship, FMC benefitted by approximately $56.7 million during the relevant period.”
The three-year NPA is dated February 25, 2019 and was based on the following “individual facts and circumstances”:
“(a) the Company did receive voluntary disclosure credit because it voluntarily and timely disclosed to the Department the conduct …
(b) the Company received partial credit for its cooperation with the Department’s investigation, including: conducting a thorough internal investigation; making regular factual presentations to the Department; providing facts learned during witness interviews; voluntarily making foreign-based employees available for interviews in the United States; producing documents to the Department from foreign countries in ways that did not implicate foreign data privacy laws; collecting, analyzing, and organizing voluminous evidence and information from multiple jurisdictions for the Department, including translating key documents; and disclosing conduct to the Department that was outside the scope of its initial voluntary self-disclosure; however, the Company did not receive full cooperation credit because it did not timely respond to requests by the Department and, at times, did not provide fulsome responses to requests for information;
(c) the Company provided to the Department all relevant facts known to it, including information about the individuals involved in the conduct described in the attached Statement of Facts and conduct disclosed to the Department prior to the Agreement;
(d) the Company engaged in remedial measures, including: (1) causing at least ten employees who were involved in or failed to detect the misconduct described in the Statement of Facts to be removed from the Company, because their employment was terminated, they resigned after being asked to leave, or they voluntarily left once the Company’sinternal investigation began; (2) enhancing its compliance program, controls, and anti-corruption training; (3) terminating business relationships with the third party agents and distributors who participated in the misconduct described in the Statement of Facts; (4) adopting heightened controls on the selection and use of third parties, to include third party due diligence; and (5) withdrawing from consideration of pending public contracts potentially related to the misconduct described in the Statement of Facts;
(e) the Company has enhanced, and has committed to continuing to enhance, its compliance program and internal controls …
(f) misconduct continued to occur at the Company until 2016, thus the parties have agreed that to ensure and test the effectiveness of the Company’s enhanced compliance program and to prevent a reoccurrence of the conduct outlined in the Statement of Facts, an independent compliance monitor shall be appointed for a term of two years;
(g) the nature and seriousness of the offense conduct, including: the amount of illegal payments to foreign officials; conduct in multiple, high-risk jurisdictions; the pervasiveness throughout a business unit of the Company responsible for the conduct described in the Statement of Facts; the continuation of unlawful conduct until 2016; and the involvement of certain high-level executives;
(h) the Company has agreed to disgorge $147 million in profits and prejudgment interest to the Securities and Exchange Commission (the “SEC”) in connection with the conduct ….;
(i) the Company has agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of the Company; and
(j) accordingly, after considering (a) through (i) above, the Department believes that the appropriate resolution of this case is a non-prosecution agreement with the Company, a criminal penalty with an aggregate discount of 40% off of the bottom of the U.S. Sentencing Guidelines fine range, and an independent compliance monitor for a term of two years, followed by self-monitoring for the remainder of the Agreement.”
As stated in the NPA:
“The Company agrees to pay a monetary penalty in the amount of $84,715,273 to the United States Treasury no later than five business days after the Agreement is fully executed, and to pay disgorgement and prejudgment interest in the amount of $147 million. The monetary penalty is based upon profits of approximately $141,192,121 as a result of the offense conduct, and reflects a discount of 40% off of the bottom of the U.S. Sentencing Guidelines fine range. The Department will credit the $147 million in disgorgement and prejudgment interest that the Company is paying to the SEC.”
Pursuant to the NPA, FMC agreed to engage a monitor for a two-year term.
The DOJ’s release makes reference to FMC “knowingly and willfully fail[ing] to implement reasonable internal accounting controls over financial transactions and fail[ing] to maintain books and records that accurately and fairly reflected the transactions.”
