Double declination for Zimmer

Following a five-year investigation into the overseas marketing and sales practices of medical device makers, the DOJ and SEC won't bring any FCPA enforcement against one of the targeted companies, Zimmer Holdings Inc.

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2012 Enforcement Index

Twelve companies settled FCPA enforcement actions in 2012 by paying a total of $259.4 million.

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Zimmer's latest FCPA disclosure (November 2012)

Medical device maker Zimmer Holdings, Inc. said in an SEC filing yesterday that it can't predict the outcome of DOJ and SEC investigations into its overseas sales practices.

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Why Is SEC Enforcement Lagging?

So far in 2012, the SEC by its own count has brought only five enforcement actions.

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Biomet Pays $22.8 Million To Settle Bribe Charges

Biomet Inc. today became the latest medical device maker to settle FCPA offenses.

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Smith & Nephew Reaches $22 Million Settlement

U.K.-based medical device maker Smith & Nephew plc agreed to pay $22.2 million to settle Foreign Corrupt Practices Act offenses committed by its U.S. and German subsidiaries. The company admitted bribing government-employed doctors in Greece for more than a decade to win business.

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The 2011 Watch List

Of the 150 files in the DOJ's hopper, our watch list includes more than half of them.

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DePuy Exec Jailed

The U.K.'s Serious Fraud Office said this week that a former DePuy executive pleaded guilty to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. He was sentenced to 12 months in prison.

Robert John Dougall, 45, was DePuy's marketing director. The company, acquired by Johnson & Johnson in 1999, makes and sells orthodpedic devices. The SFO said from 2002 to 2005, Dougall arranged the payment of commissions to surgeons as an inducement to use DePuy's products. The payments were made through agents and offshore accounts.

The SFO said its investigation began "following a referral by the U.S. Department of Justice in October 2007."  Dougall, it said, is the first "co-operating defendant" in a major SFO corruption investigation, which is ongoing.

Dougall was first charged by the SFO in November 2009. In September 2007, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

A copy of the SFO's April 14, 2010 release can be viewed here.

Ex-Johnson & Johnson Exec Charged In U.K.

Britain's Serious Fraud Office charged a former executive of a Johnson & Johnson subsidiary with overseas corruption. Robert John Dougall, 44, an ex-vice president of DePuy International Limited of Leeds, appeared Tuesday in the City of Westminster Magistrates' Court. He's accused of making corrupt payments to medical professionals in the Greek public healthcare system in order to sell orthopaedic products. The conduct allegedly occurred between February 2002 and December 2005.

The summons charged Dougall with conspiracy to corrupt in violation of the Criminal Law Act 1977. He was released on unconditional bail. A copy of the SFO's December 1 announcement is here.

The SFO said it began working on the case in March 2008. In February 2007, Johnson & Johnson said it had "voluntarily disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. " The company said then that Michael J. Dormer, the officer responsible for the overseas medical device business, had accepted responsibility and retired.

In September 2007, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. 

The Serious Fraud Office -- which has a new-look website and says it now has 88 ongoing cases -- didn't say if DePuy or others will also face charges.

An Abundance Of Caution

The Justice Department last week issued its first Foreign Corrupt Practices Act Opinion Procedure Release of the year. The Requestor in Release No. 09-01 is a medical device maker that wants to introduce its product to a foreign government. Unlike its few global competitors, it isn't well known in the target country. To introduce itself, it plans to donate samples to government health centers -- ten devices for ten different centers -- worth $19,000 each or $1.9 million for all 100 units.

The medical centers will select the 100 ultimate recipients of the devices. All candidates will have to be financially needy and generally can't be family members of government officials.

The DOJ said the Requestor's plan won't trigger any FCPA enforcement action. Why not? Because the donated devices won't go to government officials but to needy patients. Bottom line: No foreign official, no FCPA offense.

Sound familiar? It should. The same question came up in FCPA Opinion Procedure Releases No. 97-02 (November 5, 1997) and No. 06-01 (October 16, 2006). We talked about them here. So if the question's been asked and answered twice already, why did this Requestor ask again? Probably because medical device makers have been feeling the heat of the FCPA.

The DOJ and SEC are investigating their overseas sales practices. In 2007, Depuy and four other device makers paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. The same year, Johnson & Johnson (which owns Depuy) self-disclosed that "subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries." So the SEC and DOJ want to know whether the companies bribed overseas doctors at government-owned hospitals to use their products.

Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007; Wright Medical reported a similar investigation in June 2008.

View a copy of Opinion Procedure Release No. 09-01 (August 3, 2009) here.
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