FCPA Compliance: Distributors and the Biomet Settlement

From the perspective of FCPA compliance for attorneys providing guidance to companies engaged in international business, the SEC’s recent settlement with Biomet, Inc., the Indiana-based medical device business, provides a useful perspective on compliance issues that are not solely limited to accounting classifications. The complaint filed by the SEC as part of the settlement with Biomet also demonstrates how the actions of a distant distributor, and a failure to act, can expose an entity to potential violations of the anti-bribery provisions.

Biomet International Corporation (Biomet International) is a wholly-owned subsidiary of Biomet, Inc., an issuer based in Warsaw, Indiana. Biomet International used a Brazilian distributor to make the sales of medical devices to public doctors and hospitals in Brazil. It was the Brazilian distributor and not Biomet International that made the improper payments to Brazilian doctors and hospitals. Nonetheless, a basis for liability under the anti-bribery provisions existed since U.S.-based officials of Biomet, the corporate parent, were aware that the Brazilian distributor was making improper payment to induce the sale of its products. And, despite this knowledge, “no efforts were made to stop the bribery.”

The SEC’s complaint demonstrates how a distributor, as a third party, can implicate an entity, or even an individual, subject to the FCPA’s anti-bribery provisions. While the actions of a subsidiary do not automatically implicate a corporate parent under the anti-bribery provisions, the knowledge on the part of Biomet, Inc., the corporate parent, exposed it to liability, especially after it failed to take action to stop the improper payments. In short, from the perspective of attorneys, in-house counsel, accountants, business officials, and others providing advice with respect to FCPA compliance issues, the SEC’s complaint provides a classic example of how acquiescence on the part of an entity can expose it to liability under the FCPA’s anti-bribery provisions.

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