Texas based medical device company Orthofix got lost in translation.

The company's $5.2 million agreement last month to settle Securities and Exchange Commission charges for violations of the Foreign Corrupt Practices Act can be traced, at least partly, to problems communicating the company's policies to employees in non-English speaking units outside the United States.

The SEC alleged that Orthofix's Mexican subsidiary, Promeca, bribed officials at Mexico's government-owned healthcare and social services institution with what were referred to as “chocolates”—gifts of cash, laptop computers, televisions, and appliances, provided directly to Mexican government officials and indirectly through front companies that the officials owned.

A sentence in the settlement provides a hint at what was at least a contributing factor to Orthofix's bribery problem: “Although Orthofix disseminated some code of ethics and anti-bribery training to Promeca, the materials were only in English, and it was unlikely that Promeca employees understood them as most Promeca employees spoke minimal English.”

Matteson Ellis, founder of Matteson Ellis Law, which has multilingual capabilities and specializes in international anti-corruption compliance and enforcement in Latin America, says that line provides the SEC's first clarification of its view that the use of local language is essential to comprehensive FCPA compliance. Above and beyond translating policies into local languages, training must also be conducted in local languages to have an impact

The SEC's pronouncement comes on the heels of a settlement of a shareholder lawsuit against pharmaceutical company SciClone last year that includes a requirement that the company use Mandarin when training its employees and compliance personnel should be bilingual or trilingual as needed. 

For years, English has been considered the “language of business,” but as these recent settlements illustrate, language, as spoken by native speakers, plays an important role in global compliance and ethics programs and related training. Simple translations of printed materials may no longer be sufficient to get the job done.

“We are at the point now where translating your policy into the local language is a must," Ellis says. "There's also a huge value in conducting training in the first language of employees in other countries."

Yet for notoriously under-resourced compliance functions, communicating the company policies and culture in the native language of employees around the world presents unique challenges. Language is more art than science, and even getting the translation right may not mean that the message is received and understood in the way the company intended.

Jim Moore, executive vice president of Merrill Brink International, a provider of translation services to the corporate and legal market, says global companies have learned, occasionally the hard way, how to develop the systems necessary to communicate compliance to their global workforce. “On the other hand, we see companies that are growing rapidly through acquisitions and going into the global marketplace for the first time,” he says. “Those are the ones that have the biggest challenges, because this is something new and, perhaps, something they didn't predict.”

Even the word “compliance” doesn't translate well. In the United States, “compliance” connotes a desired culture or a “state of thinking,” Ellis says. In Latin American countries, however, the word's closest equivalent, cumplimiento, has a much narrower meaning: “It means, ‘I am complying with that specific law,'” Ellis says. "In my Spanish-language trainings, I don't use the Spanish word. I actually use the English word 'compliance' so the trainees understand it is a distinct concept.”

The word “whistleblower” is also problematic, because it doesn't have a direct translation in most other languages. The wrong word can come across with the negative connotation of a “snitch.” And attempts to find a more suitable translation can backfire. For example, an attorney in Ecuador suggested Ellis use the more positive word pitar, which conveys a verbal protest. He later found it had the drawback of sounding similar to the word pitador, used to describe the smoking of poor quality drugs.

“We are at the point now where translating your policy into the local language is a must. There's also a huge value in conducting training in the first language of employees in other countries.”

—Matteson Ellis,

Founder & Lawyer,

Matteson Ellis Law

“Companies are under a lot of pressure to put the resources, attention, and time into having the type of compliance program that authorities expect them to have,” Ellis says. “Adding the multilingual dimension is a significant, additional burden. The nuance of local language, especially when it comes to the gray areas of compliance is a hurdle to effectively communicating a policy."

Clearing the Language Barrier

For most companies, having a team of language experts in the compliance office who speak all of the languages of the countries where it operates isn't a realistic solution. Finding language service providers that can bridge the language gap between compliance and local units can help. Sergio Ruffolo, chief operating officer of JR Language Translation Services and former IT auditor for Sarbanes-Oxley compliance at Xerox, says the translation industry has continued to grow by as much as 20 percent per year, even during the recession. He says the rising demand is related to regulatory compliance needs and the focus on boosting anti-bribery measures.

According to Ruffolo, it's not enough to simply translate compliance materials into another language. He says you need to find providers that understand the nuances of business terms. “You definitely have challenges that go beyond just a simple translation to a language,” Ruffolo says. “Spanish has different usages in different countries. So, if you are translating financial information for Spain, there are several words that are different there than in Latin America. Even within Latin American countries you have differences.”

For example, Ruffolo says, acronyms like “SOX” and “IPO” can be especially problematic to translation. “All these acronyms mean nothing in other countries.”


