SEC CHARGES BHP BILLITON WITH VIOLATING FOREIGN CORRUPT PRACTICES ACT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) when it sponsored the attendance of foreign government officials at the Summer Olympics.

BHP Billiton agreed to pay a $25 million penalty to settle the SEC’s charges.

An SEC investigation found that BHP Billiton failed to devise and maintain sufficient internal controls over its global hospitality program connected to the company’s sponsorship of the 2008 Summer Olympic Games in Beijing.  BHP Billiton invited 176 government officials and employees of state-owned enterprises to attend the Games at the company’s expense, and ultimately paid for 60 such guests as well as some spouses and others who attended along with them.  Sponsored guests were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at $12,000 to $16,000 per package.

“BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk.

According to the SEC’s order instituting a settled administrative proceeding, BHP Billiton required business managers to complete a hospitality application form for any individuals they sought to invite to the Olympics, including government officials.  However, the company did not clearly communicate to employees that no one outside the business unit submitting the application would review and approve each invitation.  BHP Billiton failed to provide employees with any specific training on how to complete forms or evaluate bribery risks of the invitations.  Due to these and other failures, a number of the hospitality applications were inaccurate or incomplete, and BHP Billiton extended Olympic invitations to government officials connected to pending contract negotiations or regulatory dealings such as the company’s efforts to obtain access rights.

“A ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement. “Although BHP Billiton put some internal controls in place around its Olympic hospitality program, the company failed to provide adequate training to its employees and did not implement procedures to ensure meaningful preparation, review, and approval of the invitations.”

The SEC’s order finds that BHP Billiton violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.  The settlement, in which the company neither admits nor denies the SEC’s findings, reflects BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation and requires the company to report to the SEC on the operation of its FCPA and anti-corruption compliance program for a one-year period.

The SEC’s investigation was conducted by Dmitry Lukovsky and Devon Leppink Staren, and the case was supervised by Alec Koch.  The SEC appreciates the assistance of the Department of Justice’s Fraud Section, the Federal Bureau of Investigation, and the Australian Federal Police.

SEC CHARGES GLOBAL WATER MANAGEMENT COMPANY WITH VIOLATING FCPA

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a global water management, construction, and drilling company headquartered in Texas with violating the Foreign Corrupt Practices Act (FCPA) by making improper payments to foreign officials in several African countries in order to obtain beneficial treatment and reduce its tax liability.

After Layne Christensen Company self-reported its misconduct, an SEC investigation determined that the company received approximately $3.9 million in unlawful benefits during a five-year period as a result of bribes typically paid through its subsidiaries in Africa and Australia.  Some payments were funded through cash transfers from Layne’s U.S. bank accounts.

In addition to self-reporting the misconduct, Layne cooperated with the SEC’s investigation by providing real-time reports of its investigative findings, producing English language translations of documents, and making foreign witnesses available.  The company also undertook an extensive remediation effort.  Layne agreed to pay more than $5 million to settle the SEC’s charges.

“Layne’s lack of internal controls allowed improper payments to government officials in multiple countries to continue unabated for five years,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.  “However, Layne self-reported its violations, cooperated fully with our investigation, and revamped its FCPA compliance program.  Those measures were credited in determining the appropriate remedy.”

According to the SEC’s order instituting settled administrative proceedings, Layne’s misconduct occurred from 2005 to 2010.  In addition to favorable tax treatment, the improper payments helped the company obtain customs clearance, work permits, and relief from inspections by immigration and labor officials in various African countries.

Among the findings in the SEC’s order:

Layne paid nearly $800,000 to foreign officials in Mali, Guinea, and the Democratic Republic of the Congo (DRC) to reduce its tax liability and avoid associated penalties for delinquent payment.  The bribes enabled Layne to realize more than $3.2 million in improper tax savings.

Layne made improper payments to customs officials in Burkina Faso and the DRC to avoid paying customs duties and obtain clearance to import and export its equipment.  The bribes were falsely recorded as legal fees and commissions in the company’s books and records.

Layne paid more than $23,000 in cash to police, border patrol, immigration officials, and labor inspectors in Burkina Faso, Guinea, Tanzania, and the DRC to obtain border entry for its equipment and employees.  The bribes also helped secure work permits for its expatriate employees and avoid penalties for non-compliance with local immigration and labor regulations.

The SEC’s order finds that Layne violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934.  Layne agreed to pay $3,893,472.42 in disgorgement plus $858,720 in prejudgment interest as well as a $375,000 penalty amount that reflects Layne’s self-reporting, remediation, and significant cooperation with the SEC’s investigation.  For a period of two years, the settlement requires the company to report to the SEC on the status of its remediation and implementation of measures to comply with the FCPA.  Layne consented to the order without admitting or denying the SEC’s findings.

The SEC appreciates the assistance of the Fraud Section of the Department of Justice and the Federal Bureau of Investigation.

GUN MAKER CHARGED BY SEC WITH BRIBING FOREIGN OFFICIALS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged Smith & Wesson Holding Corporation with violating the Foreign Corrupt Practices Act (FCPA) when employees and representatives of the U.S.-based parent company authorized and made improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement overseas.

Smith & Wesson, which profited by more than $100,000 from the one contract that was completed before the unlawful activity was identified, has agreed to pay $2 million to settle the SEC’s charges.  The company must report to the SEC on its FCPA compliance efforts for a period of two years.

According to the SEC’s order instituting a settled administrative proceeding, the Springfield, Mass.-based firearms manufacturer sought to break into new markets overseas starting in 2007 and continuing into early 2010.  During that period, Smith & Wesson’s international sales staff engaged in a pervasive effort to attract new business by offering, authorizing, or making illegal payments or providing gifts meant for government officials in Pakistan, Indonesia, and other foreign countries.

