When compliance officers read about a major Justice Department settlement action, we can all hear the collective sigh of relief – “Thank goodness, that did not happen here in my company.”
The recent Olympus settlement is another in a long line of cases where any shred of corporate culture of integrity has been replaced with a culture of bribery and kickbacks, or other kids of misconduct. There is a lot to be learned from major enforcement actions that can be studied for positive lessons learned.
Most major cases originate from a deteriorated culture of misconduct, usually reflected in slavish devotion to the all mighty dollar. Everything can be justified in thse rotten companies by earning money and increasing revenues. The means to the end is never a problem – money is the salve for every instance of misconduct.
Unfortunately, these companies often fall prey to their respective cultures and either end up in serious trouble with alw enforcement or eventually end up on the throes of a financial scandal.
Olympus is yet another example of a company that suffers from a rotten culture. Whether it will recover from this mess is unknown, but it will take years to find out if Olympus can recover.
Olympus bears the unique moniker of completing a triple play of misconduct – violations of the domestic anti-kickback statute, the False Claims Act and the FCPA. At the root of its problem is a culture committed to bribery and kickbacks. But it is important to remember that this triple play occurred during a corporate culture suffering from serious accounting and financial misconduct In this environment, it is a wonder that Olympus did not add other violations including antitrust collusion and environmental crimes.
Olympus agreed to pay $623.2 million to resolve criminal and civil claims relating to a kickback scheme to pay doctors and hospitals. Olympus’ settlement is the largest in AKS enforcement history for a medical device company.
In a related action, Olympus entered into a deferred prosecution agreement with the Justice Department and agreed to pay $22.8 million to settle FCPA charges relating to bribes paid to foreign doctors in Central and South America.
Olympus entered into a three-year DPA and agreed to pay $312.4 million criminal penalty and a $310.8 civil penalty to avoid criminal conviction and to resolve related federal and state fraud charges.
Olympus provided doctors and hospitals with a range of illegal kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants and free endoscopes.
For example, Olympus gave hospitals research grants to facilitate sales of equipment; paid for a trip for three doctors to Japan in exchange for the doctors’ decision to switch from a competitor to Olympus products. According to the settlement, Olympus earned more than $600 million in revenues from illegal kickbacks.
Olympus did not maintain a compliance program, and only appointed an experienced compliance officer in 2010. Under the DPA, Olympus has to implement significant compliance improvements.
The remediation program includes two interesting requirements: first, the CEO and the board of directors must certify annually that the compliance program is effective; and second, Olympus must adopt an executive financial recoupment program requiring executives who engage in misconduct or fail to promote compliance to forfeit up to three years of performance pay.
Olympus entered into a separate three-year DPA and agreed to pay $22.8 million to resolve criminal FCPA charges. Olympus made illegal payments to physicians at government-owned healthcare facilities in Central and South America. These payments included cash, money transfers, personal grants, travel and free or discounted equipment.
Olympus established training centers throughout Central and South America, and used these operations to funnel illegal payments to selected doctors. Olympus paid nearly $3 million in bribes to induce the purchase of Olympus products. Olympus did not self-report the illegal conduct but earned a 20 percent discount for its cooperation during the investigation.