Today’s Strategies for Paying Bribes Abroad

Promeca, the Mexican subsidiary of the medical device company Orthofix International N.V., paid approximately $300,000 in bribes to Mexican officials from 2003 through 2010. How did Promeca do this? It started by agreeing to pay Mexican officials a specific percentage of the sales revenue it earned through its public contracts. To facilitate this, Promeca reported its total sales revenues to the officials it wanted to bribe. Then, the officials set up fictitious companies to issue fictitious invoices to Promeca for “medical equipment or training”; the invoices charged the amount the officials were “due” plus a value-added tax (so that the invoices would look legit). When Promeca paid those “invoices,” the officials pocketed their unlawful gains. (Promeca clearly was not keeping fact and fiction separate—as per point 2 above.) To settle charges of criminal misconduct with US enforcement authorities, Promeca agreed to pay a $2.22 million criminal penalty and to disgorge $5.2 million in ill-gotten gains (including prejudgment interest). Lesson learned? If you are making an agreement to pay a government official a percentage of any contracts you make with the official’s agency, you are already on shaky ground. Such agreements are rarely legal. And you will get yourself into even deeper water if you try to cover yourself using false documentation.

4.      Mischaracterizing expenses (or the problem of not calling a bribe a bribe)

As long as we’re on the topic of honesty, any expenses a company incurs should be accurately recorded as what they are. Promeca didn’t just hide its bribes through paying fictitious invoices, as discussed above. It also covered its bribes by falsely recording them as promotional and training costs. This should have raised warning signs in the company, since it caused Promeca’s training and promotional expenses to be “significantly over budget,” according to the SEC. Nonetheless, the SEC explained that the company did “very little to investigate or diminish the excessive spending.” Industrial equipment company Tyco International Ltd. ran into similar problems when it and its subsidiaries falsely recorded bribe payments as “consulting fees,” “commissions,” “unanticipated costs for equipment,” “technical consultation and marketing promotional expenses,” “conveyance expenses,” “cost of goods sold,” “promotional expenses,” and “sales development expenses” (see the DOJ’s Non-Prosecution Agreement). Due to this and other problems it was having, in September 2012 Tyco became subject to a $13.68 million criminal penalty and to $13.13 million in disgorgement of profits and prejudgment interest.

5.      Funneling bribes into benefits for officials

For years, people seeking government favors have wooed government officials with benefits and gifts. But while providing a benefit, such as travel, in connection with a legitimate business activity (for instance, to visit a manufacturing facility) may be a perfectly acceptable business expense, flying government officials to Disney World for vacation probably is not. Benefits must also be provided for the right reasons. Thus, asking a publicly employed doctor to assist in a clinical study may be legal in some circumstances, but it will almost certainly be illegal if the study is awarded in an effort to induce the doctor’s prescribing activity. Pfizer learned this lesson the hard way when it became subject to penalties in 2012, after having provided benefits to publicly employed doctors in order to influence them in prescribing its products. The benefits Pfizer provided included sponsorships, travel to trade meetings and conferences, the award of clinical trials, gifts, and entertainment. To settle the case, Pfizer and Wyeth (a company it acquired in 2009) agreed with the SEC to disgorge a total of $45.2 million in ill-gotten profits and prejudgment interest.

In Conclusion

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