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Anti-Corruption & Bribery

What We Can Learn from the Zimmer Biomet Scandal?


By Josh Young Feb 14, 2017

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Unlike lightning, corruption is more than happy to strike twice in the same location. Just this past month, medical-device manufacturer Zimmer Biomet Inc. was hit with its second financial penalty for foreign-bribery violations.

The company's first infraction took place back in 2012 when the business known as Biomet (later acquired by Zimmer Holdings to create Zimmer Biomet) made inappropriate payments to publicly-employed health care providers in Argentina, Brazil and China to obtain lucrative contracts with national hospitals.

Biomet agreed to pay out more than $22 million in penalties, but due to its cooperation with the investigation at that time, $17.4 million of this penalty was deferred as long as the business refrained from any further corruption and obtained the services of a compliance monitor for 18 months.

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You would think that the company learned its lesson, but after this ruling, Zimmer Biomet continued to work with a third-party distributor in Brazil known to have bribed government officials on the company's behalf. And one of the firm's subsidiaries paid bribes to Mexican customs officials to facilitate the import of contraband dental implants into Mexico.

The cost of this second round of infractions? More than $30 million.

In addition, Zimmer Biomet must now retain the services of an independent corporate compliance monitor for three years. Further, one of the organization's subsidiaries plead guilty to one count of criminal information, having violated the books and records provision of the Foreign Corrupt Practices Act (FCPA).

What Measures Can Your Company Take to Avoid a Similar Scandal?

Clean up your act

This statement may seem a bit obvious, but if your company is under increased scrutiny for any reason -- particularly if you have just been forced to pay out several million dollars in corruption fines -- make sure that your employees know not to bribe any foreign officials.

Technically, this is sound advice even if your company isn't under increased scrutiny.

Your business needs to establish clear ethical guidelines for all employees, making it clear what is and is not appropriate behavior. Offer regular anti-corruption training sessions to your staff, helping them to identify how to recognize conflicts of interest and avoid unethical behavior.

Track your spending

During Biomet's initial round of corruption, those involved hid the costs of bribing government officials by falsifying company financial records. This deception is fairly common, as research conducted by the Association of Certified Fraud Examiners found that 94.5 percent of cases studied in 2016 involved the perpetrators attempting to conceal their crimes, typically by either creating false documents or altering legitimate records.

By implementing a system of internal accounting controls that monitor expenses, your business can choke off the available funds that employees could use to conduct bribes. Consider employing analytics tools that can more easily see through deception and identify the irregular spending patterns that could mean corruption.

Monitor third-parties

Zimmer Biomet's use of subsidiaries and distributors to deliver bribes is a common tactic. A study conducted by the Organization for Economic Cooperation and Development (OCED) found that 75 percent of bribery cases prosecuted in 2014 involved payments made through third-party intermediaries.

Your business does not even need to actively participate in the corruption to suffer legal penalties. Per guidelines published jointly by the U.S. Department of Justice (DOJ) and the Securities Exchange Commission (SEC), your company can be held criminally liable for the actions of third parties as long as you "know" that funds will be used for bribes.

Since these companies operate outside of your direct control, you need to impose strict monitoring protocols and billing procedures. By keeping a lookout for any potential red flags, you can better protect your business.

Cooperate with investigations

Both the SEC and DOJ have a history of reducing fines for businesses that self-report on corruption and that cooperate with federal investigations. And Zimmer Biomet received lighter and partially deferred penalties during both investigations due to the extensive cooperation it provided to federal authorities.

In fact, the DOJ currently has in place a pilot program to formalize the offering of mitigation credit for companies that self-report FCPA violations.

The Next Step

By taking proactive measures -- such as training and employing analytics tools -- your business can more easily stamp out corruption before it occurs. And in the unlikely event that your business does run afoul of the law, these measures, along with ongoing cooperation, help to mitigate the fallout from the actions of a few rogue employees.

To learn more about our global anti-corruption and FCPA courses, you can fill out the form on the right to request a demo.

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