SEC Charges Smith & Nephew PLC with Foreign Bribery
The Securities and Exchange Commission today charged London-based medical device company Smith & Nephew PLC with violating the Foreign Corrupt Practices Act (FCPA) when its U.S. and German subsidiaries bribed public doctors in Greece for more than a decade to win business.
Smith & Nephew PLC and its U.S. subsidiary Smith & Nephew Inc. agreed to pay more than $22 million in agreements with the SEC and U.S. Department of Justice. The charges stem from the SEC’s and DOJ’s ongoing proactive global investigation of bribery of publicly-employed physicians by medical device companies.
The SEC’s complaint against Smith & Nephew PLC alleges that its subsidiaries used a distributor to create a slush fund to make illicit payments to public doctors employed by government hospitals or agencies in Greece. On paper, it appeared as though Smith & Nephew’s subsidiaries were paying for marketing services, but no services were actually performed. The scheme basically created off-shore funds that were not subject to Greek taxes to pay bribes to public doctors to purchase Smith & Nephew products.
“Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”
According to the SEC’s complaint against Smith & Nephew PLC filed in federal court in Washington D.C., U.S. subsidiary Smith & Nephew Inc. and German subsidiary Smith & Nephew Orthopaedics GmbH has sold orthopedic products in Greece since the 1970s through the Greek distributor. Greece has a national health care system in which most Greek hospitals are publicly-owned and operated, and doctors who work at those publicly-owned hospitals are government employees and “foreign officials” as defined in the FCPA.
The SEC alleges that the misconduct began in 1997, when Smith & Nephew’s subsidiaries developed a scheme to make payments to three shell entities in the United Kingdom controlled by the distributor. Those funds were used by the distributor to pay bribes to the Greek doctors on behalf of the Smith & Nephew subsidiaries. Smith & Nephew failed to act on numerous red flags of bribery as employees at the company and its subsidiaries became aware of the payments. 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…” Smith & Nephew Inc. determined not to reduce the commissions.
Smith & Nephew PLC agreed to settle the SEC’s charges by paying more than $5.4 million in disgorgement and prejudgment interest. Its subsidiary Smith & Nephew Inc. agreed to pay a $16.8 million fine as part of a deferred prosecution agreement with the Department of Justice. Smith & Nephew PLC consented without admitting or denying the SEC’s allegations, to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and ordering it to retain an independent compliance monitor for a period of 18 months to review its FCPA compliance program.
The SEC’s investigation was conducted by Tracy L. Price of the Enforcement Division’s FCPA Unit along with Brent S. Mitchell and Reid A. Muoio. The SEC acknowledges the assistance of the U.S. Department of Justice Fraud Section and the Federal Bureau of Investigation. The SEC’s investigation into the medical device industry is continuing.