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales,” said Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit.  “When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”  

According to the SEC’s order, Smith & Wesson retained a third-party agent in Pakistan in 2008 to help the company obtain a deal to sell firearms to a Pakistani police department.  Smith & Wesson officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make additional cash payments.  Smith & Wesson ultimately won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852.

The SEC’s order finds that Smith & Wesson employees made or authorized improper payments related to multiple other pending or contemplated international sales contracts.  For example, in 2009, Smith & Wesson attempted to win a contract to sell firearms to an Indonesian police department by making improper payments to its third-party agent in Indonesia.  The agent indicated he would provide a portion of that money to Indonesian officials under the guise of legitimate firearm lab testing costs.  He said Indonesian police officials expected to be paid additional amounts above the actual cost of testing the guns.  Smith & Wesson officials authorized and made the inflated payment, but a deal was never consummated.

The SEC’s order finds that Smith & Wesson also authorized improper payments to third-party agents who indicated that portions would be provided to foreign officials in Turkey, Nepal, and Bangladesh.  The attempts to secure sales contracts in those countries were ultimately unsuccessful. 

The SEC’s order finds that Smith & Wesson violated the anti-bribery, internal controls and books and records provisions of the Securities Exchange Act of 1934.  The company agreed to pay $107,852 in disgorgement, $21,040 in prejudgment interest, and a $1.906 million penalty. Smith & Wesson consented to the order without admitting or denying the findings.  The SEC considered Smith & Wesson’s cooperation with the investigation as well as the remedial acts taken after the conduct came to light.  Smith & Wesson halted the impending international sales transactions before they went through, and implemented a series of significant measures to improve its internal controls and compliance process.  The company also terminated its entire international sales staff.

The SEC’s investigation was conducted by FCPA Unit members Mayeti Gametchu and Paul G. Block, who work in the Boston Regional Office.  The SEC appreciates the assistance of the Justice Department’s Fraud Section and the Federal Bureau of Investigation.

ADM CHARGED WITH FOREIGN CORRUPT PRACTICES VIOLATIONS

FROM:  SECURITIES AND EXCHANGE COMMISSION  
Charges Archer-Daniels-Midland Company with FCPA Violations

The Securities and Exchange Commission today charged global food processor Archer-Daniels-Midland Company (ADM) for failing to prevent illicit payments made by foreign subsidiaries to Ukrainian government officials in violation of the Foreign Corrupt Practices Act (FCPA).

An SEC investigation found that ADM's subsidiaries in Germany and Ukraine paid $21 million in bribes through intermediaries to secure the release of value-added tax (VAT) refunds. The payments were then concealed by improperly recording the transactions in accounting records as insurance premiums and other purported business expenses. ADM had insufficient anti-bribery compliance controls and made approximately $33 million in illegal profits as a result of the bribery by its subsidiaries.

ADM, which is based in Decatur, Ill., has agreed to pay more than $36 million to settle the SEC's charges. In a parallel action, the U.S. Department of Justice today announced a non-prosecution agreement with ADM and criminal charges against an ADM subsidiary that has agreed to pay $17.8 million in criminal fines.

According to the SEC's complaint filed in U.S. District Court for the Central District of Illinois, the bribery occurred from 2002 to 2008. Ukraine imposed a 20 percent VAT on goods purchased in its country. If the goods were exported, the exporter could apply for a refund of the VAT already paid to the government on those goods. However, at times the Ukrainian government delayed paying VAT refunds it owed or did not make any refund payments at all. On these occasions, the outstanding amount of VAT refunds owed to ADM's Ukraine affiliate reached as high as $46 million.

The SEC alleges that in order to obtain the VAT refunds that the Ukraine government was withholding, ADM's subsidiaries in Germany and Ukraine devised several schemes to bribe Ukraine government officials to release the money. The bribes paid were generally 18 to 20 percent of the corresponding VAT refunds. For example, the subsidiaries artificially inflated commodities contracts with a Ukrainian shipping company to provide bribe payments to government officials. In another scheme, the subsidiaries created phony insurance contracts with an insurance company that included false premiums passed on to Ukraine government officials. The misconduct went unchecked by ADM for several years because of its deficient and decentralized system of FCPA oversight over subsidiaries in Germany and Ukraine.

The SEC's complaint charges ADM with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. ADM consented to the entry of a final judgment ordering the company to pay disgorgement of $33,342,012 plus prejudgment interest of $3,125,354. The final judgment also permanently enjoins ADM from violating those sections of the Exchange Act, and requires the company to report on its FCPA compliance efforts for a three-year period. The settlement is subject to court approval. The SEC took into account ADM's cooperation and significant remedial measures, including self-reporting the matter, implementing a comprehensive new compliance program throughout its operations, and terminating employees involved in the misconduct.

The SEC's investigation was conducted by Nicholas A. Brady and supervised by Moira T. Roberts and Anita B. Bandy. The SEC appreciates the assistance of the Justice Department's Fraud Section and the Federal Bureau of Investigation.

SEC CHARGES DIEBOLD, INC. WITH FOREIGN CORRUPT PRACTICES ACT VIOLATIONS IN CHINA, INDONESIA AND RUSSIA

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Diebold with FCPA Violations in China, Indonesia, and Russia

The Securities and Exchange Commission today charged Diebold, Inc. ("Diebold"), an Ohio corporation that is a global provider of ATMs and bank security systems, with violations of the Foreign Corrupt Practices Act ("FCPA") for lavishing international leisure trips, entertainment, and other improper gifts on foreign officials to obtain and retain lucrative business with government owned banks in China and Indonesia, and for paying other bribes in connection with the sale of ATMs to private banks in Russia. The SEC's complaint, filed in the United States District Court for the District of Columbia, alleges that Diebold paid approximately $3 million in illicit payments in these countries from 2005 through 2010. To settle the SEC's charges, Diebold has agreed to consent to final judgment, which is subject to court approval, ordering a permanent injunction, payment of $22,972,942 in disgorgement and prejudgment interest, and appointment of independent compliance monitor.

