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U.S. v. Orthofix International N.V.

 
:
Orthofix International, N.V.
:
DOJ Criminal
:
July 10, 2012
:
U.S. v. Orthofix International N.V.
:
U.S. v. Orthofix Int'l N.V. (deferred prosecution agreement)
:
Healthcare-Medical Devices
:
Mexico
:
2003; 2004; 2005; 2006; 2007; 2008; 2009; 2010
:
Officials and employees at Instituto Mexicano del Seguro Social, a Mexican government-owned healthcare and social services institution.
:
Orthofix International N.V. (“Orthofix”) is a multinational corporation principally involved in the design, development, manufacture, marketing, and distribution of medical devices, and is incorporated in Curacao. Orthofix has a class of securities registered with the SEC and is publicly traded on the NASDAQ stock exchange. Promeca S.A. de C.V. (“Promeca”), a Mexican corporation, is an indirectly wholly owned subsidiary of Orthofix that distributed Orthofix’s medical nails and fixators in Mexico.

The below facts were alleged in the Criminal Information and the Statement of Facts attached to Orthofix’s deferred prosecution agreement. In its DPA, Orthofix acknowledged these facts as true and accurate.

From around 2003 to around March 2010, with the knowledge of at least one Orthofix executive, Promeca and its employees paid bribes to Mexican officials, in return for agreements with Instituto Mexicano del Seguro Social (“IMSS”) (a social service agency of the Mexican government that provided public services to Mexican workers and their families) and its hospitals to purchase millions of dollars’ worth of Orthofix products. Promeca personnel colloquially referred to the illicit payments as “chocolates.”

In or around 2003, a Promeca executive won the right to sell Orthofix N.V. products to two Mexican hospitals by agreeing to pay Mexican officials a percentage of collected sales revenue generated through sales to the hospitals. On several occasions, Promeca employees delivered to the Mexican officials cash payments equal to a certain percentage of Promeca’s sales to the Mexican hospitals. Promeca also leased a vehicle for one of the Mexican officials, in lieu of additional cash payments to him.

In or around 2008, IMSS began holding national tenders for medical device contracts with hospitals that IMSS owned or controlled. To obtain contracts under the national tenders, Promeca employees agreed to pay certain IMSS officials a percentage of Promeca’s sales revenue collected under the contracts that IMSS awarded to Promeca. IMSS officials used fictitious companies to issue to Promeca invoices for medical equipment or training in an amount equal to the payments due to the IMSS officials plus a value added tax to make the invoices appeared legitimate.

Promeca falsely recorded the bribe-related expenses on its books and records as “promotional expenses,” payments for medical equipment, and training related expenses.

Orthofix lacked the proper internal controls to identify this illicit activity. It did not engage in any serious form of corruption-related diligence before it purchased Promeca, its anti-corruption policy was not translated into Spanish, and it did not provide any FCPA-related training to many of its personnel. Its financial controls were also lacking, and Orthofix failed to identify and address Promeca’s persistent cost overruns and illicit payments.
:
Internal controls (Issuer)
:
Deferred-prosecution Agreement, Fine
:
Monetary penalty of $2,220,000.
:
2,220,000
:
0
:
Base Offense:
(a)(2) Base Offense Level: 6
(b)(1)(J) Benefit received more than $2.5 million, but less than $7 million: +18
(b)(10)(B) Sophisticated Means/Substantial Conduct Outside the U.S.: +2
Total: 26

Base fine: $3,700,000.

Culpability Score:
(a) Base Culpability Score: 5
(b)(3)(B) 200+ employees and high-level personnel condoned or willfully ignorant of offense: +3
(g)(1) self-disclosure: -5
Total: 3

Calculation of Fine Range
Base Fine: $3,700,000
Multipliers: 0.6(min)/1.2(max)
Fine Range: $2.22M/$4.44M

:
Issuer
:
Foreign
:
Netherlands
:
Contract Procurement/Retention
:
8,700,000
:
Cash, Entertainment, Gifts, Goods/Services, Travel
:
Direct, Shell entity, Subsidiary Company
:
317,000
:
Mexico
:
No
:
Yes