Biomet / Zimmer Biomet: The Distributor Was Prohibited and the Business Continued

In the Biomet / Zimmer Biomet FCPA case, Zimmer Biomet agreed in 2017 to pay the Securities and Exchange Commission more than $13 million to resolve allegations involving a prohibited Brazilian distributor and bribes to Mexican customs officials. The medical-device business had already faced a case over payments to public doctors in Argentina, Brazil and China. For someone who handled distributor approvals, implant shipments or internal audits, the striking part is what the company already knew.

Biomet made products used by orthopedic surgeons, and Zimmer Biomet’s business included orthopedic and dental implants. These Foreign Corrupt Practices Act settlements connect decisions made at different points in that business: which implant a doctor bought, which shipment a customs official let through, and what headquarters did when the payment records raised questions.

The SEC Alleged Public Doctors Got a Share of the Sale

The SEC’s March 2012 complaint announcement alleged that Biomet’s subsidiaries and agents bribed publicly employed doctors to win business. The alleged payments ran from 2000 through August 2008 and involved distributors, subsidiary employees and managers at the parent company. The SEC said compliance and internal audit learned about the payments and failed to stop them.

In Argentina, the SEC alleged that employees paid doctors kickbacks as high as 15 to 20 percent of each sale. Phony invoices allegedly justified the payments, which were recorded as consulting fees or commissions. Executives and internal auditors at Biomet’s Indiana headquarters allegedly knew about the payments as early as the start of that period.

In Brazil, the SEC alleged that Biomet International used a distributor to pay publicly employed doctors a share of their medical-device purchases. Those payments were allegedly discussed openly with company employees, executives and internal auditors. The SEC described an internal audit memorandum recording cash payments to surgeons as prepaid expenses, later reclassified as expenses in the financial statements sent to Biomet.

According to the SEC, the audit itself described payments that could be kickbacks, yet the business continued. The auditors wrote it down. According to the agency, the payments kept coming.

In China, the SEC Alleged the Payment Followed the Surgery

The SEC alleged that Biomet China and Scandimed sold through a Chinese distributor who gave publicly employed doctors money and travel in exchange for purchases. According to the SEC, emails discussed cash delivered after surgery and a doctor’s ability to influence other surgeons. The SEC also described a company-sponsored trip to Spain with substantial sightseeing and entertainment.

That is the commercial leverage behind medical-device bribery: the person choosing or recommending a product can also be the person receiving the benefit. In these allegations, the distributor’s relationship with the doctor and the company’s sales records explained the purpose of payments that the accounts presented as business expenses. The public hospital was buying the device while its doctor allegedly received a private reward for the purchase.

Biomet consented to an order requiring it to surrender $4,432,998 in profits in the first SEC resolution. The agency said its investigation arose from a broader government examination of medical-device companies bribing publicly employed physicians. The later SEC case would demand still more in surrendered profits, as well as a civil penalty.

Brazil’s Prohibited Distributor Stayed in the Business

Announcing Zimmer Biomet’s later deferred prosecution agreement, the Justice Department reported admissions in the criminal resolution documents: Biomet knowingly continued using a Brazilian distributor that had paid bribes on its behalf, even after its earlier agreement. The SEC separately said its order found continued dealings and improperly recorded transactions with a prohibited distributor.

A prohibition has to reach the orders, approvals and payments. For an employee working with a distributor, the useful connection is between the restriction on the distributor and the business the company continued to conduct. Who was approved and who actually got paid is a question about the sale itself, not just the vendor file.

A related pattern appears in Fresenius Medical Care. In its administrative order, the SEC found that a prohibition on using a Serbian agent was circumvented by approving payments through a transport vendor, which then paid doctors. The business could change the intermediary carrying the payment while continuing to fund the same kind of benefit.

The 2022 Journal of Forensic and Investigative Accounting study Fresenius Medical Care: A Case Study on the FCPA makes that pattern explicit. Its conclusion describes how employees worked around controls that had already identified problems:

The parallel gives a distributor or finance employee a concrete question to bring us: what happened to the payments after the restriction? We examine that connection with you, including whether a changed payee or service description concealed continued business with the prohibited party.

