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.

With Magyar In New Top Ten, It's 90% Non-U.S.

Here's the current top ten list for corporate defendants.*

Magyar Telekom and Deutsche Telekom (part of one enforcement action) today replaced Johnson & Johnson, which joined the list in April this year.

Nine of the biggest cases now involve non-U.S. companies.

1. Siemens (Germany): $800 million in 2008.

2. KBR / Halliburton (USA): $579 million in 2009.

3. BAE (UK): $400 million in 2010.

4. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in 2010.

5. Technip S.A. (France): $338 million in 2010.

6. JGC Corporation (Japan) $218.8 million in 2011.

7. Daimler AG (Germany): $185 million in 2010.

8. Alcatel-Lucent (France): $137 million in 2010.

9. Magyar Telekom / Deutsche Telekom (Hungary /Germany): $95 million in 2011.

10. Panalpina (Switzerland): $81.8 million in 2010.

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*An individual, Jeffrey Tesler  of the U.K., agreed to an FCPA-related forfeiture of $149 million in 2011.

Fox's Top Ten For 2011, Corporate Division

By Thomas Fox

As December is a time for reflection on the past twelve months, I have been considering the FCPA Enforcement Action year.

I submit for your consideration my Top 10 FCPA Enforcement Actions for 2011 in the Corporate Division.

Happy Holidays to all!

1.  Alcatel-Lucent ($137 million), or non-cooperation will cost you. -- The company lost between $10 million to $20 million in penalty reduction because its initial investigative counsel did not fully cooperate with the DOJ after self-disclosure.

2. Armor Holdings ($10.29 million), or you can step back from the abyss. -- The company had 92 separate instances of disguising bribes yet was able to obtain a NPA, through self-disclose, cleaning house, remediation and implementing a best practices compliance program.

3. Bridgestone ($28 million), don’t double down a FCPA violation by adding anti-trust violations. -- The company was found to have engaged in both bribery of foreign officials but using such corrupt acts in furtherance of bid-rigging.

4. JGC ($218.8 million), and then there were none. -- The final corporate conclusion of the infamous Bonny Island, Nigeria Bribery Scandal. Joining with previously settled defendants, Halliburton, Technip and Snamprogetti/ENI to bring a total settlement amount of over $1.5 billion.

5.  Johnson & Johnson ($77 million), enhanced compliance obligations, the new normal?-- Not only did J&J agree to implement a minimum best practices compliance program, it also agreed to “enhanced compliance obligations”.

6. Maxwell Technologies ($14.3 million), start your day with a risk assessment. -- One of several cases where the DOJ specified some of the parameters of the risks you should assess to inform your compliance program.

7.  SciClone ($2.5 million to date), or the plaintiff’s bar finds compliance. -- Not an enforcement action but the settlement of a shareholder derivative action during the pendency of a FCPA investigation, where the company agreed to implement a best practices compliance program.

8.  Tenaris ($8.9 million), or the SEC joins the DPA party. -- The first instance of the SEC entering into a Deferred Prosecution Agreement for the settlement of civil FCPA violations.

9.  Tyson’s Foods ($5.2 million) or don’t blame me, I only bribed the wife. -- The company received a DPA for a bribery scheme involving payments for Mexican government officials' wives.

10.  Watts Water ($3.7 million), or it is a good thing to keep up with the news. -- The company’s general counsel read about an enforcement action involving a non-related company in a different industry but with the same sales model as his company and wondered if it might be a FCPA problem for his company. It was.

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Thomas Fox is the creator and writer of the widely-read FCPA Compliance and Ethics Blog. He has practiced law in Houston for 25 years. Tom writes and speaks nationally and internationally on FCPA compliance, indemnities and other forms of risk management for a worldwide energy practice, tax issues faced by multi-national U.S. companies, insurance coverage issues, and protection of trade secrets. He can be contacted here.

What The Pharmas Are Reading

The latest issue of the Rx Compliance Report included  summaries of our posts, a flock of pharmas and why benchmarking matters.

