The U.S. SEC announced that Philips (NYSE: PHG) will pay $62 million to resolve charges that Chinese subsidiaries violated the Foreign Corrupt Practices Act.
The Dutch medtech giant consented to yesterday’s SEC order without admitting or denying the agency’s findings. It’ll pay $15 million in civil penalties and more than $47 million in disgorgement and prejudgment interest.
The SEC’s order claimed that Philips’ China operations engaged in a number of practices that violated FCPA practices.
Philips China used special price discounts with distributors that created a risk that excessive distributor margins could be used to fund improper payments to government employees.
Employees, distributors, or sub-dealers of Philips’ China subsidiaries improperly influenced hospital officials to draft technical specifications in public tenders to favor Philips’ products. For example, the order found that, in one instance, a district sales manager at Philips China provided funds to a hospital director in return for the director’s assistance in the procurement process. Another example involved company employees asking hospital officials to tailor technical specifications for a public tender so that only Philips China and two other manufacturers would qualify for the bid.
The order also found that the employees, distributors, or sub-dealers engaged in improper bidding practices. According to the SEC, they prepared additional bids with other manufacturers’ products to create the appearance of legitimate public tenders and to meet the minimum bids requirement under Chinese public tender laws.
“This matter highlights the need for companies to design and implement internal accounting controls sufficient for the scale of their business. Despite remediation done in connection with its prior violations, Phillips nevertheless failed over the course of several years to implement sufficient internal accounting controls with respect to its sales of medical technology products in China,” Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, said in a news release.
Philips is agreeing to settle the China-related FCPA charges at the same time that it and a host of other major medical device companies grapple with a more centralized tender process in China as the national government seeks to reduce healthcare costs.
Meanwhile, Philips remains in consent decree talks with the U.S. Department of Justice and the FDA over how the company has handled its major recall of CPAPs and other respiratory devices.