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After Strkyer II, are per diems atop expenses always improper?

A little-noticed nugget in the recent Stryker SEC Order (Stryker II) — in addition to overbilling, kickbacks, and using unvetted intermediaries in India and China — was the allegation that Stryker’s “Kuwait Distributor made over $32,000 in improper ‘per diem’ payments to Kuwaiti [healthcare providers] to attend Stryker events, when Stryker had directly paid the costs for lodging, meals, and local transportation for these individuals.”  

This strongly implies that the per diems were improper because they were paid in addition to all other costs (“Per-Diems-Plus”). 

It is common practice to advise clients that the payment of Per-Diems-Plus increases compliance risk, but to my knowledge, the SEC and DOJ have never gone so far as to state or even imply that Per-Diems-Plus are per se improper.

First, it is difficult to evaluate Stryker II’s Kuwaiti per diems because the SEC provides only the total amount ($32,000 from 2015 to 2017) without additional context such as the daily rate or number of recipients. Rather than obliquely calling out Per-Diems-Plus as per se bribes, the SEC may be stating that they were excessive in this instance — but without more facts, this is guesswork.

Second, Stryker II is a settlement for alleged books and records and internal controls violations, not anti-bribery violations. Rather than obliquely calling out Per-Diems-Plus as per se bribes, the SEC may be stating that the per diems were improper as internal controls violations because they were unapproved by management or disallowed by Stryker’s internal policies — but without more facts, this is guesswork, too.

It would be unfortunate if Stryker II comes to stand for the proposition that Per-Diems-Plus are per se improper. I suspect that enforcement authorities have left a penumbra of uncertainty around this topic precisely because it is difficult to define a bright-line rule where a flexible reasonableness standard is more appropriate. 

While Per-Diems-Plus can easily migrate across the reasonableness spectrum into improper territory, it would be wrong to categorically dismiss them as improper.

What about a Chennai surgeon, normally paid hourly, attending a medical device demonstration in Mumbai? If the device company pays all the travel costs and nothing else, then the surgeon would still lose money to attend the demonstration because of the opportunity cost of his lost daily income. Many compliance professionals might blanche at a $100 Per-Diem-Plus, but for our hypothetical Indian surgeon, that may only make him (closer to) whole just so that he can attend the product demonstration without losing money — hardly the stuff of bribery and corruption. 

As someone who has done compliance work for a decade on every continent except Antarctica, I understand the practical complications of including lost income in per diems as a justification for paying Per-Diems-Plus, including the etymological rebuttal (conceptually, per diems have not traditionally included lost income). The point of my illustration is simply that, at the very least, Per-Diems-Plus should not be viewed as per se improper from an anti-corruption perspective, as Stryker II implies.


Kyden Creekpaum has conducted international investigations and due diligence in the energy, aviation, aerospace, and banking industries. Prior to joining Frederic Dorwart Lawyers in Tulsa, Oklahoma, he was a senior associate in the Washington & Paris offices of Hughes Hubbard & Reed LLP. He can be contacted here.

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