<\/p>\n
Bio-Rad Labs recently agreed to pay a $14.35 million dollar penalty to resolve DOJ allegations that its subsidiaries made\u00a0improper payments to Russian, Vietnamese, and Thai officials to win contracts in violation of\u00a0the Foreign Corrupt Practices Act. DOJ alleged that the company falsified its books and records and failed to have adequate internal controls in connection with its sales operations. The settlement also included disgorgement of $40.7 million related to the parallel SEC investigation.\u00a0<\/span><\/p>\n Notably, the DOJ said the criminal sanctions were not more severe because Bio-Rad voluntarily disclosed the misconduct and fully cooperated in its probe, including by making employees available for interviews, producing documents from overseas, and strengthening its compliance program.\u00a0<\/span><\/p>\n Background on the Foreign Corrupt Practices Act\u00a0<\/strong><\/span><\/p>\n The FCPA prohibits directly or indirectly making, promising, or authorizing the making of a \u201ccorrupt payment\u201d to a \u201cpublic official.\u201d To violate the Act, these corrupt payment must be made in order to \u201cobtain or retain business.\u201d However, the breadth of the law is expansive because\u00a0payments to third parties (e.g., agents) made with knowledge that funds would be used to make a corrupt payment violate the FCPA.<\/span><\/p>\n FCPA also requires public companies (\u201cissuers\u201d) to maintain accurate books and records, and to implement accounting and financial controls. Importantly, there is no materiality requirement under the FCPA–there is strict liability for violations. This\u00a0means that all transactions must be accurately recorded in the books\u00a0and records of the subsidiaries, or the parent company can face liability.<\/span><\/p>\n Bio-Rad Case<\/strong><\/span><\/p>\n Bio-Rad’s foreign subsidiaries allegedly implicated the company on violations of both of the above provisions of the FCPA.\u00a0<\/span><\/p>\n The SEC alleges that from 2005 to 2010, foreign subsidiaries of Bio-Rad made unlawful payments in Thailand and Vietnam to obtain or retain business. <\/span><\/p>\n Thailand<\/em><\/span><\/p>\n The SEC noted that regarding Thailand, Bio-Rad did “very little due diligence” in acquiring\u00a0Diamed Thailand as part of its acquisition of\u00a0Diamed AG (Switzerland) in October 2007. “Prior to the October 2007 acquisition, Diamed Thailand had an established bribery scheme, whereby Diamed Thailand used a Thai agent to sell diagnostic products to government customers,” the SEC states. “The agent received an inflated 13% commission, of which it retained 4%, and paid 9% to Thai government officials in exchange for profitable business contracts.” This scheme allegedly kept up after the acquisition.\u00a0<\/span><\/p>\n Vietnam<\/span><\/em><\/p>\n The allegations in Vietnam centered on the fact that\u00a0sales reps made cash payments to officials at government-owned hospitals and laboratories in exchange for their agreement to buy Bio-Rad\u2019s products. They allegedly made these payments at the direction of the\u00a0country manager.\u00a0<\/span><\/p>\n Russia<\/em><\/span><\/p>\n During the same period, “Bio-Rad\u2019s subsidiary paid certain Russian third parties, disregarding the high probability that at least some of the money would be used to make unlawful payments to government officials in Russia.” \u00a0<\/span><\/p>\n Bio-Rad Russia\u2019s largest contracts with the Russian government were national contracts awarded by the Russian Ministry of Health for the sale of HIV testing equipment and blood bank equipment. The clinical diagnostic products sold to the Russian government were manufactured by Bio-Rad SNC, which in many instances also sold them directly to the Russian government due to certain complexities with Russian regulations and tax laws.\u00a0<\/span><\/p>\n “Bio-Rad SNC, a Bio-Rad subsidiary located in France, retained and paid intermediary companies commissions of 15-30 percent purportedly in exchange for various services in connection with certain governmental sales in Russia,” the DOJ states. The intermediary companies, however, did not perform these services. Several high-level managers at Bio-Rad, responsible for overseeing Bio-Rad\u2019s business in Russia, reviewed and approved the commission payments to the intermediary companies despite knowing that the intermediary companies were not performing such services.”<\/span><\/p>\n Furthermore:<\/span><\/p>\n In violation of Bio-Rad\u2019s policies, Bio-Rad\u2019s foreign subsidiaries did not record the payments in their own books in a manner that would accurately or fairly reflect the transactions. Instead they booked them as commissions, advertising, and training fees. These subsidiaries\u2019 books were consolidated into the parent company\u2019s books and records. During the relevant period, Bio-Rad also failed to devise and maintain adequate internal accounting controls.<\/span><\/p>\n The SEC stated that Bio-Rad “lacked sufficient internal controls to prevent or detect approximately $7.5 million in bribes that were paid during a five-year period and improperly recorded in books and records as legitimate expenses like commissions, advertising, and training fees.”\u00a0Bio-Rad made $35 million in profits through the bribes, the SEC said.\u00a0<\/span><\/p>\n \u201cPublic companies that cook their books and hide improper payments foster corruption,\u201d stated DOJ Assistant Attorney General Leslie Caldwell, who heads the criminal division, in a press release.\u00a0 \u201cThe department also gives credit to companies, like Bio-Rad, who self-disclose, cooperate and remediate their violations of the FCPA.\u201d<\/span><\/p>\n Self-Disclosure and Cooperation<\/strong><\/span><\/p>\n The DOJ stated that they entered into a non-prosecution agreement with the company \u201cdue, in large part, to Bio-Rad\u2019s self-disclosure of the misconduct and full cooperation with the department\u2019s investigation.\u201d That cooperation included:<\/span><\/p>\n DOJ states that in addition, Bio-Rad engaged in significant remedial actions, including:<\/span><\/p>\n\n
\n