As alleged in the SEC's complaint, from 2005 through 2010, through its Chinese subsidiary Diebold Financial Equipment Company (China), Ltd., Diebold provided international leisure trips and entertainment to officials of government owned banks in China. This included trips to Europe, with stays in Paris, Amsterdam, Florence, Rome and other European cities, and trips to the United States, with travel to the Grand Canyon, Napa Valley, Disneyland, Las Vegas, and other popular tourist destinations. The SEC alleges that Diebold spent approximately $1.6 million on leisure trips, entertainment, and other improper gifts for government bank officials in China. During this same time period, the SEC alleges, Diebold spent over $147,000 on leisure trips and entertainment for officials of government banks in Indonesia. As alleged in the complaint, Diebold executives in charge of the company's operations in Asia knew of these improper payments, which were falsely recorded in Diebold's books and records as training or other legitimate business expenses.

The SEC's complaint further alleges that from 2005 through 2008, through its Russian subsidiary Diebold Self-Service Ltd., Diebold paid bribes on the sale of ATMs to private banks in Russia. As alleged in the complaint, these bribes totaled approximately $1.2 million, and were funneled through a Diebold distributor in Russia. According to the complaint, Diebold's Russian subsidiary executed phony service contracts with its distributor to hide and falsely record the payments as legitimate business expenses.

The SEC's complaint charges Diebold with violating Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Diebold has agreed to consent to a final judgment that permanently enjoins the company from future violations of these provisions, orders Diebold to pay $22,972,942 in disgorgement and prejudgment interest, and requires the appointment of an independent compliance monitor. In a parallel criminal proceeding, Diebold has agreed to pay a $25.2 million criminal fine as part of a deferred prosecution agreement with the U.S. Department of Justice.

The SEC's investigation was led by Devon A. Brown and Brian O. Quinn with assistance from Jennifer Baskin of the FCPA Unit and Kristen Dieter. The SEC thanks the U.S. Department of Justice's Fraud Section, the United States Attorney's Office for the Northern District of Ohio, and the Federal Bureau of Investigation, for their assistance in this matter.

BRIBERY OF VENEZUELAN DEVELOPMENT BANK OFFICIAL LEADS TO THREE GUILTY PLEAS IN U.S.

FROM:  U.S. JUSTICE DEPARTMENT
Friday, August 30, 2013
Three Former Broker-dealer Employees Plead Guilty in Manhattan Federal Court to Bribery of Foreign Officials, Money Laundering and Conspiracy to Obstruct Justice

Three employees of a New York-based U.S. broker-dealer have pleaded guilty for their roles in bribery schemes involving two state economic development banks in Venezuela.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge George Venizelos of the New York Office of the FBI made the announcement.

Ernesto Lujan, Jose Alejandro Hurtado and Tomas Alberto Clarke Bethancourt pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.  These charges relate to a scheme to bribe a foreign official named Maria de los Angeles Gonzalez de Hernandez at Banco de Desarrollo Económico y Social de Venezuela (BANDES), a state economic development bank in Venezuela, in exchange for receiving trading business from BANDES.  Lujan, Hurtado and Clarke each also pleaded guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the U.S. Securities and Exchange Commission (SEC) of the New York-based broker-dealer (the “Broker-Dealer”) where all three defendants had worked, to conceal the true facts of the Broker-Dealer’s relationship with BANDES.

Lujan, 50, and Clarke, 43, entered their guilty pleas yesterday before U.S. Magistrate Judge James C. Francis IV, and Hurtado, 38, pleaded guilty today, also before Judge Francis. The men each pleaded guilty to the same six offenses and face a maximum penalty of five years in prison on each count except money laundering, which carries a maximum penalty of 20 years in prison.  Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe.  Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.

According to the informations filed against Lujan, Hurtado and Clarke this week, the criminal complaints previously filed, and statements made during the plea proceedings, Lujan, Clarke and Hurtado worked or were associated with the Broker-Dealer, principally through its Miami offices.  In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients.

One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance.  The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding.  Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity.  At her direction, BANDES conducted substantial trading through the Broker-Dealer.  Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed-income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.

The Broker-Dealer also conducted business with Banfoandes, another state development bank in Venezuela that, along with its 2009 successor Banco Bicentenario, operated under the direction of the Venezuelan Ministry of Finance.  Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans.  The Banfoandes Foreign Official was responsible for some of Banfoandes’s foreign investments.

Court records state that from early 2009 through 2012, Lujan, Clarke and Hurtado participated in a bribery scheme in which Gonzalez allegedly directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with Gonzalez.  During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES.  Agents and employees of the Broker-Dealer, including Lujan, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.  Emails, account records and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez allegedly received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades.  Specifically, Gonzalez allegedly received kickbacks and payments from Broker-Dealer agents and employees that were frequently in six-figure amounts.

To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places.  For instance, Lujan, Clarke and Hurtado used accounts they controlled in Switzerland to transfer funds to an account Gonzalez allegedly controlled in Switzerland.  Additionally, Hurtado and his spouse received substantial compensation from the Broker-Dealer, portions of which Hurtado transferred to an account allegedly held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland.  Hurtado also sought and allegedly received reimbursement from Gonzalez for the U.S. income taxes he had paid on money that he used to make kickback payments to Gonzalez.  Lujan and Clarke also derived substantial profit from their roles in the bribery scheme.
   
