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.

Johnson & Johnson In $77 Million Global Settlement

Johnson & Johnson will pay a $21.4 million penalty to resolve criminal FCPA charges with the DOJ and $48.6 million in disgorgement and prejudgment interest to settle the SEC’s civil charges.

A criminal information filed by the DOJ in federal court in the District of Columbia today charged J&J subsidiary DePuy Inc. with conspiracy and violations of the FCPA through payments to public-sector doctors in Greece.

The SEC charged the company in a civil complaint with antibribery, books and records, and internal controls violations of the FCPA.

In the United Kingdom, DePuy International Limited settled corruption charges brought by the Serious Fraud Office. The company was ordered by the High Court to pay £4.8 million in a civil recovery action.

According to the DOJ, 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."

Medical-device makers Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007; Wright Medical reported a similar investigation in June 2008.

The DOJ and SEC both said they reduced Johnson & Johnson's financial penalties in light of the company's civil penalties in the U.K. In its release, the SFO referred to the "global" settlement and also said Greek authorities "have frozen the assets of the company DePuy Hellas worth €5.785 million."

In its deferred prosecution agreement with the DOJ, Johnson & Johnson admitted violations in Greece, Poland, and Romania. The plea deal also resolved kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program.

In April 2010, a former DePuy executive pleaded guilty in court in London to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. He was sentenced to 12 months in prison.

Robert John Dougall, 45, was DePuy's marketing director. The company, acquired by Johnson & Johnson in 1999, makes and sells orthopedic devices. The U.K. Serious Fraud Office said from 2002 to 2005, Dougall arranged the payment of commissions to surgeons as an inducement to use DePuy's products. The payments were made through agents and offshore accounts.

The SFO said its investigation began "following a referral by the U.S. Department of Justice in October 2007." Dougall, it said, is the first "co-operating defendant" in a major SFO corruption investigation.

In February 2007, Johnson & Johnson said it "voluntarily disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries."

At the same time, the company said Michael J. Dormer, Worldwide Chairman of its Medical Devices & Diagnostics group, had retired. "In a letter to Johnson & Johnson," the company said, "Mr. Dormer cited the internal review of these matters and noted he had 'ultimate responsibility by virtue of my position' for those subsidiaries that were the subject of the disclosure."

J&J is headquartered in New Jersey and trades on the New York Stock Exchange under the symbol JNJ. It manufactures and sells medical devices, pharmaceuticals, and consumer health care products.

View the DOJ's April 8, 2011 release here.

View the SEC's Litigation Release No. 21922 and Accounting and Auditing Enforcement Release No. 3261 (both dated April 8, 2011) in Securities and Exchange Commission v. Johnson & Johnson, Civil Action No. 1: 11-CV-00686 (D.D.C.) (E.F.H.) (filed April 8, 2011) here.

Download the SEC's civil complaint against Johnson & Johnson here.

View the SFO's April 8, 2011 release here.

The 2011 Watch List

The Justice Department said this year it has about 150 ongoing  FCPA investigations and prosecutions. It doesn't name those under the microscope and, while issuers probably should disclose investigations, not all of them do. Non-issuers, on the other hand, usually aren't required to say a word, so most don't.

Of the files in the DOJ's hopper, we think the list below includes more than half of them, counting individuals being investigated at some of the companies mentioned. (Tom Fox picked his favorite investigations in a great post on Monday.)

Most of the cases we've included represent something unusual -- they involve brand names, multiple defendants, high-profile news stories, unique disclosures, etc. There will also be plenty of surprises in 2011 -- the SEC is hearing from a new FCPA whistleblower every day.

In the coming year, of course, we'll cover all FCPA-related enforcement actions, as we've done in the past.

Some pending corporate investigations on our watch list include:

Alcoa -- criminal investigations of the company, its agent and some executives, growing out of allegations in a civil fraud and RICO suit filed by Bahrain's Alba.

Aon -- A U.K. subsidiary of the U.S. parent was fined £5.25 million in 2009 for failing to recognize and control the risks of overseas payments being used as bribes. U.S. investigations were first disclosed in 2007.

Avon -- The beauty-products giant in 2008 disclosed promotional payments in China that may violate the FCPA. This year, it reportedly suspended three executives in China and another in New York and expanded its internal to "a dozen or more countries."

CB Richard Ellis -- In February this year, the company self-disclosed to the DOJ and SEC potentially improper payments by employees for entertainment and gifts to Chinese government officials.

China Northeast Petroleum Corporation -- An American director who chaired the board's audit committee made a loud exit this year after the board refused to investigate alleged improper practices in China.

Drug companies -- All of them, apparently, are under scrutiny for overseas sales practices, according to unusual public warnings emanating from the DOJ during 2010.

Hewlett Packard -- It disclosed compliance problems in Russia, former CIS countries, and Serbia, potentially involving employees in Russia, Germany, Austria, Serbia, the Netherlands and perhaps other countries.

JGC -- The Japanese company is the last of the four TSKJ partners still not charged in connection with bribes in Nigeria.

Medical Device Makers -- Biomet Inc., DePuy, Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc, Medtronic Inc., and Wright Medical disclosed FCPA investigations that started in 2007 and 2008.