In the DOJ release, Assistant Attorney General Brian Benczkowski stated:
“Fresenius doled out millions of dollars in bribes across the globe to gain a competitive advantage in the medical services industry, profiting to the tune of over $140 million. Today’s resolution, under which Fresenius has agreed to retain an independent compliance monitor for at least two years, reflects the Department’s firm commitment to both rooting out bribery and promoting the kind of effective corporate compliance programs that will prevent misconduct going forward.”
U.S. Attorney Andrew Lelling of the District of Massachusetts stated:
“Bribery, in all forms, is corrosive and illegal. As today’s announcement makes clear, this Office will continue its long tradition of aggressively investigating companies and individuals who use bribes and kickbacks to gain an unfair and illicit business advantage, or who deliberately turn a blind eye to that conduct.”
Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division stated:
“This case shows the continued commitment of the FBI and our partners to investigate bribery and corruption worldwide. The FBI’s dedicated International Corruption Squads across the United States will continue to combat foreign corruption that reaches our shores and send a strong message that, no matter how long it takes, we will not wane in our efforts to uphold the law.”
Special Agent in Charge Joseph Bonavolonta of the FBI Boston Field Division stated:
“This case shows the FBI will hold accountable those who treat corruption as the cost of doing business. Fresenius’s admissions are incredibly concerning because no company should break the law by paying-off international partners to obtain or retain business. We will continue to work with our law enforcement partners to root out corrupt schemes and ensure they do not become common practice at the expense of other hard-working businesses.”
SEC
Based on the same core conduct alleged in the DOJ’s NPA, the SEC found in this administrative order in summary fashion:
“This matter concerns violations of the anti-bribery, books and records and internal accounting controls provisions of the FCPA by FMC, a world-wide provider of products and services for individuals with chronic kidney failure headquartered in Bad Homburg, Germany. From at least 2009 through 2016, millions of dollars in bribes were paid to procure business throughout its operations, including in Saudi Arabia, Angola, and eight countries in the West African region. Further, in FMC’s operations in those countries, as well as Turkey, Spain, China, Serbia, Bosnia, and Mexico, payments were not accurately reflected in FMC’s books and records. FMC also failed to have sufficient internal accounting controls in place, which contributed to the misconduct continuing for many years across multiple continents. In connection with the misconduct described in Saudi Arabia, West Africa, and Angola, FMC employees and agents utilized the means and instrumentalities of U.S. interstate commerce, including the use of internet-based email accounts hosted by numerous service providers located in the United States. The company benefitted by over $135 million as a result of the improper payments.
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FMC failed to promptly address numerous red flags of corruption in its operations that were known since the early 2000s. This includes employees making improper payments through a variety of schemes, including using sham consulting contracts, falsifying documents, and funneling bribes through a system of third party intermediaries. FMC failed to properly assess and manage its worldwide risks, and devoted insufficient resources to compliance. In many instances, senior management actively thwarted compliance efforts, personally engaging in corruption schemes and directing employees to destroy records of the misconduct.”
Without repeating findings substantively duplicative of the DOJ’s allegations, the SEC found as follows.
As to Saudi Arabia:
“From 2007 to 2012, FMC’s wholly consolidated distributor Saudi Advanced Renal Services (“SRS”) paid over $4.9 million in improper payments to publicly-employed doctors (“HCPs”), government officials and others in Saudi Arabia to retain or obtain business. FMC knew of the high risks in the business, but failed to ensure that sufficient internal accounting controls were in place. FMC also failed to assign a compliance officer to the region. In 2009 and early 2011, senior officials at FMC’s German headquarters received reports from a senior SRS finance officer that the SRS General Manager (“GM”) submitted false invoices and that there was a practice of making improper marketing and travel expenditures without proper documentation. The conduct continued and by December 2011, the SRS finance officer elevated his complaints to the FMC controller and the head of Internal Audit. The conduct continued until late 2012 when remedial action was first initiated and the GM was terminated in 2013. Overall, FMC benefitted by over $40 million as a result of the corruption schemes in Saudi Arabia.”
