Medical device maker Zimmer Biomet Holdings Inc. agreed Thursday to pay $30.5 million to resolve DOJ and SEC investigations into the company’s “repeat” violations of the Foreign Corrupt Practices Act.
Under a deferred prosecution agreement (pdf) with the DOJ, Zimmer Biomet will pay a criminal fine of $17.46 million and retain an independent compliance monitor for three years.
The Warsaw, Indiana-based company also agreed to pay the SEC $13 million, consisting of $6.5 million in disgorgement and interest and a $6.5 million penalty. The SEC settled what it called “repeat” violations through an internal administrative order (pdf) and didn’t go to court.
Biomet first faced FCPA charges from the DOJ and SEC in March 2012. It paid nearly $23 million to settle that enforcement action. Biomet then entered into a deferred prosecution agreement with the DOJ and retained an independent compliance monitor for three years.
In 2013, Biomet learned about more potential anti-bribery violations in Brazil and Mexico and notified the monitor.
Zimmer bought Biomet in 2015 for about $14 billion. The combined company trades on the NYSE under the symbol ZBH.
As part of the DOJ action Thursday, a Zimmer Biomet subsidiary — JERDS Luxembourg Holding S.ár.l. — agreed to plead guilty to a one-count criminal information (pdf) filed in federal court in the District of Columbia. The DOJ charged JERDS with causing Biomet to violate the books and records provisions of the FCPA.
The plea agreement is subject to court approval. A hearing is scheduled for January 13.
Even after the 2012 DPA, the DOJ said Thursday, Biomet “knowingly and willfully continued to use a third-party distributor in Brazil known to have paid bribes to government officials on Biomet’s behalf.”
In Mexico, Biomet also failed to implement an adequate system of internal accounting controls at a subsidiary — “despite employees and executives having been made aware of red flags suggesting that bribes were being paid.”
The DOJ said Biomet allowed the Mexican subsidiary, Biomet 3i Mexico S.A. de C.V. (a wholly-owned subsidiary of JERDS), to bribe Mexican customs officials through customs brokers and sub-agents. The bribed officials let 3i Mexico import dental implants without proper registration or labeling.
The 2012 enforcement action involved Biomet’s bribery of government officials in Argentina, Brazil, and China. The company also created phony financial records to conceal the bribes.
The three-year DPA from the 2012 case was extended by the DOJ for a year after Biomet reported to the monitor the suspected bribery in Brazil and Mexico.
At the end of the extended period, the DOJ said Thursday, “the independent monitor was unable to certify that the company’s compliance program satisfied the requirements of the 2012 DPA.”
In June 2016, the DOJ said in a court filing that Biomet had breached the 2012 deferred prosecution agreement “based on conduct in Brazil and Mexico.”
After the DOJ told Zimmer Biomet it was in breach of the 2012 DPA, the company “fully cooperated” and provided information about individuals involved in the misconduct, the DOJ said Thursday.
But Thursday’s action imposed another three-year DPA on Zimmer Biomet with an independent compliance monitor.
In 2011, the SEC subpoenaed Zimmer Holdings Inc. The subpoena asked for documents and records about sales activities in the Asia Pacific region. That subpoena was part of a wider FCPA investigation into the medical device industry.
But in late 2012, both the DOJ and SEC declined to take action against Zimmer.
Chad Phipps, Zimmer Biomet’s General Counsel, said in a statement Thursday: We are pleased to have reached this resolution involving legacy Biomet FCPA compliance matters.”
“Zimmer Biomet is committed to upholding the highest ethical and legal standards in our business practices across the globe, and we look forward to continuing to integrate the legacy Biomet business operations into our robust corporate compliance program,” Phipps said.
Richard L. Cassin is the publisher and editor of the FCPA Blog.