According to court records, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011 the SEC’s examination staff made several visits to the Broker-Dealer’s offices in Manhattan.  In early 2011, Lujan, Clarke and Hurtado discussed their concern that the SEC was examining the Broker-Dealer’s relationship with BANDES and asking questions regarding certain emails and other information that the SEC examination staff had discovered.  Lujan, Clarke and Hurtado agreed that they would take steps to conceal the true facts of the Broker-Dealer’s relationship with BANDES, including deleting emails.  Lujan, Clarke and Hurtado then, in fact, deleted emails.  Additionally as part of this effort to obstruct the SEC examination, Clarke lied to SEC examination staff in response to an interview question about his relationship to an individual who had received purported foreign associate payments relating to BANDES.

In a related scheme, from 2008 through mid-2009, Lujan, Clarke and Hurtado paid bribes to the Banfoandes Foreign Official, who, in exchange, directed Banfoandes trading business to the Broker-Dealer.

Gonzalez was charged in a criminal complaint and arrested on May 3, 2013, in connection with the BANDES bribery scheme.  The charges against Gonzalez are merely accusations, and she is presumed innocent unless and until proven guilty.

This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs.

Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution.  Assistant U.S. Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.

SEC WILL NOT CHARGE RALPH LAUREN CORPORATION WITH FCPA VIOLATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., April 22, 2013 — The Securities and Exchange Commission today announced a non-prosecution agreement (NPA) with Ralph Lauren Corporation in which the company will disgorge more than $700,000 in illicit profits and interest obtained in connection with bribes paid by a subsidiary to government officials in Argentina from 2005 to 2009. The misconduct was uncovered in an internal review undertaken by the company and promptly reported to the SEC.

The SEC has determined not to charge Ralph Lauren Corporation with violations of the Foreign Corrupt Practices Act (FCPA) due to the company's prompt reporting of the violations on its own initiative, the completeness of the information it provided, and its extensive, thorough, and real-time cooperation with the SEC's investigation. Ralph Lauren Corporation's cooperation saved the agency substantial time and resources ordinarily consumed in investigations of comparable conduct.

The NPA is the first that the SEC has entered involving FCPA misconduct. NPAs are part of the SEC Enforcement Division's Cooperation Initiative, which rewards cooperation in SEC investigations. In parallel criminal proceedings, the Justice Department entered into an NPA with Ralph Lauren Corporation in which the company will pay an $882,000 penalty.

"When they found a problem, Ralph Lauren Corporation did the right thing by immediately reporting it to the SEC and providing exceptional assistance in our investigation," said George S. Canellos, Acting Director of the SEC's Division of Enforcement. "The NPA in this matter makes clear that we will confer substantial and tangible benefits on companies that respond appropriately to violations and cooperate fully with the SEC."

Kara Brockmeyer, the SEC's FCPA Unit Chief, added, "This NPA shows the benefit of implementing an effective compliance program. Ralph Lauren Corporation discovered this problem after it put in place an enhanced compliance program and began training its employees. That level of self-policing along with its self-reporting and cooperation led to this resolution."

According to the NPA, Ralph Lauren Corporation's cooperation included:
Reporting preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts.
Voluntarily and expeditiously producing documents.
Providing English language translations of documents to the staff.
Summarizing witness interviews that the company's investigators conducted overseas.
Making overseas witnesses available for staff interviews and bringing witnesses to the U.S.
According to the NPA, the bribes occurred during a period when Ralph Lauren Corporation lacked meaningful anti-corruption compliance and control mechanisms over its Argentine subsidiary. The misconduct came to light as a result of the company adopting measures to improve its worldwide internal controls and compliance efforts, including implementation of an FCPA compliance training program in Argentina.

As outlined in the NPA, Ralph Lauren Corporation's Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of Ralph Lauren Corporation's products in Argentina. The purpose of the bribes, paid through its customs broker, was to obtain entry of Ralph Lauren Corporation's products into the country without necessary paperwork, avoid inspection of prohibited products, and avoid inspection by customs officials. The bribe payments and gifts to Argentine officials totaled $593,000 during a four-year period.

Under the NPA, Ralph Lauren Corporation agreed to pay $593,000 in disgorgement and $141,845.79 in prejudgment interest.

The SEC took into account the significant remedial measures undertaken by Ralph Lauren Corporation, including a comprehensive new compliance program throughout its operations. Among Ralph Lauren Corporation's remedial measures have been new compliance training, termination of employment and business arrangements with all individuals involved in the wrongdoing, and strengthening its internal controls and its procedures for third party due diligence. Ralph Lauren Corporation also conducted a risk assessment of its major operations worldwide to identify any other compliance problems. Ralph Lauren Corporation has ceased operations in Argentina.

The SEC's investigation was conducted by Kristin A. Snyder and Tracy L. Davis in the San Francisco Regional Office. The SEC appreciates the assistance of the U.S. Department of Justice's Fraud Section, the U.S. Attorney's Office for the Eastern District of New York, and the Federal Bureau of Investigation in this matter.

COMPANY CHARGED BY SEC WITH VIOLATING FOREIGN CORRUPT PRACTICES ACT

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Parker Drilling Company with Violating the Foreign Corrupt Practices Act

The Securities and Exchange Commission today charged Parker Drilling Company, a worldwide drilling services and project management firm, with violating the Foreign Corrupt Practices Act (FCPA) by authorizing improper payments to a third-party intermediary retained to assist the company in resolving customs disputes.

