Last week, the DOJ and SEC announced a parallel FCPA enforcement action against medical device manufacturer Analogic Corp. and BK Medical ApS (Analogic’s Danish subsidiary) in which the entities agreed to pay approximately $14.9 million.
The enforcement action highlights the FCPA risks of using distributors and the main points are as follows.
The foreign subsidiary used fake invoices to bill the distributor which would make payment against the inflated invoice, resulting in an overpayment that was used to "fund" improper payments to, among others, employees of Russian hospitals (i.e. individuals deemed to be "foreign officials" by the DOJ/SEC).
Moreover, the distributor would direct the foreign subsidiary to wire payments to third parties who had no business connection to the company and the subsidiary did not conduct any due diligence on the payment recipients.
In the SEC’s release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:
“Analogic’s subsidiary, BK Medical, allowed itself to be used as a slush fund for its distributors, funneling millions of dollars around the world at its distributors’ direction without knowing the purpose of the payments or anything about the recipients. Issuers and their subsidiaries cannot turn a blind eye to suspicious payments, even if they believe they are simply ‘helping out’ a business partner.”
While it is common to utilize third parties in the global marketplace, without effective controls including FCPA compliance training, third parties can present FCPA risk.
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