DOJ And SEC Announce Resolution Of FCPA Investigation That Spanned Over Fifteen Countries With NPA, Monitor, And Over $231 Million In Disgorgement And Fines
On March 29, 2019, the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”) announced that they had reached resolution with a German-based major worldwide provider of medical equipment and services (the “Company”), in connection with alleged bribery payments and books and records violations in more than fifteen different countries. See In the Matter of Fresenius Medical Care AG & Co. KGaA, Admin. Proc. No. 3-19126 (Mar. 29, 2019); Press Release, SEC Charges Medical Device Company with FCPA Violations, No. 2019-48 (Mar. 29, 2019). In aggregate, the Company agreed to pay in excess of $231 million in disgorgement and penalties, and also agreed to the imposition of a compliance monitor for two years. And as part of a non-prosecution agreement with the DOJ, the Company admitted responsibility for willfully violating the Foreign Corrupt Practices Act (“FCPA”) and agreed that the facts described by the DOJ were true and accurate. See Non-Prosecution Agreement, Fresenius Medical Care AG & Co. KGaA (Feb. 25, 2019); Press Release, Fresenius Medical Care Agrees to Pay $231 Million in Criminal Penalties and Disgorgement to Resolve Foreign Corrupt Practices Act Charges (Mar. 29, 2019).
According to the government, from at least 2009 through 2016, the Company paid millions of dollars in bribes to procure business in various jurisdictions, including in China, Spain, Bosnia, Mexico, Saudi Arabia, Angola, Morocco, and Turkey. The government contended that the Company ignored “numerous red flags of corruption” in its operations since the early 2000s, and that its employees used sham consulting contracts, falsified documents, third party intermediaries, and other mechanisms to funnel bribes to local government officials in exchange for business and influence in official decision-making. The government further alleged that senior Company management “actively thwarted” compliance efforts, personally engaging in corruption schemes and directing employees to destroy records of the misconduct.
In its three-year non-prosecution agreement with the DOJ, the Company admitted to earning more than $140 million in profits from its corrupt schemes, which drove the financial terms of the resolution. The Company agreed to pay $135 million in disgorgement and $12 million prejudgment interest to the SEC (an amount that differs slightly from the reported profits, perhaps due to statute of limitations or other issues). And the Company agreed to pay an additional $84.7 million criminal fine to the DOJ.
Perhaps equally significant as the financial component, however, the Company agreed to engage an independent compliance monitor for the first two years of the non-prosecution agreement, followed by one year of self-monitoring. Those terms provide added “teeth” to the non-prosecution agreement, and will maintain the DOJ’s leverage over the Company for its three-year term.
As with nearly every FCPA resolution, attempting to discern what drove the specific outcome can be a challenge, but a few points are noteworthy.
First, the seemingly severe settlement was in spite of the fact that the Company was given credit for voluntarily disclosing the conduct.
Second, notwithstanding the voluntary self-disclosure and the fact that the Company “provided to the Department all relevant facts known to it, including information about the individuals involved in the conduct described,” the Company was not given “full cooperation credit.” Commenting on the Company’s conduct during the investigation, the SEC stated that the Company’s cooperation “varied at times[,]” and the DOJ explained that the Company received only “partial” credit because—while the Company did make regular factual presentations and conducted a “thorough” internal investigation—the DOJ contended that the Company did not always timely respond to requests for information or provide fulsome responses. Without more facts, it is by no means clear why the Company’s cooperation did not live up to the government’s standards; nor is clear how much better the settlement terms could have been with more extensive cooperation.
Third, the two-year compliance monitor is only the second one imposed in an FCPA case since the DOJ announced its revised policy on corporate monitors in October 2018. See Shearman & Sterling LLP Need to Know Weekly, DOJ Announces Updated Policy on Selection of Corporate Monitors (Oct. 23, 2018). The decision to impose a monitor likely follows largely from the apparently pervasive nature of the conduct and the alleged involvement of senior management, but also presumably signals that, in spite of the cooperation and remedial efforts by the Company, its compliance program had not been “demonstrated to be effective and appropriately resourced at the time of resolution.” See U.S. DOJ, Selection of Monitors in Criminal Division Matters (Oct. 11, 2018), at 2.
Fourth, despite the government’s continued focus on individual liability and the alleged involvement of senior management, no individual charges were announced. It may be that individual charges are still forthcoming, or there could be jurisdictional or evidentiary issues preventing them here. But absent more information, it is difficult to ascertain why the government decided to proceed with corporate resolutions first.