The SEC's complaint, filed in federal district court in Alexandria, Virginia, alleges that in 2004 Parker Drilling authorized payments to a Nigerian agent totaling $1.25 million. The company did so despite former senior executives knowing that the agent intended to use the funds to "entertain" Nigerian officials involved in resolving Parker Drilling's ongoing customs problems. Following the Nigerian agent's work, the company received an unexplained $3,050,000 reduction of a previously assessed customs fine, and the company was permitted to nationalize and sell its Nigerian rigs.

To settle the SEC's charges, Parker Drilling will pay disgorgement of $3,050,000 plus pre-judgment interest of $1,040,818. Parker Drilling consented to the entry of a final judgment permanently enjoining it from violating Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act. The proposed settlement is subject to court approval.

In the parallel criminal proceedings, the Department of Justice entered into a Deferred Prosecution Agreement with Parker Drilling in which the company will pay an $11,760,000 penalty.

The SEC acknowledges the assistance of the Department of Justice's Fraud Section, the Federal Bureau of Investigation, and the United Kingdom's Crown Prosecution Service and Metropolitan Police Service.

SEC FILES SETTLED FCPA CHARGES AGAINST ELI LILLY AND COMPANY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged Eli Lilly and Company with violations of the Foreign Corrupt Practices Act (FCPA) for improper payments its subsidiaries made to foreign government officials to win millions of dollars of business in Russia, Brazil, China and Poland.

The SEC alleges that the Indianapolis-based pharmaceutical company’s subsidiary in Russia used offshore "marketing agreements" to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services, and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with off-shore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary’s use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third party entities associated with government officials. Lilly agreed to pay more than $29 million to settle the SEC’s charges.

As alleged in the SEC’s complaint filed in federal court in Washington D.C.:
Lilly’s subsidiary in Russia paid millions of dollars to off-shore entities for alleged "marketing services" in order to induce pharmaceutical distributors and government entities to purchase Lilly’s drugs, including approximately $2 million to an off-shore entity owned by a government official and approximately $5.2 million to off-shore entities owned by a person closely associated with an important member of Russia’s Parliament. Despite the company’s recognition that the marketing agreements were being used to "create sales potential" with government customers and that it did not appear that any actual services were being rendered under the agreements, Eli Lilly allowed its subsidiary to continue using the agreements for years.
Employees at Lilly’s subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians.
Lilly’s subsidiary in Brazil allowed one of its pharmaceutical distributors to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug product to state government institutions.
Lilly’s subsidiary in Poland made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.
Lilly agreed to pay disgorgement of $13,955,196, prejudgment interest of $6,743,538, and a penalty of $8,700,000 for a total payment of $29,398,734. Without admitting or denying the allegations, Lilly consented to the entry of a final judgment permanently enjoining the company from violating the anti-bribery, books and records, and internal controls provisions of the FCPA, Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act. Lilly also agreed to comply with certain undertakings including the retention of an independent consultant to review and make recommendations about its foreign corruption policies and procedures. The settlement is subject to court approval.

2012 YIELDS NEAR RECORD RESULTS FOR SEC ENFORCEMENTS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Nov. 14, 2012 — Building on last year’s record results, the Securities and Exchange Commission today announced that it filed 734 enforcement actions in the fiscal year that ended Sept. 30, 2012, one shy of last year’s record of 735. Most significantly, that number included an increasing number of cases involving highly complex products, transactions, and practices, including those related to the financial crisis, trading platforms and market structure, and insider trading by market professionals. Twenty percent of the actions were filed in investigations designated as National Priority Cases, representing the Division’s most important and complex matters.

The SEC also announced that it obtained orders in fiscal year 2012 requiring the payment of more than $3 billion in penalties and disgorgement for the benefit of harmed investors. It represents an 11 percent increase over the amount ordered last year. In the past two years, the SEC has obtained orders for $5.9 billion in penalties and disgorgement.

"The record of performance is a testament to the professionalism and perseverance of the staff and the innovative reforms put in place over the past few years," said SEC Chairman Mary L. Schapiro. "We’ve now brought more enforcement actions in each of the last two years than ever before including some of the most complex cases we’ve ever seen."

Robert Khuzami, Director of the SEC’s Division of Enforcement, added, "It’s not simply numbers, but the increasing complexity and diversity of the cases we file that shows how successful we’ve been. The intelligence, dedication, and deep experience of our enforcement staff are, more than any other factors, responsible for the Division’s success."

The sustained high-level performance comes two years after the Division underwent its most significant reorganization since it was established in the early 1970s. The results in 2012 were aided by many of the reforms and innovations put in place in the past two years, such as increased expertise in complex and emerging financial markets, products, and transactions, including through enhanced training, the hiring of industry experts, and the creation of specialized enforcement units focused on high-priority misconduct; a flatter management structure; streamlined and centralized processes and the improved utilization of information technology; and a vastly enhanced ability to collect, process, and analyze tips and complaints.

Financial Crisis-Related Cases

Among the cases filed by the SEC in FY 2012 were 29 separate actions naming 38 individuals, including 24 CEOs, CFOs and other senior corporate officers, regarding wrongdoing related to the financial crisis.

These cases included enforcement actions involving:
The former senior officers of Fannie Mae and Freddie Mac for misleading statements regarding the extent of each company’s holdings of higher-risk mortgage loans.

Former investment bankers at Credit Suisse for fraudulently overstating the prices of $3 billion in subprime bonds.
Several bank and mortgage executives including those at United Commercial Bank, TierOne Bank, Franklin Bank, and Thornburg Mortgage for misleading investors about mounting loan losses and the deteriorating financial condition of their institutions.
The U.S. investment banking subsidiary of Japan-based Mizuho Financial Group for misleading investors in a CDO by using "dummy assets" to inflate the deal’s credit ratings.