Mexico’s Dental Implants Moved Through Customs Brokers

The Justice Department’s account of the criminal resolution documents said Biomet admitted that its Mexican subsidiary used customs brokers and subagents to pay customs officials so it could import dental implants without proper registration or labeling. The agency also said employees and executives had been alerted to signs of bribery, but Biomet failed to require appropriate checks on third parties, documentation and contracts for payments.

The subsidiary was Biomet 3i Mexico. The product problem and the payment problem were connected: the goods lacked the registration or labeling required for lawful importation, and the brokers and subagents carried the payments that let them enter. A person who knew the implant shipment could therefore understand something about the broker’s bill that an accounting description alone would miss.

This is why customs bribery belongs inside the medical-device sales story. The commercial records connect the product, the clearance decision and the intermediary paid to obtain it. For an insider, a product-registration record and a broker invoice may describe different sides of the same shipment.

The Justice Department said the superseding criminal information, its revised charging document against Zimmer Biomet, alleged ineffective internal accounting controls. A separate criminal information charged JERDS, the indirect subsidiary that owned Biomet 3i Mexico, with causing false books and records at Biomet. Those charges connected the local subsidiary’s conduct to the parent company’s accounts.

The Earlier Agreement Did Not Stop the Conduct

The Justice Department said Zimmer Biomet breached Biomet’s 2012 deferred prosecution agreement, the criminal agreement resolving the original investigation. Its later announcement described both continued business with the Brazilian distributor and inadequate accounting controls in Mexico. The company had agreed to fix its controls, yet the prohibited business continued.

The SEC said Biomet learned about potential violations in Brazil and Mexico and notified the agency in 2013. Biomet became part of Zimmer Biomet in 2015. The later corporate name did not remove the earlier conduct from the case: the Justice Department’s announcement identified the prior agreement’s breach as a reason for the resolution with Zimmer Biomet.

The Justice Department also credited Zimmer Biomet with full cooperation and providing all relevant facts known to it. That cooperation sat alongside the admissions about the continued distributor relationship and the failed controls. We see the absurdity in a prohibited distributor remaining part of the business after an agreement meant to stop the misconduct.

The Securities and Exchange Commission required more than $5.82 million in surrendered profits and a $6.5 million civil penalty in the later resolution. The company faced another bill for conduct its earlier agreement was supposed to address.

What a Medical-Device Insider Can Connect

A sales employee, distributor employee, customs specialist or finance employee may hold a different part of the transaction. Distributor prices and margins show how much money remained outside the manufacturer’s own accounts, while payment approvals and audit reports show what the company knew about the use of that money. The books and the controls become much more revealing when read beside the underlying sale.

The SEC order concerning Fresenius described a supplier absorbing the cost of phony doctor commissions while Fresenius accepted lower revenue, leaving fewer expenses visible in its own books. The accounting presentation changed where the cost appeared, while the doctors still received the benefit.

In Bio-Rad, a court opinion recounts employee reports of shipments padded with free products beyond the quantities shown on cover sheets. It also recounts the discovery of unauthorized distributor contracts based on an older template lacking anti-corruption terms. The shipment and the actual contract could tell a different story from the paperwork headquarters expected to see.

For Biomet’s alleged doctor payments and admitted customs route, those connections are especially concrete: the doctor, the implant sale, the distributor or broker, the payment and the account used to record it. Our work starts with the part you know and connects it to the company’s decisions. You do not need to turn your knowledge of the business into legal terminology before speaking with us.

The SEC whistleblower program can reward original information about foreign bribery, and we help you assess where your information fits. Where government money is at stake, a whistleblower case under the separate False Claims Act can pay 15% to 30% of what the government recovers.

You Know Which Payments Continued

If you saw doctor payments disguised as sales expenses, a prohibited distributor still receiving business or unexplained bills for clearing implants, speak with our whistleblower experts. We work alongside you to build your strongest case around those transactions and bring in foreign-bribery whistleblower lawyers who understand medical-device sales and intermediary payments. We stay with you as your knowledge of the business becomes the evidence behind your claim.