The SEC summed up the criminal activity in the corner offices this way: In many instances, senior management actively thwarted compliance efforts, personally engaging in corruption schemes and directing employees to destroy records of the misconduct. The improper conduct continued for years in Saudi Arabia, Morocco, eight countries in the West African region, Angola, Turkey, Spain, China, Serbia, Bosnia, and Mexico.
Last week Germany’s Fresenius Medical Care, the world’s biggest provider of dialysis equipment and services, paid the DOJ and SEC $231 million to resolve FCPA violations in at least 17 countries.
Senior executives directed the bribery and the global cover up. From Germany they ordered Fresenius employees in field offices to alter and destroy documents and delete files from computers. “Lower-level employees were berated if they didn’t destroy their laptops or delete emails,” the SEC said.
The malfeasance even reached Fresenius’ legal, compliance, and audit groups.
“Despite multiple red flags of bribery,” the SEC said, “FMC’s legal, compliance, and internal audit functions failed to detect and prevent the bribery. Employees were inadequately trained on the company’s anti-corruption policies, and due diligence on third parties was minimal.”
This was big-time bribery owned by senior management. Here are some examples:
Angola. A high-level executive in Germany responsible for business development in Europe, the Middle East, and Africa brought a proposal to the company’s management board. It was a plan to give “local partners” in Angola 35 percent of the Fresenius company there. The board presentation didn’t say exactly who the minority shareholders would be. “FMC Executive 1,” as the DOJ called him or her, knew the local partners would be an Angolan military health officer, an Angolan government doctor, and a company called NefroAngola that was owned entirely by Angolan nephrologists.
Saudi Arabia. Top executives in Germany began receiving reports in 2009 that a general manager in Saudi Arabia was submitting phony accounts for marketing and travel expenditures, the SEC said. The general manager wasn’t fired until 2013. By then Fresenius had made “over $40 million as a result of the corruption schemes in Saudi Arabia,” the SEC said.
Morroco. A Fresenius “corporate officer” in Germany and a sales manager there ran a scheme to bribe the chief nephrologist at two state owned military hospitals from 2006 to 2010. To fund the bribes, several senior managers in Germany arranged fake back-dated bonuses for a Fresenius manager in another African company. That manager then traveled to Morocco to hand the bribes to the government nephrologist.
Turkey. A senior manager in Germany pushed a scheme to bribe a prominent government doctor with free shares in a joint venture. Fresenius then bought the shares back for $350,000. The management board in Germany gave the final ok after the senior manager wrote: “The professor who is our shareholder has very strong relations with all state authorities including the university and other state hospitals. He is in a protector of our interests.”
China. At the direction of a senior manager, Fresenius paid doctors and nurses who managed government clinics bonuses tied directly to the amount of equipment the clinics purchased from Fresenius. Some payments were made in cash, while others were made by wire transfer, and later by a third party agent, the SEC said. The payments were generally described in the accounting records as “center marketing fees” after a senior Fresenius China manager cautioned another employee to avoid using the term bonus due to “internal legal compliance” concerns.
Mexico. The general director and CFO signed a retroactive contract with a Mexican “distributor” who was paid for “advice” based on how many dialysis treatments government clinics had already bought. The distributor passed the money to government officials in charge of bids Fresenius had won.
Why weren’t the DOJ and SEC harder on Fresenius? Because the company eventually confessed to the feds. And it began the hard process of cleaning up the mess. It fired “at least ten employees” who were involved in the graft or failed to detect it. It put in place new internal controls. It began anti-corruption training. It got rid of agents and distributors who were part of the bribery schemes. It created enhanced due diligence systems. It also withdrew from potentially tainted business opportunities.
After last week’s FCPA settlement, Fresenius CEO Rice Powell said the company has now taken “extensive steps to further a culture of ethical business behavior” and has strengthened its compliance programs and internal controls.
Richard L. Cassin is editor at large of the FCPA Blog.