During the last 2½ years, the agency has filed actions related to the financial crisis against 117 defendants – nearly half of whom were CEOs, CFOs and other senior corporate executives, resulting in approximately $ 2.2 billion in disgorgement, penalties, and other monetary relief obtained or agreed to. The SEC brought enforcement actions against Goldman Sachs, J.P Morgan Securities, and Morgan Keegan as well as senior executives from Countrywide, New Century, and American Home Mortgage.

Insider Trading Cases

Insider trading cases also are on the upswing with 58 actions filed in FY 2012 by the SEC, an increase over last year’s total of 57 actions. The 168 total insider trading actions filed since October 2009 have been the most in SEC history for any three-year period.

In these actions, the SEC has charged approximately 400 individuals and entities for illegal trading totaling approximately $600 million in illicit profits. Among those charged in SEC insider trading cases in 2012 were:
Former McKinsey & Co. global head Rajat Gupta for illegally tipping convicted hedge fund manager Raj Rajaratnam.

Hedge funds Diamondback Capital and Level Global Investors and affiliated traders and analysts.
Hedge fund manager Douglas Whitman.

John Kinnucan and his expert network consulting firm Broadband Research Corporation.
A second round of charges in an insider trading case involving former professional baseball players and the former top executive at Advanced Medical Optics.

Other Enforcement Matters

In order to ensure fair trading and equal access to information in the securities markets, the SEC brought several actions involving compliance failures and rules violations relating to stock exchanges, alternative trading platforms, and other market structure participants.

These cases included:
First-of-its-kind charges against the New York Stock Exchange for compliance failures that gave certain customers an improper head start on trading information.
The first-ever action against a "dark pool" trading platform (Pipeline Trading Systems) for failing to disclose to its customers that the vast amount of orders were filled by an affiliated trading operation.
An action against Direct Edge Holdings LLC for violations at two of its electronic stock exchanges and a broker-dealer arising out of weak controls that resulted in millions of dollars in trading losses and a systems outage.

In the NYSE matter, the exchange and its parent company NYSE Euronext agreed to pay a $5 million penalty, marking the first-ever SEC financial penalty against an exchange.

Investment Advisers: The SEC filed numerous actions resulting from several risk-based, proactive measures that identify threats at an early stage so that early action to halt the misconduct can be initiated and investor harm minimized. In 2012, several actions resulted from the Division’s investment adviser compliance initiative, which looks for registered investment advisers who lack effective compliance programs designed to prevent securities laws violations.

The SEC also filed actions charging three advisory firms and six individuals as part of the Aberrational Performance Inquiry into abnormal performance returns by hedge funds. Other actions against investment advisers included cases against UBS Financial Services of Puerto Rico and two executives for misleading disclosures relating to certain proprietary closed-end mutual funds, Morgan Stanley Investment Management for an improper fee arrangement, and OppenheimerFunds for misleading investors in two funds suffering significant losses during the financial crisis. UBS paid more than $26 million to settle the SEC’s charges while OppenheimerFunds paid more than $35 million for its violations.

The SEC filed 147 enforcement actions in 2012 against investment advisers and investment companies, one more than the previous year’s record number.

Issuer Disclosures:
The SEC brought 79 actions in FY 2012 for financial fraud and issuer disclosure violations. Those cases included actions against Life Partners Holdings and senior executives for fraudulent disclosures related to life settlements; two executives at China-based Puda Coal for defrauding investors about the nature of the company’s assets; and an enforcement action against Shanghai-based Deloitte Touche Tohmatsu for its refusal to provide the SEC with audit work papers related to a China-based company under investigation for potential accounting fraud against U.S. investors.

Broker-Dealers:
The agency filed 134 enforcement actions related to broker-dealers, a 19 percent increase over the previous year. Broker-dealer actions included charges against a Latvian trader and electronic trading firms for their roles in an online account intrusion scheme that manipulated the prices of more than 100 NYSE and Nasdaq securities as well as charges against New York-based brokerage firm Hold Brothers On-Line Investment Services and three of its executives for their roles in allowing overseas traders to access the markets and conduct manipulative trading through accounts the firm controlled. The defendants in the Hold Brothers action paid a total of $4 million to settle the SEC’s charges.

FCPA:
The SEC filed 15 actions in FY 2012 for violations of the Foreign Corrupt Practices Act. FCPA actions were filed against former Siemens executives, Magyar Telekom, Biomet, Smith & Nephew, Pfizer, Tyco International, and a former executive at Morgan Stanley’s real estate investment and fund advisory business.

Municipal Securities:
The SEC filed 17 enforcement actions related to municipal securities, more than double the number filed in 2011. Among those charged in SEC municipal securities actions were the former mayor and city treasurer of Detroit in a pay-to-play scheme involving investments of the city’s pension funds, and Goldman Sachs for violations of various municipal securities rules resulting from undisclosed "in-kind" non-cash contributions that one of its investment bankers made to a Massachusetts gubernatorial candidate.

SEC SETTLES FCPA CHARGES AGAINST PFIZER INC. AND WYETH LLC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today filed a settled enforcement action in the U.S. District Court for the District of Columbia against Pfizer Inc. for violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries bribed doctors and other health care professionals employed by foreign governments in order to win business.

The SEC alleges that employees and agents of Pfizer’s subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia made improper payments to foreign officials to obtain regulatory and formulary approvals, sales, and increased prescriptions for the company’s pharmaceutical products. They tried to conceal the bribery by improperly recording the transactions in accounting records as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences, and advertising.

