The world’s biggest provider of dialysis equipment and services agreed Friday to pay the DOJ and SEC $231 million in penalties and disgorgement to resolve violations of the Foreign Corrupt Practices Act across Africa, the Middle East, and Europe.
Fresenius Medical Care AG & Co. KGaA, based in Homburg, Germany, bribed doctors and public health officials in at least 17 countries.
Under a non-prosecution agreement (pdf) with the DOJ, Fresenius paid a criminal penalty of $84.7 million.
In the SEC’s civil enforcement action, Fresenius disgorged $147 million (including prejudgment interest), bringing the total amount of the settlement to about $231.7 million.
The SEC resolved the case through an internal administrative order (pdf) and didn’t go to court.
The DOJ’s non-prosecution agreement requires Fresenius to retain an independent compliance monitor for two years and self report for an additional year. The company also agreed to cooperate with the DOJ’s investigation and enhance its compliance program.
The SEC said despite “known red flags of corruption since the early 2000s, [Fresenius] devoted insufficient resources to compliance.”
In some countries it failed to train employees or perform any due diligence on agents.
“In many instances, senior management actively engaged in corruption schemes and directed employees to destroy records of the misconduct,” the SEC said.
Fresenius paid about $30 million in bribes “using sham consulting contracts, falsifying documents, and funneling bribes through a system of third party intermediaries,” the SEC said.
Among the countries involved, according to the SEC and DOJ, were Angola, Benin, Bosnia, Burkina Faso, Cameroon, Chad, China, Gabon, Ivory Coast, Mexico, Morocco, Niger, Saudi Arabia, Senegal, Serbia, Spain, and Turkey.
The DOJ said Fresneius made at least $140 million in profits from the bribery.
In Angola, Fresenius bribed an Angolan military officer and prominent government-employed nephrologists, the DOJ said. Fresenius gave the military officer and a government doctor shares in a local Fresenius joint venture. It contracted with the sons of the military officer for warehousing space that it never used. And it entered into “consultancy agreements with publicly employed doctors for which no services were ever performed,” the DOJ said.
In Saudi Arabia, Fresenius bribed health officials and doctors with cash payments. “Fresenius also entered into fake collection commission agreements, made payments to a government charity, and gave gifts and made payments to publicly employed doctors for travel with no business or educational justification,” according to the company’s admissions.
In Morocco, Fresenius bribed an official in exchange for contracts to develop kidney dialysis centers at state-owned military hospitals. Fresenius paid the official 10 percent of the value of the contracts. The company paid an actual employee sham bonuses which the employee passed on to the official.
In Spain, Fresenius paid a government doctor more than $90,000 for “consulting” without a consulting agreement or contract in place, the DOJ said. The doctor was the head of nephrology at a state-owned hospital that awarded Fresenius a tender in 2011. Fresenius provided other doctors in Spain with travel to medical conferences and made donations to fund projects for the doctors.
In Turkey, Fresenius gave a government doctor “35 percent of the [local] joint venture shares (worth approximately $74,000 at the time) at the time it was formed,” the DOJ said. “In 2010, Fresenius purchased the doctor’s shares and never required the doctor to pay for his shares in the joint venture resulting in $356,000 profit to the doctor.”
Fresenius operates more than 3,700 dialysis clinics worldwide and has 37 production sites in various countries.
In February this year, the company said it reserved €200 million ($245 million) for a potential FCPA resolution with the DOJ and SEC.
The DOJ said Friday that “Fresenius knowingly and willfully failed to implement reasonable internal accounting controls over financial transactions and failed to maintain books and records that accurately and fairly reflected the transactions.”
Fresenius didn’t qualify for a declination under the Corporate Enforcement Policy (pdf), the DOJ said. Although the company voluntarily self-disclosed the misconduct in April 2012, the bribery was widespread and the company “did not timely respond to certain requests by the [DOJ] and, at times, did not provide fulsome responses to requests for information.”
The DOJ said the criminal fine was 40 percent below the low end of the U.S. Sentencing Guidelines fine range.
Fresenius CEO Rice Powell said in a statement Friday: “We are pleased to have concluded these investigations and to have resolved the issues that we identified and voluntarily disclosed to the U.S. authorities. Since the investigation began we have taken extensive steps to further a culture of ethical business behavior throughout the entire company and to strengthen our compliance programs and internal controls.”
Richard L. Cassin is editor at large of the FCPA Blog.