Bribes are Like a Box of Chocolates

The Securities and Exchange Commission charged medical device company Orthofix International N.V. with violating the Foreign Corrupt Practices Act. A subsidiary paid bribes, referred to as “chocolates”, to Mexican officials in order to obtain lucrative sales contracts with government hospitals. (I assume every commentator on this story will reference Forrest Gump, including me.)

The “chocolates” came in the form of cash, laptop computers, televisions, and appliances that were provided directly to Mexican government officials or indirectly through companies owned by the officials.

“Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit.

Orthofix consented to a final judgment ordering it to pay $4,983,644 in disgorgement and more than $242,000 in prejudgment interest. Orthofix also disclosed in an 8-K filing that it has reached an agreement with the U.S. Department of Justice to pay a $2.22 million penalty in a related action.

I found it interesting that Orthofix had a chance to discover the bribes, but missed it. The Orthofix subsidiary involved in the bribery, Promeca, hid the bribes in the promotional and training expenses budget item. That line item went over budget, leading to an inquiry from the parent company. Orthofix failed to find the true problem or put a control in place to control the budget line item.

It should come as no surprise that compliance program failed.

20. 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.

Clearly, you need a translation of your code of ethics into other languages if you are operating abroad.

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  1. Weekly Roundup | i-Sight Investigation Software - July 13, 2012

    […] Bribes are Like a Box of Chocolates: Doug Cornelius, Compliance Building, writes about the “chocolates” that Orthofix gave to Mexican officials in order to win sales contracts. […]