German healthcare company Fresenius Medical Care has agreed to pay more than $231 million to resolve parallel investigations by the Department of Justice and the Securities and Exchange Commission for violations of the Foreign Corrupt Practices Act.
In a Feb. 20 Form 20-F filing, Fresenius previously disclosed that, beginning in 2012, it received certain communications alleging conduct in countries outside the United States concerning potential violations of the FCPA and other anti-bribery laws. “The company’s supervisory board, through its audit and corporate governance committee, conducted investigations with the assistance of independent counsel,” Fresenius said in that financial filing.
Fresenius said it voluntarily advised the Justice Department and the SEC about the investigations. In announcing an “agreement in principle” with U.S. authorities, Fresenius said, considering incurred and anticipated legal expenses, impairments, and other costs, the provision totaled €224 million (U.S. $255 million) as of Dec. 31, 2018.
“Given these accruals already made, the resolutions will have no effect on the company’s 2019 and 2020 outlook,” the company said following the announcement of the final settlement.
That brings us to the final settlement agreement: According to Fresenius’s admissions in connection with the resolution, between 2007 and 2016, Fresenius engaged in misconduct, including paying bribes, in Angola, Saudi Arabia, Morocco, Turkey, Spain, China, Serbia, Bosnia, Mexico, and eight countries in the West African region.
Specifically, FMC made improper payments through a variety of schemes, including using sham consulting contracts, falsifying documents, and funneling bribes through a system of third-party intermediaries. Despite known red flags of corruption since the early 2000s, FMC devoted insufficient resources to compliance, the SEC said.
“In some jurisdictions, Fresenius failed to take basic steps, such as providing anti-corruption training or performing due diligence on its agents,” the SEC continued. “In many instances, senior management actively engaged in corruption schemes and directed employees to destroy records of the misconduct. All told, FMC paid nearly $30 million in bribes to government officials and others to procure business.”
“Fresenius doled out millions of dollars in bribes across the globe to gain a competitive advantage in the medical services industry, profiting to the tune of over $140 million,” said Assistant Attorney General Brian Benczkowski.
“Failure to address the corruption risks in its growing business allowed complicit managers to engage in bribery schemes that went undetected for more than a decade,” said Charles Cain, chief of the FCPA unit. “As companies expand their business, their internal accounting controls and compliance programs must keep up.”
To resolve the case, Fresenius entered into a non-prosecution agreement (NPA) with the Justice Department and agreed to pay a total criminal penalty of $84.7 million. As part of the NPA, Fresenius also agreed to continue to cooperate with the Department’s investigation, enhance its compliance program, implement rigorous internal controls, and retain an independent corporate compliance monitor for at least two years.
The Department said it reached this resolution based on several factors. “Notably, although Fresenius voluntarily self-disclosed the misconduct in April 2012, the company did not timely respond to certain requests by the Department and, at times, did not provide fulsome responses to requests for information,” the Justice Department said.
In addition, misconduct occurred in 13 countries, yielded profits of more than $140 million, and continued in certain countries until 2016. “Moreover, the company has not yet had the opportunity to test the effectiveness of its compliance enhancements,” the Justice Department added.
For these stated reasons, Fresenius did not qualify for a declination under the Corporate Enforcement Policy, the Justice Department said. The company was, however, afforded a reduction of 40 percent below the low end of the U.S. Sentencing Guidelines fine range. As part of the resolution, the company agreed to an independent compliance monitor for a term of two years, followed by an additional year of self-reporting to the Department.
Fresenius admitted to knowingly and willfully failing to implement reasonable internal accounting controls over financial transactions and failed to maintain books and records that accurately and fairly reflected the transactions. Consequently, as part of its FCPA settlement with the SEC, Fresenius will pay $147 million in disgorgement and prejudgment interest, which the Justice Department credited in its resolution, bringing the total amount paid by Fresenius to over $231 million.
“We are pleased to have concluded these investigations,” Fresenius CEO Rice Powell said in a statement. “Since the investigation began, we have taken extensive steps to further a culture of ethical business behavior throughout the entire company and to strengthen our compliance programs and internal controls, and we will continue to do so in close cooperation with the authorities.”