Orthofix to Pay Another Fine for Bribery

Just on one month after Lewsiville, Texas-based Orthofix International N.V. agreed to pay $42 million to the U.S. Department of Justice to resolve a lawsuit regarding kickbacks to physicians, the company is now going to pay $5.2 million to settle allegations of bribery in Mexico. According to the complaint filed with the U.S. Securities and Exchange Commission (SEC), Orthofix’s Mexican subsidiary Promeca S.A. de C.V. paid approximately $317,000 to Mexican officials between 2003 and 2010 to grease the wheels for producing sales contractors from Instituto Mexicano del Seguro Social, the Mexican-government owned health care and social series institution.

“Promeca employees referred to these payments as ‘chocolates,’” reads the complaint. 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 $5 million in illegal profits for the Orthofix subsidiary.

“Once bribery has been likened to a box of chocolates, you know a corruptive culture has permeated your business,” said Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “Orthofix’s lax oversight allowed its subsidiary to illicitly spend more than $300,000 to sweeten the deals with Mexican officials.”

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. Upon discovery of the bribe payments through a Promeca executive, Orthofix immediately voluntarily reported the matter to the SEC and implemented what the Commission deems “significant remedial measures.” Orthofix terminated the Promeca executives who orchestrated the bribery scheme.

According to an SEC filing, Orthofix will also pay a $2.2 million penalty to the U.S. Department of Justice in a related action.

Orthofix is a provider of medical devices for trauma and spine fusion. The $42 million bribery settlement in June was related to its bone-growth stimulator device.