The SEC filed a separate settled enforcement action in the U.S. District Court for the District of Columbia against another pharmaceutical company that Pfizer acquired a few years ago – Wyeth LLC – for its own FCPA violations. Pfizer and Wyeth agreed to separate settlements in which they will pay approximately $45 million combined in disgorgement and prejudgment interest to the SEC to settle their respective charges. In a related action, Pfizer H.C.P. Corporation, an indirect wholly owned subsidiary of Pfizer, will pay a $15 million penalty to settle FCPA charges brought against it today by the U.S. Department of Justice (DOJ) under a deferred prosecution agreement.

The SEC’s complaint against Pfizer alleges that Pfizer’s misconduct dates back as far as 2001. According to the SEC’s complaint, employees of Pfizer’s subsidiaries authorized and made cash payments and provided other incentives to bribe government doctors to utilize Pfizer products. In China, for example, the SEC’s complaint alleges that Pfizer employees invited "high-prescribing doctors" in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions. In addition, according to the SEC’s complaint, Pfizer employees in Croatia created a "bonus program" for Croatian doctors who were employed in senior positions in Croatian government health care institutions. According to the SEC’s complaint, once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.

According to the SEC’s complaint, Pfizer made an initial voluntary disclosure of misconduct by its subsidiaries to the SEC and Department of Justice in October 2004, and fully cooperated with SEC investigators. The complaint alleges that Pfizer took such extensive remedial actions as undertaking a comprehensive worldwide review of its compliance program.

The SEC further alleges that Wyeth subsidiaries engaged in FCPA violations, primarily before, but also after, the company’s acquisition by Pfizer in late 2009. For example, according to the SEC’s complaint, starting at least in 2005, subsidiaries marketing Wyeth nutritional products in China, Indonesia, and Pakistan bribed government doctors to recommend their products to patients by making cash payments or in some cases providing BlackBerrys and cell phones or travel incentives. The complaint alleges that Wyeth’s employees often used fictitious invoices to conceal the true nature of the payments.

According to the SEC’s complaint, following Pfizer’s acquisition of Wyeth, Pfizer undertook a risk-based FCPA due diligence review of Wyeth’s global operations and voluntarily reported the findings to the SEC staff. The complaint alleges that Pfizer diligently and promptly integrated Wyeth’s legacy operations into its compliance program and cooperated fully with SEC investigators.

In settling the SEC’s charges, Wyeth neither admitted nor denied the allegations. Pfizer consented to the entry of a final judgment ordering it to pay disgorgement of $16,032,676 in net profits and prejudgment interest of $10,307,268 for a total of $26,339,944. Pfizer also is required to report to the SEC on the status of its remediation and implementation of compliance measures over a two-year period, and is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Wyeth consented to the entry of a final judgment ordering it to pay disgorgement of $17,217,831 in net profits and prejudgment interest of $1,658,793, for a total of $18,876,624. As a Pfizer subsidiary, the status of Wyeth’s remediation and implementation of compliance measures will be subsumed in Pfizer’s two-year self-reporting period. Wyeth also is permanently enjoined from further violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The settlements are subject to court approval.

SEC CHARGES ORTHOFIX INTERNATIONAL WITH FCPA VIOLATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged Texas-based medical
device company Orthofix International N.V. with violating the Foreign Corrupt
Practices Act (FCPA) when a subsidiary paid routine bribes referred to as
chocolates to Mexican officials in order to obtain lucrative sales contracts
with government hospitals.

The SEC alleges that Orthofixâ's Mexican subsidiary Promeca S.A. de C.V.
bribed officials at Mexico’s government-owned health care and social services
institution Instituto Mexicano del Seguro Social (IMSS). The chocolates came
in the form of cash, laptop computers, televisions, and appliances that were
provided directly to Mexican government officials or indirectly through front
companies that the officials owned. The bribery scheme lasted for several years
and yielded nearly $5 million in illegal profits for the Orthofix
subsidiary.

Orthofix agreed to pay $5.2 million to settle the SEC’s charges.
According to the SEC's complaint filed in U.S. District Court for the Eastern
District of Texas, the bribes began in 2003 and continued until 2010. Initially,
Promeca falsely recorded the bribes as cash advances and falsified its invoices
to support the expenditures. Later, when the bribes got much larger, Promeca
falsely recorded them as promotional and training costs. Because of the bribery
scheme, Promeca's training and promotional expenses were significantly over
budget. Orthofix did launch an inquiry into these expenses, but did very little
to investigate or diminish the excessive spending. Later, upon discovery of the
bribe payments through a Promeca executive, Orthofix immediately self-reported
the matter to the SEC and implemented significant remedial measures. The company
terminated the Promeca executives who orchestrated the bribery scheme.

The SEC's proposed settlement is subject to court approval. Orthofix
consented to a final judgment ordering it to pay $4,983,644 in disgorgement and
more than $242,000 in prejudgment interest. The final judgment would permanently
enjoined the company from violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the
Securities Exchange Act of 1934. Orthofix also agreed to certain undertakings,
including monitoring its FCPA compliance program and reporting back to the SEC
for a two-year period.

Orthofix also disclosed today in an 8-K filing that it has reached an
agreement with the U.S. Department of Justice to pay a $2.22 million penalty in
a related action.

SEC CHARGES MEDICAL DEVICE COMPANY WITH VIOLATING FOREIGN CORRUPT PRACTICES ACT

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., July 10, 2012 – The Securities and Exchange Commission today charged Texas-based medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act (FCPA) when a subsidiary paid routine bribes referred to as “chocolates” to Mexican officials in order to obtain lucrative sales contracts with government hospitals.

The SEC alleges that Orthofix’s Mexican subsidiary Promeca S.A. de C.V. bribed officials at Mexico’s government-owned health care and social services institution Instituto Mexicano del Seguro Social (IMSS). The “chocolates” came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the Orthofix subsidiary.

