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$55 million in Fines for FCPA Violations; Clinical Diagnostic and Life Science Research Company Self-Disclosed Misconduct

November 19, 2014

Co-Authors: Mike Gill, Edward Goetz, and Cari N. Stinebower.

On November 3rd, the Securities and Exchange Commission (SEC) charged Bio-Rad Laboratories, a clinical diagnostic and life science research company, based in California with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries made improper payments to foreign officials in Russia, Vietnam, and Thailand in order to win business. The company agreed to pay $40.7 million in disgorgement and prejudgment interest to the SEC. In a parallel action, the U.S. Department of Justice (DOJ) announced the company will pay $14.35 million in criminal fines for falsifying its books and records and failing to implement adequate internal controls in connection with sales it made in Russia. The department entered into a non-prosecution agreement with the company due, in large part, to Bio-Rad’s self-disclosure of the misconduct and full cooperation with the department’s investigation.

The SEC’s investigation found that Bio-Rad Laboratories 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. The improper payments enabled Bio-Rad to earn $35 million in illicit profits. The company made excessive payments disguised as commissions to foreign agents with phony Moscow addresses and off-shore bank accounts. Country managers were allowed to communicate through at least 10 different personal e-mail addresses with aliases, and referred to the commissions with code words such as “bad debts.”

Bio-Rad employees used local intermediaries in Vietnam and Thailand to funnel bribes to foreign officials in exchange for business. The SEC and DOJ took into consideration several mitigating factors in the case. In addition to self-disclosing the misconduct and cooperating with the investigation, the company engaged in significant remedial actions, including enhancing its anti-corruption policies globally, improving its internal controls and compliance functions, developing and implementing additional due diligence and contracting procedures for intermediaries, and conducting extensive anti-corruption training throughout the organization.

Crowell & Moring’s public policy group is available to discuss how to aid companies in building effective FCPA compliance programs, especially in high risk areas.
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Cari N. Stinebower
Partner – Washington, D.C.
Phone: +1 202.624.2757
Email: cstinebower@crowell.com

Edward Goetz
Manager, International Trade Services – Washington, D.C.
Phone: +1 202.508.8968
Email: egoetz@crowell.com