Smith & Nephew Resolves US FCPA Enforcement Actions for $22.2 Million
James T. Parkinson
February 7, 2012
Anti-corruption enforcement initiative involving medical device manufacturers continues, as Smith & Nephew resolves US FCPA enforcement actions for $22 million.
On February 6, 2012, the U.S. Department of Justice and Securities and Exchange Commission announced resolved FCPA enforcement actions against medical device manufacturer, Smith & Nephew Inc., and its UK-based parent company, Smith & Nephew plc. The combined monetary sanction totals $22.226 million, and the UK parent must retain an independent compliance monitor for a period of 18 months.
The conduct in question, as alleged in the SEC Complaint, involved the use of three UK shell companies created by a distributor in Greece for use as conduits to make payments to physicians in Greece working “at publicly-owned hospitals [and who were] government employees, providing healthcare services in their official capacities.” The commercial relationship between Smith & Nephew and the distributor ended in 2008.
Compliance Monitor: The settlement requires Smith & Nephew to retain an “independent compliance monitor” for a period of 18 months, in contrast to the many recent FCPA cases that have been resolved with the retention of a “compliance consultant.” Although the DOJ Press Release noted the company’s “cooperation with the department’s investigation, thorough self-investigation of the underlying conduct, and the remedial efforts and compliance improvements undertaken by the company,” the resolution still involves a monitor.
Distributor: The vast majority of FCPA matters involve a third party in some manner and in this case, the third party was a distributor. Although a few prior FCPA cases have involved distributors (see e.g., InVision in 2005), most involve a different type of commercial relationship, such as agents or consultants. Many companies classify distributors as a type of customer rather than as an intermediary, and in doing so apply compliance controls that may not be as robust as for agents or consultants. As this case confirms, distributor relationships may present acute corruption risks, and should be assessed and controlled for such risks.
International Cooperation / Greece: In April 2011, medical device manufacturer DePuy International, a subsidiary of Johnson & Johnson, pleaded guilty to violating the FCPA for conduct related to sales to state-employed physicians in Greece. In both the DePuy and Smith & Nephew cases, the DOJ “acknowledge[d] and expresse[d] its appreciation for the assistance provided by the authorities of the 8th Ordinary Interrogation Department of the Athens Court of First Instance and the Athens Economic Crime Squad in Greece." This ongoing cooperation is consistent with the long term trend of international collaboration on anti-corruption matters.
Industry-Wide Enforcement: As described in the SEC press release, “[t]he charges stem from the SEC’s and DOJ’s ongoing proactive global investigation of bribery of publicly-employed physicians by medical device companies.” Prior enforcement actions have been lodged against device manufacturers AGA Medical Corp. (regarding conduct in China), Immucor Inc. (Italy) and Micrus Corp. (France, Turkey, Spain and Germany), and this action seems certain not to be the last.
Smith & Nephew issued its own press release regarding the enforcement actions.
~ The BuckleySandler FCPA Team
If you have any questions about this FCPA Update, please contact Jamie Parkinson.
To remain current on FCPA and anti-corruption developments, please view BuckleySandler’s FCPA Score Card, here.