We're happy to be included. Most of the forty drug companies subscribe to the newsletter, as do the law firms that help them. For ten years, Rx Compliance has been chronicling the 'government's crackdown on pharmaceutical sales and marketing practices.' That crackdown is gaining speed.

The Wall Street Journal reported this week that Pfizer will pay about $60 million to settle alleged FCPA violations. In April, Johnson & Johnson resolved FCPA offenses by paying $70 million.

Our 2011 corporate investigations list included Pfizer, as well as AstraZeneca, Biomet, Bio-Rad Laboratories, Bristol-Meyers Squibb, Covidien, Eli Lilly, GlaxoSmithKline, Medtronic, Merck, Orthofix International, Sciclone Pharmaceuticals, Smith & Nephew, Stryker Corporation, Talecris Biotherapeutics, and Zimmer.

The same issue of Rx Compliance ran a front-page story about Jeff Kaplan's view of global enforcement trends. Kaplan, co-author of the anti-corruption compliance program benchmarking survey, also described 'five practical benchmarks in anti-corruption efforts.'

Take Your Meds

In its quarterly report filed with the SEC last week, pharma giant Pfizer Inc said it has reached agreement in principle with the SEC and DOJ to resolve 'improper payment' matters outside the United States.

It expects final settlements by year end.

In 2009, New York-based Pfizer paid a $2.3 billion civil and criminal penalty for unlawful prescription drug promotions in the U.S. As we said then, using similar sales techniques with doctors at government-owned hospitals overseas could violate the FCPA.

That same year, a senator in the Philippines accused Pfizer of using illegal tactics to block legislation aimed at lowering drug costs. Senator Mar Roxas wrote a letter to the U.S. Justice Department requesting an FCPA investigation. He alleged that Pfizer offered the Philippines' health secretary 'discount cards' in exchange for not implementing the retail drug-price law.

Pfizer then bought full-page ads in Philippines newspapers saying, 'We categorically deny this allegation and consider this a grave affront to our reputation … We have always sought to provide wider access to our high quality medicines.'

In a post last month, a flock of pharmas, a reader asked why our 2011 corporate investigations list is full of pharmaceutical and medical-device companies. Those on the list were AstraZeneca, Biomet, Bio-Rad Laboratories, Bristol-Meyers Squibb, Covidien, Eli Lilly, GlaxoSmithKline, Medtronic, Merck, Orthofix International, Pfizer, Sciclone Pharmaceuticals, Smith & Nephew, Stryker Corporation, Talecris Biotherapeutics, and Zimmer.

We said,

Their sales practices for a long time involved (and may still involve) payments of some sort to doctors, in exchange for recommendations for their products or actual sales. Because doctors overseas who work in government owned or managed hospitals are considered to be 'foreign officials' under the Foreign Corrupt Practices Act, those payments may create offenses under the U.S. law.

Will Pfizer's settlement with the DOJ and SEC open the industry floodgates? It could. As we've said, when the feds can bring in for questioning multiple companies from a single industry, usually at least one is willing to squeal on the others in exchange for leniency. 

Pfizer Inc is the world's biggest research-based drug company. It has about 110,000 employees and  revenue last year was $69 billion. It acquired Wyeth in 2009.

It trades on the NYSE under the symbol PFE.

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Pfizer Inc's complete disclosure regarding the potential SEC and DOJ settlements from its Form 10-Q filed on November 10, 2011 (pdf) said,

The Company has voluntarily provided the DOJ and the U.S. Securities and Exchange Commission (SEC) with information concerning potentially improper payments made by certain Pfizer and Wyeth subsidiaries in connection with certain sales activities outside the U.S. In recent discussions, we have reached agreements-in-principle with the SEC staff and with the DOJ for the resolution of these matters. We anticipate entering into and announcing final agreements in the fourth quarter. In addition, certain potentially improper payments and other matters are the subject of investigations by government authorities in certain foreign countries, including a civil and criminal investigation in Germany with respect to certain tax matters relating to a wholly owned subsidiary of Pfizer.

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Our thanks to Josh, who asked for some coverage of Pfizer and last week's disclosure.