US medical device maker charged of 'chocolate' bribery

Executives of a US-based orthopedic products company have been found to have paid lakhs of dollars of bribes, referring them as 'chocolates', in return for illegal profits worth about USD 5 million.

These so-called 'chocolates' came in form of cash, laptops computers, televisions, and appliances, and were given by Texas-based medical device firm Orthofix International to the government officials in Mexico, found a probe by the US market regulator SEC (Securities and Exchange Commission).

The company has agreed to pay USD 5.2 million to settle the charges, and USD 2.22 million of monetary penalty as part of a deferred prosecution agreement.

The SEC's investigation team, which included an Indian- origin officer Alka N Patel, found that Orthofix's Mexican subsidiary Promeca SA de CV bribed officials at Mexico's government-owned health care and social services institution, the regulator said in a statement late last night.

Orthofix violated the Foreign Corrupt Practices Act (FCPA) when its "subsidiary paid routine bribes referred to as 'chocolates' to Mexican officials in order to obtain lucrative sales contracts with government hospitals, SEC said.

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

"The bribery scheme lasted for several years and yielded nearly USD 5 million in illegal profits for the Orthofix subsidiary," the regulator said.

"Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business.

"Orthofix's lax oversight allowed its subsidiary to illicitly spend more than USD 300,000 to sweeten the deals with Mexican officials," SEC Enforcement Division's Foreign Corrupt Practices Act Unit Chief Kara Novaco Brockmeyer said.

As per SEC, the bribes began in 2003 and continued until 2010. Initially, Promeca falsely recorded the bribes as cash advances and falsified its invoices to support the expenditures. Later, when the bribes got much larger, Promeca falsely recorded them as promotional and training costs.

Because of the bribery scheme, Promeca’s training and promotional expenses were significantly over budget. Orthofix did launch an inquiry into these expenses, but did very little to investigate or diminish the excessive spending.

Later, upon discovery of the bribe payments through a Promeca executive, Orthofix immediately self-reported the matter to the SEC and implemented significant remedial measures. The company terminated the Promeca executives who orchestrated the bribery scheme.

The SEC's investigation was conducted by Carol Shau and Alka N Patel in the Los Angeles Regional Office. 

Liked the story?

  • 0

  • 0

  • 0

  • 0

  • 0