Orthofix agreed to pay $5.2 million to settle the SEC’s charges, and agreed to pay a $2.22 million monetaryv penalty as part of a deferred prosecution agreement announced today by the U.S. Department of Justice.

“Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “Orthofix’s lax oversight allowed its subsidiary to illicitly spend more than $300,000 to sweeten the deals with Mexican officials.”

According to the SEC’s complaint filed in U.S. District Court for the Eastern District of Texas, the bribes began in 2003 and continued until 2010. Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs. Because of the bribery scheme, Promeca’s training and promotional expenses were significantly over budget. Orthofix did launch an inquiry into these expenses, but did very little to investigate or diminish the excessive spending. Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures. The company terminated the Promeca executives who orchestrated the bribery scheme.

The SEC’s proposed settlement is subject to court approval. Orthofix consented to a final judgment ordering it pay $5.2 million in disgorgement and prejudgment interest, and permanently enjoining the company from violating the books and records and internal controls provisions of the FCPA. Orthofix also agreed to certain undertakings, including monitoring its FCPA compliance program and reporting back to the SEC for a two-year period.

The SEC’s investigation was conducted by Carol Shau and Alka N. Patel in the Los Angeles Regional Office. The SEC acknowledges and appreciates the assistance of the U.S. Department of Justice’s Criminal Division - Fraud Section and the Federal Bureau of Investigation.

SEC CHARGES BIOMETINC., WITH BRIBING DOCTORES IN ARGENTINA, BRAZIL, AND CHINA

The following excerpt is from a Securities and Exchange Commission e-mail:
Washington, D.C., March 26, 2012 — The Securities and Exchange Commission today charged Warsaw, Ind.-based medical device company Biomet Inc. with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries and agents bribed public doctors in Argentina, Brazil, and China for nearly a decade to win business.

Biomet, which primarily sells products used by orthopedic surgeons, agreed to pay more than $22 million to settle the SEC’s charges as well as parallel criminal charges announced by the U.S. Department of Justice today. The charges arise from the SEC and DOJ’s ongoing proactive global investigation into medical device companies bribing publicly-employed physicians.

The SEC alleges that Biomet and its four subsidiaries paid bribes from 2000 to August 2008, and employees and managers at all levels of the parent company and the subsidiaries were involved along with the distributors who sold Biomet’s products. Biomet’s compliance and internal audit functions failed to stop the payments to doctors even after learning about the illegal practices.

“Biomet’s misconduct came to light because of the government’s proactive investigation of bribery within the medical device industry,” said Kara Novaco Brockmeyer, Chief of the Enforcement Division’s Foreign Corrupt Practices Act Unit. “A company’s compliance and internal audit should be the first line of defense against corruption, not part of the problem.”

According to the SEC’s complaint filed in federal court in Washington D.C., employees of Biomet Argentina SA paid kickbacks as high as 15 to 20 percent of each sale to publicly-employed doctors in Argentina. Phony invoices were used to justify the payments, and the bribes were falsely recorded as “consulting fees” or “commissions” in Biomet’s books and records. Executives and internal auditors at Biomet’s Indiana headquarters were aware of the payments as early as 2000, but failed to stop it.

The SEC alleges that Biomet’s U.S. subsidiary Biomet International used a distributor to bribe publicly-employed doctors in Brazil by paying them as much as 10 to 20 percent of the value of their medical device purchases. Payments were openly discussed in communications between the distributor, Biomet International employees, and Biomet’s executives and internal auditors in the U.S. For example, a February 2002 internal Biomet memorandum about a limited audit of the distributor’s books stated:

Brazilian Distributor makes payments to surgeons that may be considered as a kickback. These payments are made in cash that allows the surgeon to receive income tax free. …The accounting entry is to increase a prepaid expense account. In the consolidated financials sent to Biomet, these payments were reclassified to expense in the income statement.

According to the SEC’s complaint, two additional subsidiaries – Biomet China and Scandimed AB – sold medical devices through a distributor in China who provided publicly-employed doctors with money and travel in exchange for their purchases of Biomet products. Beginning as early as 2001, the distributor exchanged e-mails with Biomet employees that explicitly described the bribes he was arranging on the company’s behalf. For example, one e-mail stated:

[Doctor] is the department head of [public hospital]. [Doctor] uses about 10 hips and knees a month and it’s on an uptrend, as he told us over dinner a week ago. …Many key surgeons in Shanghai are buddies of his. A kind word on Biomet from him goes a long way for us. Dinner has been set for the evening of the 24th. It will be nice. But dinner aside, I’ve got to send him to Switzerland to visit his daughter.
The SEC alleges that some e-mails described the way that vendors would deliver cash to surgeons upon completion of surgery, and others discussed the amount of payments. The distributor explained in one e-mail that 25 percent in cash would be delivered to a surgeon upon completion of surgery. Biomet sponsored travel for 20 Chinese surgeons in 2007 to Spain, where a substantial part of the trip was devoted to sightseeing and other entertainment.

Biomet consented to the entry of a court order requiring payment of $4,432,998 in disgorgement and $1,142,733 in prejudgment interest. Biomet also is ordered to retain an independent compliance consultant for 18 months to review its FCPA compliance program, and is permanently enjoined from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Biomet agreed to pay a $17.28 million fine to settle the criminal charges.

The SEC’s investigation was conducted by Brent S. Mitchell with Tracy L. Price of the Enforcement Division’s FCPA Unit and Reid A. Muoio. The SEC acknowledges the assistance of the U.S. Department of Justice’s Fraud Section and the Federal Bureau of Investigation. The investigation into bribery in the medical device industry is continuing.