Medical-device maker Zimmer Biomet Holdings has agreed to pay more than $30 million to resolve parallel SEC and Department of Justice investigations into the company’s repeat violations of the Foreign Corrupt Practices Act.

Zimmer Biomet will pay a $17.4 million criminal penalty in connection with a scheme to pay bribes to government officials in Mexico and for violations of the internal controls provisions of the FCPA involving the company’s operations in Mexico and Brazil. In related proceedings, the SEC filed a cease and desist order against Zimmer Biomet whereby the company agreed to pay to the SEC disgorgement of $6.5 million including pre-judgment interest and $6.5 million civil penalty.

Zimmer Biomet first faced FCPA charges from the SEC and entered into a deferred prosecution agreement (DPA) with the Department of Justice in March 2012, agreeing to pay more than $22 million to settle both cases.  As part of the SEC settlement, Biomet agreed to retain an independent compliance consultant to review its FCPA compliance program.  As Zimmer Biomet was implementing recommendations from the independent monitor, the company learned about potential anti-bribery violations in Brazil and Mexico and notified the monitor and the SEC in 2013.

The SEC order finds that Biomet continued to interact and improperly record transactions with a known prohibited distributor in Brazil, and used a third-party customs broker to pay bribes to Mexican customs officials to facilitate the importation and smuggling of unregistered and mislabeled dental products.

“Zimmer Biomet had the opportunity to avoid criminal charges but its misconduct allowed the bribes to continue,” Assistant Attorney General Leslie Caldwell said in a statement. The company is now paying the price for disregarding its obligations under the earlier DPA, Caldwell added, she said.

According to admissions made in the resolution documents, even after the 2012 DPA between the Justice Department and Biomet, the company “knowingly and willfully” continued to use a third-party distributor in Brazil known to have paid bribes to government officials on Biomet’s behalf. Biomet also failed to implement an adequate system of internal accounting controls at the company’s subsidiary in Mexico, despite employees and executives having been made aware of red flags suggesting that bribes were being paid.

By failing to require appropriate due diligence and documentation and contracts for payments to third parties, Biomet allowed its Mexican subsidiary, Biomet 3i Mexico to pay bribes to Mexican customs officials through customs brokers and sub-agents so that 3i Mexico could import contraband dental implants into Mexico. Importing those products into Mexico violated Mexican law because they lacked proper registration or labeling.

Zimmer Biomet entered into a three-year DPA in connection with a superseding criminal information, filed Jan. 12 in the District of Columbia, charging the company with failing to implement a system of effective internal accounting controls. In addition to the criminal penalty, Zimmer Biomet agreed to retain an independent corporate compliance monitor for three years.

JERDS Luxembourg Holding S.ár.l. (JERDS), an indirect subsidiary of Zimmer Biomet, agreed to plead guilty to a one-count criminal information, also filed in the District of Columbia, charging it with causing Biomet to violate the books and records provisions of the FCPA through the actions of 3i Mexico, a wholly-owned subsidiary of JERDS. The plea agreement is subject to court approval.

Factors considered. The Criminal Division’s Fraud Section reached this resolution based on a number of factors, including that Zimmer Biomet was in breach of the 2012 DPA between Biomet and the Department. That agreement resolved an earlier investigation by the Department into violations of the FCPA committed by Biomet, including the bribery of government officials in Argentina, Brazil and China as well as the falsification of the company’s financial records to conceal the true nature of the bribe payments.

Pursuant to the 2012 DPA, Biomet had been required to retain an independent compliance monitor. The monitor’s term was extended for one year in 2015, due to both the bribery in Brazil and Mexico and the fact that the Zimmer Biomet compliance program did not meet the requirements of the 2012 DPA.

At the conclusion of the extended period, the independent monitor was unable to certify that the company’s compliance program satisfied the requirements of the 2012 DPA. That’s when the Justice Department notified Zimmer Biomet that it was deemed to be in breach of the agreement.

“Zimmer Biomet fully cooperated with the current investigation and provided to the Fraud Section all relevant facts known to the company, including information about individuals involved in the misconduct,” the Justice Department said. “Nevertheless, because Zimmer Biomet failed to implement an effective compliance program and committed additional crimes while under a DPA and monitorship, the current DPA requires Zimmer Biomet retain an independent compliance monitor for a term of three years.”

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