Below is an excerpt from the SEC's complaint against Orthofix International regarding the SEC's factual allegations against the company:

From at least 2003 to 2007, Orthofix's subsidiary, Promeca, regularly paid bribes to IMSS hospital employees in the form of cash and/or gifts, in order to secure sales contracts from IMSS hospitals.

The bribe amounts, referred to internally at Promeca as “chocolates,” ranged from 5% to 10% of the collected sales for the hospital in question.

In order to obtain cash for the illicit payments, Promeca executives wrote checks to themselves, which they justified as cash advances.

They later submitted falsified receipts for imaginary expenses including meals and new car tires, which were accounted for in Promeca's books and records. As the bribes increased, it became difficult for Promeca executives to invent new receipts to justify the advances. Eventually, the bribes became too large, forcing the Promeca executives to devise another justification methodology, and hence they began falsely accounting for the payments as promotional and training expenses.

Because of the bribery scheme, Promeca's training and promotional expenses were significantly over budget. In one instance, Orthofix launched an inquiry into these expenses, but did not control them.

In 2008, IMSS began purchasing medical products under a new national tender system, where a special IMSS committee, rather than the individual hospitals, selected the winning bidder who would cover IMSS nationally. Promeca then established a new system of bribery to ensure that it was awarded the business under the national tender system. To achieve this, Promeca made payments to three front companies, which were controlled by certain IMSS officials. Promeca won the national tenders for 2008 and 2009 and paid the front companies 5% and 3%, respectively, of the collected sales from those tenders. The front companies concealed these bribes by submitting false invoices, characterizing them as training and other promotional expenses that Promeca never received. Promeca falsely recorded the bribes on its books as payments for training courses, meetings and congresses, and promotional costs.

In addition, between 2003 and 2010, Promeca expended approximately $80,050 on gifts and travel packages, some of which were intended to corruptly influence IMSS employees in order to retain their business. The various gifts included vacation packages, televisions, laptops, appliances, and in one case, the lease of a Volkswagen Jetta. These payments were falsely accounted for in Promeca's books and records as promotional and training expenses.

In all, the improper payments, totaling about $317,000, generated approximately $8.7 million in gross revenues and resulted in illicit net profits to Orthofix of about $4.9 million' …

Source: Securties and Exchange Commission.

Companies have long known that local culture and customs at units abroad need to be considered when structuring compliance policies and programs, and language is an important part of the culture. “Culture is very relevant with respect to compliance, because if you are not structuring a program that responds to cultural norms, then you are not structuring an effective program,” Ellis adds.

“Here, you publish the policy and that's the law. That's it. You just follow it because it is the company policy,” Ruffolo adds. “In some countries it doesn't work as easily as that. People will challenge it a little bit more, and may not follow it, because they don't understand it. In the process of communicating the policy, you need to make sure people understand the ‘whys' of those policies.”

Moore suggests that companies “start with the end in mind, and prepare materials whose content lends itself to translation." “A company that is truly global, thinks global, and that gets right down to their authoring process,” he says.

He advocates that companies using a content management system integrate it with their translation processes to save time and expense. Established glossaries can be used to maintain a consistency of language and ensure that employees understand what is provided to them.

It is also crucial to have boots on the ground. “You can't just have a good translation company working with you; you also need to have people who are local to the countries if you are working there,” Ruffolo says.

In many Latin American countries there are “official translators" who undergo a certification process and can help reduce the risk of misunderstandings.

Whether language-related functions, such as training and translation, are done in-house or placed in the hands of a third party is “ultimately an issue of resources,” Ellis says.

“Ideally the company will have bilingual internal capacity,” he says. “I've seen companies successfully do this, especially when their operations in a certain country or region are considerable. If they are smaller companies, or if their activity in a country is minimal, then economically it makes sense to hire external bilingual help as needed.”

Regardless of their approach, there are numerous ways a company can protect itself. Ellis suggests having written policies that address extortion and “facilitating payments.” It is important to know the local terminology for corruption, as words like mordida in Mexico and propina in Brazil, will help track and identify issues when they occur and train personnel to avoid them. It may be helpful to design training role-play that focus on scenarios where petty corruption commonly occurs, such as what do you do when a policeman pulls you over and refuses to let you go without a payment.

Some companies, including Tyco, are tasking foreign business units to assess and monitor third parties for compliance, as they are better positioned in terms of proximity and knowledge of local customs and language than their colleagues at the corporate headquarters.

The costs of an effective translation program can be costly, but then again so is the alternative. “The costs of both the investigation and subsequent settlement [in an FCPA violation] are so much larger than the costs of having a more formal program in place that keeps that from ever happening,” Moore says.