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Numerous documents were altered, destroyed and falsified in the company’s accounting records to conceal the bribes. The falsification and destruction of records intensified once the company’s internal investigation began. For example, employees created fake accounting records to support a $100,000 check-to-cash transaction related to a bid for a multi-billion dollar MOH tender. The discovery of the $100,000 payment led FMC to withdraw from the tender.”
As to Morocco:
“From 2006 to 2010, an FMC Senior Officer and FMC Sales Manager in Germany engaged in a scheme to pay bribes to a Moroccan Official, the chief nephrologist at two state owned military hospitals, to obtain contracts. They entered into a sham marketing agreement with Moroccan Official to pay him a 10% commission on a contract with Agadir Military Hospital with half to be paid in 2007 and afterwards 12.5% annually. They also agreed to pay him bribes on future projects in Morocco including Rabat Military Hospital.
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FMC also paid bribes to the Moroccan Official to obtain a 2009 contract at the Rabat Military Hospital, this time using a sham consultant contract with a Moroccan agent associated with Moroccan Official. FMC failed to identify numerous red flags of the corruption, including the fact that the contract was backdated and the purported invoices and endorsed checks from the Moroccan agent were signed by Moroccan Official’s brother, who was also a FMC Morocco manager. Between 2009 and 2010, FMC paid the agent approximately $221,000 intended for Moroccan Official and falsely recorded as marketing expenses.
In April 2012, FMC received a whistleblower email raising various allegations about payments to government officials in Morocco. In May 2013, FMC received an anonymous complaint about improper payments related to military hospitals located in Agadir and Rabat. Despite the 2012 allegations, and a subsequent email received in July 2013, FMC did not initiate an investigation until January 2014, almost eight months later. After receiving preservation notices in January 2014, some FMC managers destroyed records and deleted files from computers. Overall, FMC benefited by over $3 million as a result of the corruption schemes in Morocco.”
As to West Africa:
“From 2007 to at least 2016, the same FMC Senior Officer and FMC Sales Manager who orchestrated the bribe schemes in Morocco also engaged in schemes to bribe publiclyemployed hospital doctors and administrators in eight West African countries to win FMC business. The countries include Gabon, Cameroon, Benin, Burkina Faso, Chad, Ivory Coast, Niger, and Senegal.
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Despite the ongoing investigations of known corruption in multiple nearby countries, FMC failed to implement a sufficient system of internal accounting controls. The bribery schemes in West Africa continued by many of the same FMC managers involved in schemes in other countries. The books and records often lacked adequate documentary support and records were falsified. At the direction of more senior FMC managers, employees altered and destroyed documents and deleted files from computers. Efforts were made to align fictitious stories about the misuse of company funds and lower-level employees were berated if they didn’t destroy their laptops or delete emails. Despite multiple red flags of bribery, FMC’s legal, compliance, and internal audit functions failed to detect and prevent the bribery. Employees were inadequately trained on the company’s anti-corruption policies, and due diligence on third parties was minimal. Overall, FMC benefited by over $40 million as a result of the corruption schemes in West African countries.”
As to Angola:
“In 2004, FMC South Africa explored entering the Angolan dialysis market and generated a report, which was circulated to several FMC employees, including FMC EMEA Executive Vice President, that raised red flags about corruption, most notably that Angola’s Director of Military Services (“Military Official”) received a 20% commission on all dialysis kits sold to military hospitals and that Angolan Reseller was partially owned by government officials. An August 7, 2007 email also warned of “concerns about this direct market entry . . . . [that] will require some extra precaution, documentation, and management attention.”
In 2008, FMC Portugal began selling products into Angola through Angolan Reseller, which was partly owned by Military Official. Further, FMC did not adequately train its FMC Portugal employees about their dealings with government officials until late 2012. As a result, from 2008 to 2010, bribes were paid in the form of 20% commissions to Military Official through Angolan Reseller.
