SEC Files Settled FCPA Action
The SEC filed its first Foreign Corrupt Practices Act case of the year, a settled administrative proceeding which named Philips Electronics as a Respondent. In the Matter of Koninklijke Philips Electronics N.V., Adm. Proc. File No. 3-15265 (April 5, 2013). The company settled FCPA books and records charges alleging violations of Exchange Act Sections 13(b)(2)(A) and (B), consenting to the entry of a cease and desist order based on the two sections and agreeing to pay disgorgement of $3,120,587 along with prejudgment interest. A penalty was not imposed based on the cooperation of the company.
The Order for Proceedings alleges that over an eight year period beginning in 1999 certain employees of Philips Poland made about 30 improper payments to healthcare officials in connection with public tenders to purchase equipment. Under the arrangements Philips employees submitted specifications for their equipment to local officials who then incorporated them into the tender. That significantly increased the chances that Philips would secure the contract.
Philips Poland employees also made payments to officials that ranged from 3% to 8% of the value of the contract. The Philips employees kept a portion of the payment as their “commission.” Frequently the payments, which were recorded incorrectly in the books and records of the company, were made through agents.
Philips first became aware of the issue in 2007 when a search was conducted at its facilities by local officials and its employees were arrested. Although an internal audit failed to discover the payments, several employees were either terminated or disciplined. The company also made certain changes to its internal controls.
In December 2009, 23 individuals were indicted in Poland. Three were former Philips Poland employees and 16 were healthcare officials. The indictment alleged violations of the laws regarding public tenders for healthcare equipment. Philips then conducted an internal investigation and discovered the improper payments. Early in 2010 the company self-reported and made the results of its investigation available.
In response to the internal investigation Philips terminated and disciplined several employees. New management was installed in Philips Poland. The company also retained three law firms and two audit firms to conduct the investigation and design remedial measures to address the issues. The changes adopted included: revisions to the internal controls, strict due diligence procedures relating to third parties, a centralized and enhanced contracting function and a broad based verification process for payments. The firm also made significant revisions to its Global Business Principles and established an enhanced anti-corruption training program that includes a certification process and a variety of training applications to ensure effectiveness.