THE CONTINUING FCPA INQUIRY INTO THE MEDICAL DEVICE INDUSTRY
The DOJ and the SEC continue to conduct industry wide FCPA investigations as part of the â€œnew eraâ€ of enforcement. One such inquiry focuses on the medical device industry. In connection with that inquiry the DOJ and the SEC entered into settlements involving Smith & Nephew, a world wide medical device manufacturer. See, e.g., SEC. v. Smith & Nephew Plc, Civil Action No. 1;1-CV-00187 (D.D.C. Feb. 6, 2012).
Smith & Nephew plc is a U.K. based company whose ADRs are traded in New York. One of its wholly owned subsidiaries is Smith & Nephew, Inc., based in Memphis, Tenn. According to the court papers, from 1998 through 2008 Smith & Nephew, through two of its subsidiaries, authorized the payment of bribes to Greek health care providers. The purpose of the payments was to induce physicians to purchase products from the subsidiaries.
Beginning in 1997 the two subsidiaries crafted a scheme through which they created a pool of funds to pay the Greek health care providers. In the first part of the scheme the two subsidiaries sold their devices to a Greek Distributor at full price. Discounts due the distributors, and totaling over $19 million, were then funneled off to shell entities controlled by the distributor. The money supposedly was to pay for marketing services. There were no such services however. Rather, portions of the money were used by the distributor to make the payments to the Greek health care providers. Employees at the subsidiaries and the parent were aware of this project, according to the papers.
To resolve the criminal inquiry the U.S. subsidiary entered into a deferred prosecution agreement. Under that agreement the company will pay a $16.8 million criminal fine. The company also agreed to implement a rigorous system of internal controls and retain a compliance monitor for eighteen months. The DOJ acknowledged the cooperation of the company, citing its internal investigation and remedial efforts.
To settle with the SEC, the parent company consented, without admitting or denying the allegations in the complaint, to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 30A, 13(b)(2)(A) & 13(b)(2)(B). The company also agreed to retain an independent consultant and pay disgorgement of $4,028,000 along with prejudgment interest. The SEC releases do not mention cooperation.