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In June 2012, a draft internal audit report identified that in Angola “overall controls are not functioning as intended” and flagged the Angolan Distributor temporary storage arrangement as a problem since (1) the owner of the company was a shareholder of FMC Angola and (2) there was a total lack of written documentation relating to the services. FMC Legal and Compliance issued a directive in October 2012 freezing all payments to Angolan Distributor. Despite the directive, FMC Angola continued to accrue an additional $878,900 on its books for storage services never rendered, but ultimately was prevented from making the payment.
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FMC’s senior managers both in Portugal and at the parent level failed to take any timely steps to put a stop to the numerous conflicts raised by the Angolan Distributor relationship. FMC Portugal misled FMC’s internal audit team when they tried to determine if additional relationships with the Angolan Distributor existed. Only upon being instructed in July 2013 to “Please freeze the contract” did a senior FMC Portugal manager report that Angolan Distributor had been made a distributor for certain sales without any written contract.
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During the entire time, FMC Angola also made payments to the other minority shareholders, Angolan Doctor A and Angolan Doctor B, both government officials, by entering into consulting contracts with each doctor. Per contracts, Angolan Doctor A was paid $7,500 per month while Angolan Doctor B was paid $3,140 monthly. Angolan Doctor A discussed his consultancy payments with FMC using his personal internet-based email account. Pursuant to these contracts and other salary payments, the doctors received a total of approximately $400,000 from FMC. There was no review of the contracts, no apparent due diligence for conflicts of interest, and no documentation of services. Overall, FMC benefited by over $10 million as a result of the corruption schemes in Angola.”
As to Turkey:
“Between 2005 and 2014, FMC Turkey entered into four separate joint ventures with publicly employed doctors in exchange for those doctors directing business from their public employer to FMC clinics. The doctors did not provide any capital in exchange for their shares. In some cases, doctors’ shares were held in the names of other individuals.
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In one joint venture involving a prominent doctor at a public hospital in Diyarbakir, a senior manager at FMC Germany wrote: “The professor who is our shareholder has very strong relations with all state authorities including the university and other state hospitals. He is in a way protector of our interests, benefits and operation in the city…. It is very hard to compete and operate in this city if a powerful local is not backing you…. He should stay as our doctor for the health and wellbeing of our system in this city.”
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In Erzurum, FMC gave shares to a professor with ties to the Turkish Minister of Health, for referring patients from the university’s clinics. The professor didn’t make any capital contributions for his shares. Ultimately, the professor was paid $323,000 for his 40% stake despite having an outstanding $1,553,000 receivable. FMC Turkey managers discussed the need to make the payment to the professor despite the outstanding receivable. In one exchange among FMC managers, they noted that if they pushed for payment the “[Professor] would immediately turn his back to us and fight with us. Knowing his before mentioned local and country level power, … he would ask the doctors to refer back their patients to state hospital clinic and would also ask the doctors to change to [a FMC competitor] all our PD patients.”
In one JV that should have raised significant red flags, the approval request to the FMC Board of Management stated that three doctors “currently working in the dialysis unit of the State Hospital will participate in the startup both as shareholders and employees. It is expected that on opening 60 patients will be referred from the State Hospital to the new clinic.” An email among FMC Turkey senior management noted “Our expectations regarding [Yalova] are high as we have very powerful doctors as partners in these startups. So after a year’s time we expect high patient numbers and at least breakeven results in two years and a profitable operation after then.” None of the doctors contributed capital for their shares.
In another example, in Kayseri, FMC Turkey entered into a joint venture with a nephrologist at the state hospital, noting “After 2 years, when the patient number increases preset levels, [the doctor] will sell their shares at preset amounts and their debt to the company will be deducted from this amount and the rest will be paid to them.” In August 2012, FMC Turkey entered into a share purchase agreement to purchase the doctor’s 20% interest, which provided for a purchase price predicated on the number of patients at the clinic. Between 2012 and 2013, the doctor received $63,000. In 2014, he received $451,000 in cash and debt reductions, including debts unrelated to the transaction, for his 20% stake. The payment was based principally on the number of patients enrolled at the clinic at the time of the sale. Overall, FMC benefited by over $1 million as a result of the improper conduct in Turkey.”
