The Justice Department and the SEC have been busy. More enforcement actions are coming to a close — Avon, Weatherford, and others are likely to be resolved before the end of the year. There is an inevitable fourth quarter push to close out enforcement actions and clear the plate.
It is always interesting to see how the FCPA Paparazzi translates FCPA enforcement actions in its marketing efforts to scare and lure new clients. As an example, the Stryker enforcement action which was announced last week provides an important example of how NOT to think when reviewing an enforcement action for a lesson learned and perhaps a new approach to FCPA compliance.
The healthcare industry sweep has resulted in a string of enforcement actions against pharmaceutical and medical device companies. These enforcement actions are premised on the legal interpretation of the FCPA which holds that foreign doctors and medical officials are foreign officials for purposes of the FCPA. Every compliance program in the healthcare industry recognizes this basic issue and builds its internal controls and compliance procedures around this legal principle.
This same principle was applied in the Diebold enforcement action. Diebold paid a total of $48.1 million to resolve a DOJ criminal proceeding with a deferred prosecution agreement and $22.9 million to resolve an SEC action. Diebold sold ATMs to state-owned banks in China and Indonesia.
To secure business with these state-owned banks, Diebold made various payments including gifts, non-business travel for employees of the banks of approximately $1.75 million over five years.
Stryker settled its long-standing enforcement action with the SEC for $13.2 million. The Justice Department declined to prosecute.
The conduct at issue boiled down to almost five years (August 2003 to February 2008) in which Stryker subsidiaries made $2.2 million in unlawful payments to public health professionals in Mexico, Poland, Romania, Greece and Argentina.
At the core of the enforcement actions was a breakdown in how both companies controlled the flow of money payments for various types of expenses. It would be a mistake to categorize the failures as a breakdown in gifts, meals and entertainment expenses. Frankly, every aspect of a compliance program was implicated in the enforcement actions.
To simplify the matter, however, it is important to return to an important principle – money should be used to pay for services only when there is adequate documentation, justification and verification of the payment.
Stryker and Diebold could have avoided the FCPA enforcement actions if they had tightened their controls, documentation and verification techniques to ensure that each expenditure of money was fully justified.
The important lesson from both these actions is straight-forward: you can design and implement all the fancy policies and procedures you want but if there is breakdown in the system used to justify a company expenditure, it is likely that the company is engaging, or will engage in bribery.