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Smith & Nephew Reaches $22 Million Settlement

U.K.-based medical device maker Smith & Nephew plc agreed to pay $22.2 million to settle Foreign Corrupt Practices Act offenses committed by its U.S. and German subsidiaries.

The company admitted bribing government-employed doctors in Greece for more than a decade to win business.

The U.S. subsidiary Smith & Nephew Inc. paid a $16.8 million criminal fine to the DOJ and entered into a deferred prosecution agreement. The parent company Smith & Nephew plc settled the SEC’s charges by paying $5.4 million in disgorgement and prejudgment interest. The company is required to retain an independent compliance monitor for eighteen months to review its FCPA compliance program.

Smith & Nephew Inc. is a Delaware corporation headquartered in Memphis. It is a wholly-owned subsidiary of Smith & Nephew plc, which is traded on the New York Stock Exchange (symbol: SSN).

The DOJ and SEC began their investigation of the orthopedic implant industry in 2007. Smith & Nephew, Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Wright Medical, and Medtronic Inc. disclosed FCPA investigations after they settled U.S. domestic bribery charges. The SEC and DOJ wanted to know whether the companies bribed doctors employed by government-owned hospitals overseas to use their products.

Doctors at overseas government owned or operated hospitals are considered 'foreign officials' under the FCPA.

In April last year, Johnson & Johnson paid $70 million to the DOJ and SEC to resolve bribery charges related to payments in Greece, Poland, and Romania. In the U.K., Johnson & Johnson's subsidiary DePuy International Limited paid £4.8 million in a civil recovery action.

The DOJ said then that Johnson & Johnson "cooperated extensively with the government and, as a result, has played an important role in identifying improper practices in the life sciences industry." Both the DOJ and SEC said Johnson & Johnson received a substantial discount in the settlement due to its cooperation.

A DePuy sales executive was sentenced to a year in prison in the U.K. last year. Roberty John Dougall pleaded guilty to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system.

Beginning in 1997, Smith & Nephew’s subsidiaries made payments to three shell entities in the United Kingdom controlled by a distributor. About $9.4 million was used by the distributor to bribe Greek doctors to buy Smith & Nephew products.

Smith & Nephew failed to act on numerous red flags of bribery, the SEC said, after employees learned about the payments. The SEC said,

In one e-mail exchange between employees at the U.S. subsidiary and the distributor concerning whether to reduce the distributor’s commissions, the distributor stated, “… In case it is not clear to you, please understand that I am paying cash incentives right after each surgery…”

U.S. subsidiary Smith & Nephew Inc. and German subsidiary Smith & Nephew Orthopaedics GmbH sold orthopedic products in Greece since the 1970s through the Greek distributor. 

The government's investigation into the medical device industry is continuing, the DOJ and SEC said.

View the DOJ's February 6, 2012 release here.

View SEC Litigation Release 22252 and Accounting and Auditing Enforcement Release No. 3363 (both dated February 6, 2012) in Securities and Exchange Commission v. Smith & Nephew PLC, Civil Action No. 1: 12-CV-00187 (D.D.C.)(GK) (February, 6, 2012) here.

Download the SEC's civil complaint here.

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