Morgan Stanley -- In 2009, it reported potential illegal payments in China and fired some employees allegedly involved.

PBSJ Corporation -- In December 2009, the Florida-based non-public "issuer" self-disclosed an internal investigation into potential FCPA violations, possibly in connection with road-building projects.

Schlumberger -- There were frequent press press reports during 2010 about payments in Yemen that might have violated the FCPA.

Smith & Wesson -- The biggest company involved in the shot-show case disclosed in 2010 a DOJ / SEC investigation.

Sojitz -- The Japanese trading company allegedly paid bribes to Bahraini officials, according to a civil suit filed by Alba. Like Alcoa, the U.S. intervened in Alba's suit to protect its criminal investigation into potential FCPA violations.

Team Inc. -- The oil rig operator in 2009 disclosed payments in Trinidad that might violate the FCPA.

Weatherford -- The giant oil-field services company disclosed an overseas bribery investigation in 2007 that has since expanded to include allegations of violating the Iraq oil-for-food program and possible illegal trade with Cuba, Iran, Sudan, and Syria.

FCPA-related cases in the post-indictment phase with trials pending include:

The CFE defendants (all charged in connection with alleged bribes to employees at Mexico's state-owned utility, the Comisión Federal de Electricidad):

Enrique Faustino Aguilar Noriega

Angela Maria Gomez Aguilar

Dr. Keith E. Lindsey

Steve K. Lee

Lindsey Manufacturing

The CCI defendants:

Stuart Carson

Hong (Rose) Carson

Paul Cosgrove

David Edmonds

Han Yong Kim

Flavio Ricotti

The Shot-show defendants (grouped for trial as proposed by the DOJ):

The first group: Daniel Alvirez, Lee Allen Tolleson, Andrew Bigelow, Pankesh Patel, John Benson Weir III

The second group: David Painter, Lee Wares, Jonathan Spiller, Michael Sacks, Israel Weisler

The third group: Patrick Caldwell, Stephen Giordanella, John Mushriqui, Jeana Mushriqui, John Godsey, Mark Morales

And the fourth group: Helmie Ashiblie, Yochanan Cohen, Haim Geri, Amaro Goncalves, Saul Mishkin, Ofer Paz

There are three appeals pending in FCPA-related cases that we'll be watching in 2011:

Frederick Bourke

William Jefferson

Gerald and Patricia Green

Bourke and Jefferson are free on bail pending their appeals. The Greens are serving their six-month prison terms.

Readers are welcome to let us know about other companies and people they're watching.

SFO Facing Uncertain Future

For the second time in recent months, U.K. judges have warned the Serious Fraud Office not to make plea deals in overseas bribery cases, throwing into doubt the agency's whistleblower program and its partnership with the U.S. Justice Department in resolving global corruption cases.

This week a U.K. appeals court affirmed the suspended sentence agreed between the SFO and a former sales executive who helped bribe Greek doctors and then turned whistleblower. But at the same time, the court said the SFO's U.S.-style approach was unconstitutional.

Robert John Dougall, 45, formerly marketing director of DePuy, pleaded guilty in April to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. DePuy, acquired by Johnson & Johnson in 1999, makes and sells orthopedic devices. 

The SFO said Dougall was the first "co-operating defendant" in a major SFO corruption investigation. It had recommended leniency in exchange for his guilty plea and help in the case, as typically happens in U.S. white-collar prosecutions. The SFO asked for a suspended sentence; the trial court instead sent Dougall to prison for a year.

The appeals court reversed the sentence but hammered the SFO. It said "agreements between the prosecution and the defense about the sentences to be imposed in fraud and corruption cases were constitutionally forbidden" and solely under the purview of judges, according to reports.

In March, Britain's second-ranking criminal judge said the $12.7 million fine the SFO agreed with a U.K. division of Innospec Inc. went beyond the SFO's authority. Delaware-based Innospec had reached what it believed was a $40 million global settlement with U.S. prosecutors and the SFO.

At Innospec's hearing, Lord Justice Thomas, the deputy head of criminal justice in the U.K. courts, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.” Although he confirmed the U.K. part of the fine agreed by the SFO, he called the amount "wholly inadequate." See our post here.

The SFO first charged Dougall in November 2009 after a "referral" from the U.S. Justice Department. Two months earlier, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- had agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

DePuy Exec Jailed

The U.K.'s Serious Fraud Office said this week that a former DePuy executive pleaded guilty to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. He was sentenced to 12 months in prison.

Robert John Dougall, 45, was DePuy's marketing director. The company, acquired by Johnson & Johnson in 1999, makes and sells orthodpedic devices. The SFO said from 2002 to 2005, Dougall arranged the payment of commissions to surgeons as an inducement to use DePuy's products. The payments were made through agents and offshore accounts.

The SFO said its investigation began "following a referral by the U.S. Department of Justice in October 2007."  Dougall, it said, is the first "co-operating defendant" in a major SFO corruption investigation, which is ongoing.

Dougall was first charged by the SFO in November 2009. In September 2007, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

A copy of the SFO's April 14, 2010 release can be viewed here.