Many of the anti-corruption/FCPA cases brought by the SEC and DOJ involve foreign issuers. Whether this results from the management structure, the culture or from other issues is unclear. Nevertheless, the trend continues. The most recent such action is illustrative. It centers on a scheme that ran for nearly a decade, involved multiple countries and the payment of millions in bribes that yielded millions more in profits. The issuer was a German based provider of services and products for those suffering from chronic kidney failure. In the Matter of Fresenius Medical Care AG, Adm. Proc. File No. 3-19126 (March 29, 2019).
FMC operated in over 150 countries around the globe, primarily through subsidiaries. The firm’s American Depositary Shares traded on the NYSE and were registered with the Commission. The misconduct involved took place in Saudi Arabia, Morocco, eight countries in the West Africa region, Angola, Turkey, Spain, China, Serbia, Bosnia and Mexico.
During the period employees made improper payments through a variety of fraudulent schemes. Those included sham consulting contracts, falsified documents and the use of third-party conduits who served as facilitators for the payment of bribes. Examples of those schemes included:
Saudi Arabia: Over a period of five years, beginning in 2007, Saudi Advanced Renal Services, a consolidated distributor, made over $4.9 million in improper payments to publicly-employed doctors, government officials and others in the country to secure business. Despite the high risk nature of the environment, FMC failed to ensure that adequate accounting controls were in place. Improper conduct followed. For example, payments were made to private and public physicians and high ranking officials at a Saudi Technical Organization that was acting in an official capacity for the Kingdom when reviewing and approving dialysis products for use in tenders. In other instances, firm employees engaged in a scheme involving false bids for dialysis machine tenders. A variety of other similar schemes took place. Overall FMC benefited by over $40 million from the corrupt schemes.
Morocco: Over a four-year period, beginning in 2006, a firm senior officer and sales manager in Germany participated in a scheme to bribe the chief nephrologist – a government official — at two state owned military hospitals to secure contracts. The company obtained over $2.3 million in revenue from the bribery scheme. When FMC officials delayed launching an investigation following a 2012 whistleblower report for about 2 years, employees distroyed records and deleted computer files. Overall FMC benefitted by over $3 million from improper conduct in the country.
Eight West African Countries: The two FCM officials involved in the Morocco misconduct also engaged in a nine-year scheme tracing to 2007 to bribe publicly employed physicians and administrators in Gabon, Cameroon, Benin, Burkina, Faso, Chad, Ivory Coast, Niger and Senegal. The improper schemes involved a variety of techniques including the payment of sham fees, sale by sale payments to doctors and vague, incomplete transaction records. FMC obtained over $40 million as a result of the wrongful schemes.
Angola: In 2008 FMC Portugal began selling products in Angola through Angola Reseller, owned by Military Official. That official had been identified in a 2004 report FMC South Africa circulated regarding the Angolan market as receiving a 20% commission on all dialysis kits sold to military hospitals. It also identified Angola Reseller as being partially owned by the government. Two years later FMC Portugal provided 35% of FMC Angola (formed in 2008) to prominent Angolan nephrologists, including Military Official and an Angolan Doctor at several public hospitals. The Angolan officials did not pay for the shares received. FMC Portugal also entered into a business relationship with Angolan Distributor owned by the sons of Military Officer. Under contracts with Angolan Distributor FMC Angola paid for warehouse storage that was not received. Following a draft internal audit report which concluded that in Angola controls were not functioning as intended, the business arrangements were ordered frozen by the legal department. The conduct continued. Through these and similar arrangements FMC benefited by over $10 million.
Turkey: Between 2005 and 2014 FMC Turkey entered into four separate joint ventures with publicly employed doctors. Those doctors directed business from their public employer to FMC clinics. The doctors did not pay for their interests in the joint ventures. In certain instances, the interests were held in the name of others. The company benefited from the arrangements by over $1 million.
Spain: Over a seven-year period, beginning in 2007, FMC Spain received advance information about public tender specifications from publicly employed physicians or administrators. In certain instances, the physicians received improper payments from FMC Spain which included consulting agreements, travel to medical congresses, trips to the United States and donations to fund projects and gifts. In some instances, FMC sought to have the doctors modify the tenders prior to the public announcement. FMC benefited by over $20 million from the improper conduct.
China: Between 2007 and 2014 FMC China’s clinic business, Nephrocare, planned and implemented incentive programs in which bonus payments were provided to publicly-employed physicians with which the firm had supply agreements. The payments were based in part on the number of treatments furnished and/or the number of new patients treated. Certain emails suggest that bonus payments were to influence procurement decisions. FMC benefitted by over $10 million through the improper conduct.
Balkan Region: During the same seven year period cited above with regard to Turkey, Spain and China, four doctors were paid almost $330,000 by FMC. The physicians served on the Serbian Health Fund commission or other public tender commissions from which FMC sought business. FMC also paid dual-employed doctors through Serbian Agent despite the fact that a 2010 company directive prohibited using that agent. In addition, the firm made over $1 million in payments to “speed up” the clinic privatization process for four clinics.
In Bosnia, FMC made improper payments to a prominent Bosnian government doctor. The payments were made to support FMC’s bid to win a government tender to establish and operate clinics in the regions of Srpska and Brcko. Overall FMC benefited by over $10 million from the improper conduct in Servia and Bosnia.
Mexico: In 2010 FMC Mexico engaged in a scheme to increase the price per dialysis kit for a tender with one of its largest customers in the country, Instituto Mexicano Del Seguro Social or IMSS, a state-run insurance agency. The firm was awarded a portion of an IMSS subrogation tender. It agreed to a reimbursement price of $92 per treatment which reflected a price increase that the Mexican Distributor supposedly negotiated for its kits. The next year FMC Mexico’s General Director and CFO executed a contract with Mexican Distributor under which the firm agreed to pay commissions. The retroactive agreement improperly identified the commissions as being paid for “advice.” Ultimately an audit identified $213,5000 in improper commissions paid to Mexican Distributor intended in part for IMSS officials in 2010 and 2011. Overall FMC benefited by over $2 million from the improper conduct.
The Order alleges violations of Exchange Act Sections 30A, 13(b)(2)(A) and 13(b)(2)(B).
FCM self-reported, cooperated to a certain extent with the government investigations, and undertook certain remedial acts. The company also agreed to certain undertakings which include the retention of a monitor. To resolve the proceedings, Respondent FMC consented to the entry of a cease and desist order based on the Sections cited in the Order, and agreed to pay disgorgement of $135 million and prejudgment interest of $12 million.
To resolve the matter with the DOJ the firm entered into a three-year non-prosecution agreement and agreed to pay a criminal fine of $84.7 million.