Recidivism Under the FCPA: Zimmer Biomet

by Thomas Fox

Last week Zimmer Biomet Holdings, Inc. paid a high price for its and its predecessor's failure to comply with the terms and conditions of 2012 Deferred Prosecution Agreement (the “2012 DPA”). Biomet, having originally paid $23 million to resolve violations of the Foreign Corrupt Practices Act (FCPA), was subsequently acquired by Zimmer, which  is now hit with an additional $30 million and new DPA. Under the new DPA, Zimmer will pay a criminal fine of $17.46 million and retain an independent compliance monitor for three years. The company also agreed to pay the Securities and Exchange Commission (SEC) $13 million, consisting of $6.5 million in disgorgement and interest and a $6.5 million penalty and resolved the SEC matter with an Administrative Order (Order). Finally, as part of the Department of Justice (DOJ) action JERDS Luxembourg Holding S.ár.l. (Jerds), a Zimmer Biomet subsidiary, agreed to plead guilty to a Criminal Information for causing Biomet to violate the books and records provisions of the FCPA.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division said in the DOJ Press Release, “Zimmer Biomet had the opportunity to avoid criminal charges but its misconduct allowed the bribes to continue,” said Assistant Attorney General Caldwell. “Zimmer Biomet is now paying the price for disregarding its obligations under the earlier deferred prosecution agreement. In appropriate circumstances the department will resolve serious criminal conduct through alternative means, but there will be consequences for those companies that refuse to take these agreements seriously.”

The matter paints a very negative picture of a company which not only claimed it had eliminated FCPA violations in the original DPA but allowed more illegal conduct to continue during the pendency of its first monitorship. The original monitorship was schedule to last 18 months but was later extended to three years. According to the new DPA, even with that extension, “At the end of the additional year, the independent compliance monitor again could not certify that Biomet’s compliance program met the standards set forth in the 2012 DPA, and the Fraud Section concurred in that assessment”.

The new DPA noted two areas of recidivism, “During the DPA, Biomet continued to engage in criminal conduct, specifically Biomet informed the Fraud Section of: (1) internal controls failures related to Mexico between 2010 and 2013, which resulted in Biomet’s earning approximately $2,652,100 in profits; and (2) the continued use, between 2009 and 2013, by Biomet of a Brazilian distributor who had been engaged in the underlying criminal conduct that led to the 2012 DPA, which resulted in Biomet’s earning approximately $3,168,000 in profits; Biomet executives were aware of the continued use of the prohibited distributor and red flags related to corruption in Mexico that Biomet did not address; Biomet executives ignored recommendations by Biomet’s internal auditors and a company-wide requirement to cease all business with the Brazilian distributor”.

It is difficult to say in which country the violative conduct was more recalcitrant. In Brazil the company had discovered back in 2008 one of its distributors paid bribes on behalf of Biomet and was terminated. Somehow the Biomet Brazil “continued to use Brazilian Distributor A and one of his affiliated companies, Brazilian Distributor Company B, and knowingly and willfully failed to implement additional controls to ensure” the distributor did not continue his relationship with Biomet. Rather amazingly this distributor relationship continued until 2013.

In Mexico, Biomet continued its bribery scheme unabated after the 2012 DPA through its subsidiary JERDS. According to the Criminal Information, JERDS knew it could not import certain products into Mexico through its standard importation channel of flying products into Mexico City and clearing customs at that location. Instead JERDS retained a corrupt Texas shipping company which paid bribes to Mexican customs officials on the Texas-Mexico border to get the products through customs. The Information should be studied by every Chief Compliance Officer (CCO) and compliance professional to view a prime example of how business unit personal may hide illegal payments and the schemes that exporters can use to export products illegally into a foreign country using bribery and corruption.

According to the calculations in the new DPA, the fine range was between $11,640,200 and $23,280,400. Zimmer was assessed a criminal fine by the DOJ of $17,460,300. Zimmer did not receive any credit under the FCPA Pilot Program because as a recidivist they “breached its obligations under the 2012 DPA”, though they were clearly the beneficiary of some amount of credit by the DOJ. Zimmer did not receive any credit for self-disclosure, the new DPA stated, “although Biomet disclosed the conduct described in the Statement of Facts to the Fraud Section during the term of the 2012 DPA, Zimmer Biomet did not receive voluntary disclosure credit because the 2012 DPA obligated Biomet to disclose the conduct described in the Statement of Facts, and some of the conduct described in the Statement of Facts predated the 2012 DPA”. Zimmer did receive full credit for its cooperation.

Finally, the company did engage in significant remedial measures, including:

  • terminating or causing the resignation of five employees who participated in the misconduct described in the Statement of Facts;
  • terminating one employee who failed to identify issues with the use of a prohibited distributor in Brazil and failed to take appropriate steps to mitigate risks;
  • disciplining two employees who failed to detect the misconduct, failed to supervise effectively those who were engaged in the misconduct, and failed to take appropriate steps to mitigate corruption and compliance risks, including by placing an official letter of reprimand in their employment files, reducing their bonuses, and requiring them to take additional anticorruption training;
  • conducting individualized training for certain remaining employees;
  • adopting heightened controls related to their third-party intermediary policies;
  • increasing their resources devoted to compliance, particularly in Latin America; and
  • requiring improved FCPA training.

The Zimmer FCPA enforcement action serves as a cautionary tale for any company subject to a DPA. If you violate it, the second round of penalties will be more severe than the initial sanctions. Yet the DOJ did not bring down the full weight of its possible sanctions against the company, demonstrating that once again the DOJ will reward certain types of behavior.

The matter is also a cautionary tale for any company which may wish to acquire a company going through a FCPA investigation, enforcement action or under the auspices of a DPA. As JERDS Information stated, “In June 2015, Zimmer Holdings, Inc. (“Zimmer”) acquired LVB Acquisition, Inc., which owned all of Biomet, Inc. (“Biomet”). The combined entities and their subsidiaries became ZIMMER BIOMET, headquartered in Warsaw, Indiana and incorporated in Delaware. Thus, ZIMMER BIOMET knowingly assumed all the rights and obligations of Biomet under the 2012 DPA, including under the compliance monitorship that was part of the 2012 DPA.”

In the mergers and acquisition (M&A) context, failing to perform adequate pre-acquisition due diligence can be a very costly lesson. You should learn from Zimmer and its travails over the Biomet acquisition rather than learning it for yourself.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

Written by:

Thomas Fox

Compliance Evangelist on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.