As highlighted in this prior post, in 2018 Stryker (a Michigan-based medical device company) became an FCPA repeat offender as the SEC brought a $7.8 million enforcement action against the company for not having internal accounting controls “sufficient to detect the risk of improper payments in sales of Stryker products in India, China, and Kuwait” and because “Stryker’s India subsidiary failed to maintain complete and accurate books and records.”
As highlighted in this prior post, in 2013 Stryker resolved a $13.2 million enforcement action based on alleged conduct in Mexico, Poland, Romania, Argentina, and Greece.
As to the Mexico conduct, the SEC found:
“Between March 2004 and January 2007, Stryker’s wholly-owned subsidiary in Mexico (“Stryker Mexico) made three payments totaling more than $76,000 to foreign officials employed by a Mexican governmental agency (the “Mexican Agency”) responsible for providing social security for government employees. Stryker made these payments to win bids to sell its medical products to certain public hospitals in Mexico. Stryker Mexico earned more than $2.1 million in profits as a result of these illicit payments. These payments were made at the direction of Stryker Mexico employees, including country level management, and paid to the foreign officials through third party agents. For example, in January 2006, Stryker Mexico learned that the Mexican Agency was threatening to revoke a contract that Stryker Mexico had won to provide knee and hip products to certain public hospitals unless Stryker Mexico paid an employee of the Mexican Agency. As a result of the demand by the employee of the Mexican Agency, Stryker Mexico directed its outside counsel in Mexico (the “Mexican Law Firm”) to make payment to the employee, on Stryker Mexico’s behalf, in order for Stryker to keep the winning bid. At Stryker Mexico’s direction, the Mexican Law Firm paid the foreign official approximately $46,000 on behalf of Stryker Mexico and, as a result of this payment, the Mexican Agency did not revoke Stryker Mexico’s status as the winning bidder. The Mexican Law Firm then invoiced Stryker Mexico for $46,000 for purported legal services rendered, even though no such services were provided. Stryker Mexico recorded these improper payments as legitimate legal expenses in its books and records. Stryker Mexico earned over $1.1 million in illicit profits on this contract alone. Stryker Mexico made two additional payments through intermediaries during the relevant period in much the same fashion, with the purpose of retaining or obtaining business from public hospitals. The additional payments were in excess of $34,000 and earned Stryker illicit profits of nearly $1 million.”
In connection with this same conduct alleged in the 2013 enforcement action, the Mexican government (specifically Instituto Mexicano del Seguro Social (IMSS) – the Mexican Social Security Institute) recently filed a complaint against Stryker in the U.S. District Court for the Western District of Michigan.
Under the heading “Effect on IMSS and IMSS’s Damages From The Corporation” the complaint alleges:
“To obtain IMSS contracts, Stryker had to represent that it was complying with all IMSS’ requirements, including that no improper inducements were being made to obtain the contract. Stryker’s false, material statements and omissions to IMSS were fraudulent.
IMSS relied on Stryker’s false, material statements and omissions to consummate business transactions with Stryker.
IMSS’ reliance lasted longer than the bribes themselves. To obtain continued business with IMSS, Stryker had to represent that it had and would comply with Mexican law. Absent the false representations, IMSS would have been legally barred from contracting with Stryker. Therefore, IMSS relied on Stryker’s representations when approving contracts for the purchase of Stryker products well after the expressly illicit conduct […].
Stryker’s unlawful conduct harmed IMSS in numerous ways.
First, Stryker conspired with individual IMSS officials to damage IMSS.
Stryker induced the breach of fiduciary duties owed by IMSS officials as governmental officials and agents, and Stryker participated in, and profited from, those breaches.
Stryker bribed IMSS officials with funds culled from the profit that Stryker was reaping on IMSS contracts Stryker illegally obtained through bribery. The contract price, therefore, was inflated at least by the amount of the bribes. At a minimum, this amount represented economic harm to IMSS.
IMSS was damaged by the modification of IMSS’ purchasing requirements to serve Stryker’s, rather than IMSS’, needs.
Additionally, Stryker’s corrupt practices did violence to IMSS’ contracting process and IMSS’ ability to impartially evaluate potential medical device providers. Because the Stryker contracts were non-competitive as a result of the bribes, IMSS paid an artificially inflated price for the goods and services provided thereunder, resulting in lost opportunities for expenditures of those funds to address Mexican citizens’ healthcare needs in other areas. The effects of these harms have reverberated throughout the organization.
The scope of IMSS’ damages is also demonstrated by the amount of Stryker’s profit. Despite its bribes and other improper payments, Stryker was still able to engender excessive profits.
Pursuant to Mexican and United States law, Stryker’s breaches of the Mexican government procurement procedures voided Stryker’s contracts, and therefore, Stryker should be required to return all proceeds received from IMSS, retaining at most the actual production cost of the equipment it delivered.
Stryker actively concealed its illegal conduct.
Stryker also subverted the fiduciary duties of the IMSS officials responsible for ensuring that IMSS’ procurement procedures were followed. The same officials who should have challenged Stryker’s illegal conduct were the officials who received Stryker’s bribes. As a result, IMSS was unable to bring this lawsuit until the recent change in governmental administration.”
Based on the above allegations, IMSS asserts four claims against Stryker: (i) Inducement of, and Participation in, Breach of Fiduciary Duty; (ii) Fraud; and (iii) Violation of the Law of Acquisitions, Leases and Services of the Public Sector (under Mexican law); and (iv) breach of contract.
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