Lifecore Biomedical: The Disposal Records Were Part of the Bribe

In the Lifecore Biomedical FCPA case, the Justice Department described approximately $14,000 in bribes for a Mexican wastewater discharge permit and a separate scheme to buy false disposal records. Its letter declining criminal prosecution traced payments through outside businesses to officials whose signatures made the paperwork look legitimate.

Lifecore, formerly Landec Corporation, acquired Yucatan Foods and its Mexican manufacturing operation while the conduct was underway. The Justice Department’s Fraud Section and the U.S. Attorney’s Office for the Northern District of California declined to prosecute Lifecore for Foreign Corrupt Practices Act violations on November 16, 2023, citing its disclosure, cooperation and remediation.

What Happened in the Lifecore Biomedical FCPA Case?

The Lifecore Biomedical FCPA case concerned payments for a wastewater permit and fraudulent manifests at Procesadora Tanok, a manufacturing facility owned and operated by Yucatan Foods in Guanajuato, Mexico. The Justice Department said its criminal investigation found evidence that Yucatan officers, employees and agents, including Tanok employees, paid bribes between May 2018 and August 2019. The conduct crossed the December 1, 2018 acquisition of Yucatan and Tanok by Lifecore.

The letter describes Tanok as a maquiladora, a Mexican manufacturing facility operated by a foreign company and exporting to the owner or operator’s country under favorable tariff conditions. The government contact at issue was local: a wastewater discharge permit and officials signing disposal manifests. Those were operating records for the plant, with a service provider standing between the company paying the bill and the officials receiving bribes.

The person approving an outside service may see a different transaction from the person dealing with the official. Here, the government’s account connects the permit, the payment and the disposal record to the same business benefit: avoiding wastewater treatment costs and duties owed to Mexican regulators.

What the Acquisition Review Missed

Lifecore discovered the misconduct during integration after the acquisition, according to the declination letter. The letter describes what had happened during pre-acquisition due diligence:

According to the letter, the acquired business’s payments continued after closing. That makes the handoff between diligence and integration central to this case. What the buyer was shown before ownership changed and what it learned while bringing the business into the group were different accounts of the same operation.

A separate case involving Fresenius Medical Care shows another way managers controlled what an inquiry could see. In its settled administrative order, the Securities and Exchange Commission found that employees altered and destroyed records at senior managers’ direction and coordinated false accounts of company spending.

The 2022 Journal of Forensic and Investigative Accounting paper Fresenius Medical Care: A Case Study on the FCPA concludes that managers and employees circumvented controls and continued bribery despite flagged transactions and existing policies. A policy and a flagged transaction can coexist with people actively keeping the payment system running.

False Manifests Made the Payments Look Legitimate

The Justice Department’s letter said Tanok employees and agents paid a third-party service provider approximately $310,000 to prepare fraudulent manifests. Those manifests purported to show that the provider had delivered wastewater to a municipal water company for disposal. The employees and agents knew that part of the fee paid bribes to local officials to sign the records and help make them appear legitimate.

The service provider received the larger payment, and a portion reached the officials. An invoice showing a payment to the provider would therefore leave the official’s benefit out of sight, while the signed manifest supplied apparent support for the service.

We see the circular logic here: the paperwork that appeared to confirm disposal was itself something the payment bought. A signature was part of the scheme.

This is where false supporting records can conceal a payment’s purpose. The useful business comparison joins the service promised, the work performed, the payment approved and the official decision obtained.

Why the Justice Department Declined to Prosecute

The Justice Department credited Lifecore’s voluntary disclosure, cooperation and changes inside the business in deciding to decline prosecution. Lifecore reported to the Fraud Section within three months of first discovering possible misconduct and hours after its internal investigation confirmed that misconduct had occurred.

The company’s self-disclosure followed the investigation it began during integration. The government credited Lifecore with providing all known relevant facts and agreeing to continue cooperating after selling Tanok and the legacy Yucatan business.

According to the letter, Lifecore terminated the Yucatan officer involved in the bribery scheme and withheld that officer’s bonus and other compensation. It also substantially improved its compliance program and internal controls.

The Savings Came From Treatment and Duties

Against the permit bribe and the fee for false manifests, the letter put Lifecore’s financial benefit from the bribery at $1,286,060 in avoided costs. That figure covered needed on-site wastewater treatment and duties that otherwise would have been payable to Mexican regulatory authorities.

The letter said Lifecore had since constructed a wastewater treatment plant and paid Mexican regulators duties it owed. The treatment plant is the concrete counterpart to the false disposal manifests. One involved spending money on the physical operation, while the other made disposal appear to have happened on paper.

We see a business cost being turned into a paperwork problem, then turned back into a business cost when the scheme came to light. The permit payment and the false manifests served that same avoidance.

What an Insider Can Add

An insider can connect a provider’s bill to the work performed, the official signature and the reason management approved the payment. In this case, the government’s account also makes the acquisition review and the later internal investigation part of that sequence. Our whistleblower evidence work turns those business facts into a case.

A plant employee may know how disposal actually worked. A finance employee may know the supporting documents, payment approvals and explanations given when questions arose. Someone involved in integration may know what changed between the account presented to the buyer and the problem the company later investigated.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery reporting follows separate whistleblower programs, which we assess with you and FCPA whistleblower lawyers around the conduct and information you know.

You Know What Happened Behind the Manifest

If you know why a wastewater payment was approved or what an acquisition review was kept from seeing, speak with our whistleblower experts about the transaction. We build the case around your knowledge and bring in FCPA whistleblower lawyers who understand subsidiary payments and concealed government benefits. We stay with you from the first call through the work of building your strongest FCPA whistleblower case.