In the past decade, the healthcare industry has been the target of an oft commented on FCPA “sweep.” The most recent company to find itself at the center of the enhanced scrutiny is Texas-based Orthofix which, on January 18, settled charges related to accounting and foreign bribery with the U.S. Securities and Exchange Commission (SEC). As part of the settlement, the firm admitted wrongdoing and was fined more than $14.25 million. The alleged illegal activities occurred largely between 2011 and 2013, and include:
- Accounting Errors: Four executives were involved in Orthofix International improperly recording certain revenue as soon as the product was shipped despite contingencies on payment (such as customer payment extensions and product-deliver caveats). The revenue was falsely reported to the public.
- FCPA violation: Orthofix’s Brazil, schemed to use high discounts and improper payments (labeled “chocolates”) to “induce” doctors under federal employment to purchase Orthofix products. Fake invoices labeled these bribes as “additional training measures” to cover the larger illegal payments.
This was not the first time that Orthofix had faced SEC charges or DOJ scrutiny. The first charge was prompted by a whistleblower civil lawsuit, and highlighted a series of kickbacks paid to doctors to purchase Orthofix products as well as advisory fraud and certificate falsification to clients. The settlement charge in this case was $42 million to the Department of Justice (DOJ) – more than $34 million was allocated in response to allegations under the False Claims Act, and $7.8 million was paid as a criminal fine to a felony of obstruction of a federal audit. A month later, Orthofix entered into agreements with the DOJ and the SEC agreeing to settle a self-initiated and self-reported internal investigation of its Mexican subsidiary, Promeca, regarding non-compliance and bribery of Mexican officials. The settlement charge amounted to $7.4 million and a 3-year Deferred Prosecution Agreement (DPA).
As part of the settlement, Orthofix agreed to redress deficiencies in its anti-corruption compliance program. The extensive internal compliance measures to be taken include:
- Large Scale Structural Initiatives: systems implementations, numerous and more directly responsive internal controls and process changes, regular audits of its third-party distributer
- Centralization of the operational and financial reporting structure to better reflect the current scope and business complexity
- Expansion of the Compliance department in number and quality of personnel
- Enhanced anti-corruption compliance training for employees and certain third parties
- Retaining an independent compliance consultant to ensure ethics programs and internal controls are high functioning
Read the full 2017 SEC Report here.