United States: Settlements In Brief: Notable Settlements In July And August

Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight some notable settlements that were reached in the US in July and August. The U.S. Department of Justice settled with Louis Berger International Inc., for allegedly having paid bribes to secure government contracts. Banamex USA also settled for not having an effective compliance programme in place. The Securities and Exchange Commission and Mead Johnson Nutrition Co. settled over alleged payments to healthcare professionals at state-owned hospitals. Medical device manufacturer NuVasive paid USD 13.5 million because it allegedly caused health care providers to submit false claims to health care programmes. BNY Mellon settled for USD 14.8 million as it had allegedly hired family members of certain government officials for its highly sought-after internships. The last settlement of USD 92,395 was agreed with a former SAP executive who had allegedly orchestrated a scheme to bribe Panamanian government officials.

Louis Berger International Inc.

The U.S. Department of Justice (DOJ) announced on 17 July 2015 that Louis Berger International Inc. (LBI), a construction management company based in New Jersey, entered into a deferred prosecution agreement (DPA) and agreed to:

  • pay an amount of USD 17.1 million
  • implement rigorous internal controls
  • continue to cooperate fully with the DOJ
  • retain a compliance monitor for at least three years

According to the DOJ, from 1998 through 2010, LBI and its employees – including two former executives – orchestrated USD 3.9 million in bribe payments in India, Indonesia, Vietnam and Kuwait to secure government contracts. LBI and two of its former executives admitted to these violations of the Foreign Corrupt Practices Act (FCPA), the DOJ stated. The former executives will be prosecuted separately.

According to the DOJ, factors in entering into a DPA with LBI included:

  • LBI's self-reporting of the misconduct
  • LBI's cooperation, including voluntarily making both US and foreign employees available for interviews, and collecting, analysing and organising evidence and information for federal investigators
  • LBI's extensive remediation, including terminating the officers and employees responsible for the corrupt payments
  • LBI's demonstrated commitment to improving its compliance programme and internal controls

Banamex USA

On 22 July 2015, Banamex USA, an indirect wholly-owned subsidiary of Citigroup and an affiliate of Banco Nacional de Mexico, entered into a joint consent agreement with the Federal Deposit Insurance Corporation (FDIC) and the California Department of Business Oversight (CDBO). The FDIC and CDBO imposed a fine of USD 140 million on Banamex USA for alleged violations of the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws and regulations.

According to the FDIC, the bank had failed to implement an effective BSA and AML Compliance Program over an extended period of time.

Citigroup said in a statement: "Ensuring a strong and sustainable BSA/AML Compliance Program is an ongoing mission. Citi is committed to devoting the resources and expertise needed to continuously execute a robust and comprehensive program that helps protect the integrity of the financial system."

Mead Johnson Nutrition Co.

Mead Johnson Nutrition Co., a Delaware corporation headquartered in Illinois, agreed on 28 July 2015 to pay USD 12.03 million to settle SEC charges that it had violated the books and records and internal controls provisions of the FCPA.

From 2008 through 2013, several employees of Mead Johnson's majority-owned subsidiary in China, Mead Johnson Nutrition (China) Co., Ltd., allegedly made improper payments, for a total of approximately USD 2 million, to health care professionals at state-owned hospitals to recommend Mead Johnson's nutrition products to, and provide information about, expecting and new mothers. According to the SEC, these payments were made to assist Mead Johnson China in developing its business.

Mead Johnson violated the books and records provisions of the FCPA by failing to properly record the improper payments, the SEC said. According to the SEC, Mead Johnson also did not have an adequate system of internal accounting controls. The company resolved the charges without admitting or denying liability.

NuVasive

On 30 July 2015, medical device manufacturer NuVasive Inc. settled with the DOJ for USD 13.5 million to resolve allegations that the company had promoted the CoRoent System for surgical uses that were not approved or cleared by the U.S. Food and Drug Administration, which caused health care providers to submit false claims to health care programmes.

The settlement also resolves allegations that NuVasive payed kickbacks to induce physicians to use the company's CoRoent System, in violation of the federal Anti-Kickback Statute. The kickbacks consisted of promotional speaker fees, honoraria and expenses relating to physicians' attendance at events sponsored by the Society of Lateral Access Surgery, which was allegedly created, funded and operated solely by NuVasive, despite its outward appearance of independence.

The settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act by a former NuVasive sales representative, who will receive approximately USD 2.2 million.

This settlement illustrates the focus of enforcement authorities on combating health care fraud.

BNY Mellon

On 18 August 2015, the SEC reached a settlement with BNY Mellon for alleged violation of the FCPA by providing valuable student internships to family members of government officials affiliated with a Middle Eastern sovereign wealth fund. BNY Mellon has agreed to pay USD 14.8 million.

During the investigation, the SEC found that BNY Mellon had set aside stringent hiring standards – which require a minimum grade point average and multiple interviews – when evaluating or hiring the family members for its highly sought-after internships programme. The family members were hired via senior BNY Mellon managers without further review by HR, legal or compliance staff, even when they failed to meet the hiring criteria. The SEC's order finds that BNY Mellon lacked sufficient internal controls to prevent and detect the improper hiring practices.

Without admitting or denying the findings, the company agreed to pay USD 8.3 million in disgorgement, USD 1.5 million in prejudgment interest, and a USD 5 million penalty. In setting these amounts, the SEC took the company's remedial action and cooperation with the investigation into account. The SEC commented that it will continue to scrutinise industries that have not been vigilant about compliance with the FCPA.

Former executive SAP SE

The SEC reached a settlement on 18 August 2015 with the former vice-president of global and strategic accounts of worldwide software manufacturer SAP SE. The former VP has agreed to pay USD 92,395 to settle charges that he bribed Panamanian government officials through an intermediary to procure software licence sales.

The SEC found that the former VP had orchestrated a scheme to pay USD 145,000 in bribes to one government official and had promised to pay two others in order to obtain four contracts to sell SAP software to the Panamanian government. He essentially caused SAP, which executes most of its sales through a network of worldwide corporate partners, to sell software to a partner in Panama at discounts of up to 82%. This enabled him to create a slush fund from the earnings on the sales and tap that money to pay the bribes. The former VP also received kickbacks from those earnings into his own bank account.

These acts violated the anti-bribery and internal control provisions of the Securities Exchange Act of 1934. The former VP agreed to pay disgorgement of USD 85,965, which is the total amount of kickbacks he received, plus prejudgment interest of USD 6,430, totalling USD 92,395. In a parallel action, the DOJ announced a criminal suit against him.

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