As to Spain:
“In certain public tenders between 2007 and 2014, FMC Spain received advance information about tender specifications from publicly employed doctors or administrators. Some of those doctors received improper payments from FMC Spain, including pursuant to consulting agreements, or other benefits such as travel to medical congresses, trips to the United States, donations to fund projects for the doctors, and gifts. In some of these tenders, FMC Spain sought to have the doctors modify aspects of the tenders before the tenders were publicly announced or to direct hospital sales to FMC.
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In some instances, FMC Spain made improper payments to doctors to refer patients to FMC clinics or to use more expensive FMC products. Payments were sometimes made to the doctors indirectly through consortiums owned by the doctors, or by FMC acquiring businesses from the doctors and, thereafter, paying for the use of the buildings in which the businesses were located.
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In 2010, FMC’s Internal Audit team found FMC Spain failed to comply with the company’s policy concerning dealings with foreign officials. In 2014, another Internal Audit report, sent to the same recipients as the 2010 report and the entire FMC Management Board, raised significant red flags about FMC Spain’s payments to public officials, including a lack of documentation for payments related to gifts, donations, sponsorships, commissions, and consultancy payments. The payments to doctors continued until 2015. Many of these payments were improperly recorded as consulting expenses in the books and records of FMC and FMC Spain. Overall, FMC benefited by over $20 million as a result of the improper conduct.”
As to conduct in China:
“From 2007 to 2014, FMC China’s clinic business, Nephrocare, planned and implemented incentive programs in which bonus payments were provided to publicly-employed HCPs with which FMC China had supply agreements. The amounts of the payments were based in part on the number of treatments provided and/or the number of new patients treated, and were taken into consideration in the clinics’ financial models. Certain emails between FMC China personnel suggest that the purpose of the bonus payments was to influence clinic procurement decisions.
During this time period, approximately $6.4 million in expense accrual entries were related to such bonuses. However, only $1.7 million of the $6.4 million were reconciled to specific payments. Of the remaining $4.7 million in accruals, the FMC China accounting records failed to adequately tie the accruals and payments. They were recorded either in the year-end bonus or other promotional expenses general ledger accounts, and were generally described in underlying accounting records as “center marketing fees.” The inaccurate record-keeping can be attributed to a senior FMC China manager, who cautioned a fellow employee in 2011 to avoid the use of the term bonus due to “internal legal compliance” concerns when describing these payments.
As a general practice, these bonuses would be paid once FMC China received payments it was owed from hospitals for equipment purchases. Payments were made directly to the doctors and nurses responsible for managing the clinics and in positions to influence clinic procurement decisions. Some payments were made in cash, while others were made by wire transfer, and later by a third party agent. FMC China stopped using the third party agent in 2014 after an internal audit report raised concerns that the agent was being paid without corresponding reports showing proof of services rendered. Overall, FMC benefited by over $10 million as a result of the improper conduct.”
As to conduct in Serbia and Bosnia:
“From 2007 to 2014, four doctors were paid over $329,000 by FMC while serving on the Serbian Health Fund (“RFZO”) commission or other public tender commission while FMC sought business from those same public commissions. FMC also paid for side trips and extra day accommodations for publicly-employed doctors in connection with travel to medical conferences. For example in 2008, FMC paid $393,000 for travel and accommodations for those same four dual-employed doctors and their spouses to attend a conference in Philadelphia, PA, which included non-business side trips to New York City and Cancun, Mexico. Doctors were also provided laptops and GPS devices.
FMC paid dual-employed doctors through a Serbian Agent. In 2010, FMC compliance issued a directive prohibiting the use of Serbian Agent and requiring that service contracts have more specificity to support payments. The directive was circumvented when an FMC Serbia executive approved payments through a third-party transport vendor, who then paid over $170,000 to the dual-employed doctors. FMC also made over $1 million in payments to 13 “speed up” the clinic privatization process for four clinics. The consultant’s quarterly reports used to support the payments were drafted by FMC senior managers. In another instance, FMC senior managers gave a distributor, operated by a Serbian doctor, cash payments of over $62,000 plus 10 dialysis machines free of charge, which he resold to FMC for $139,500 to prolong a tender silently and avoid import taxes.
In Bosnia, FMC also made improper payments to a prominent Bosnian government doctor to support FMC’s bid to win a government tender to establish and operate clinics in the regions of Srpska and Brcko. In November 2008, the doctor was elected to the Brcko Assembly. A 2008 fourth quarter activity report from the doctor to FMC listed as an achievement for the quarter “removing all problems regarding the tender in Brcko.” FMC initially failed to investigate the meaning of that entry and instead paid the doctor $80,850 in December 2008. In February 2009, the doctor was elected the mayor of Brcko and thereafter the consultant agreement was placed in the name of the doctor’s wife. By 2009, FMC paid the doctor over $1.3 million to successfully win the bid. FMC also made over $957,000 in payments to a Bosnian healthcare executive to assist FMC’s establishment of clinics in Brcko and Hercegovina, without any evidence of services performed. Overall, FMC benefited by over $10 million as a result of the improper conduct in Serbia and Bosnia.”
As to Mexico:
“In 2010, FMC Mexico engaged in a scheme to increase the price per dialysis kit for a tender with one of its largest customers in Mexico, Instituto Mexicano del Seguro Social (“IMSS”), Mexico’s state-run social insurance agency. FMC Mexico employed the services of a third party agent, Mexican Distributor, to pay kickbacks to IMSS officials relating to the tender bid. Among other products, Mexican Distributor sold medical kits used in hemodialysis treatments.
[…]
An FMC internal audit report found several problems with this arrangement, including insufficient evidence that Mexican Distributor rendered services that contributed to the increase in price, the contract was signed a year after services were supposedly rendered, and monetary payments were made retroactively. The audit identified $213,500 in improper commissions paid to Mexican Distributor intended in part for IMSS officials in 2010 and 2011. Overall, FMC benefited by over $2 million as a result of the improper conduct.”
Based on the above findings relevant to Saudi Arabia, Angola and West Africa, the order finds that FMC violated the FCPA’s anti-bribery provisions. Based on the overall findings “each of the countries,” the order finds that FMC violated the FCPA’s books and records and internal controls provisions.
To resolve the matter, FMC agreed to pay $147 million ($135 million in disgorgement and $12 million in prejudgment interest).
Under the heading “FMC’s Self-Disclosure, Cooperation, and Remedial Efforts,” the order states:
“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff. FMC self-reported certain misconduct and voluntarily provided facts developed during its internal investigation. FMC’s cooperation with the Commission’s investigation varied at times. FMC produced documents, including key document binders and translations as needed, and made current or former employees available to the Commission staff, including those who needed to travel to the United States.
FMC’s remediation included the termination of employees and third parties responsible for the misconduct and enhancements to its internal accounting controls. FMC strengthened its global compliance organization; enhanced its policies and procedures regarding the due diligence process and the use of third parties; created positions to address potential risks; and increased training of employees on anti-bribery issues.”
Pursuant to the order, FMC agreed to engage a monitor for two years and the order further states under the heading “Non-Imposition of a Civil Penalty” as follows:
“FMC acknowledges that the Commission is not imposing a civil penalty based upon the imposition of an $84.7 million criminal fine as part of its resolution with the Department of Justice.”
In the SEC’s release, Charles Cain (Chief of the SEC’s FCPA Unit) stated:
“Failure to address the corruption risks in its growing business allowed complicit managers to engage in bribery schemes that went undetected for more than a decade. As companies expand their business, their internal accounting controls and compliance programs must keep up.”
Tracy Price (Deputy Chief of the SEC’s FCPA Unit) stated:
“By engaging in widespread bribery schemes across multiple countries, the company prioritized profits over compliance in its dealings with foreign government officials.”
Maxwell Carr-Howard (Dentons) represented Fresenius.
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