Philips to Pay Over $62M to Resolve FCPA Charges

The Securities and Exchange Commission (SEC) announced last week that Philips will pay over $62 million to resolve charges concerning violation of the Foreign Corrupt Practices Act (FCPA) with respect to conduct related to medical diagnostic equipment sales in China.
 
According to the SEC, Philips China used special price discounts with distributors that created a risk that excessive distributor margins may be used to fund improper payments to government employees. The SEC also found employees, distributors, or sub-dealers of Philips’ Chinese subsidiaries engaged in improper conduct to influence hospital officials to draft technical specs in public tender to favor Philips’ products.
 
In one instance, a Philips China district sales manager provided funds to a hospital director in return for the director’s help in the procurement process. In another episode, Philips China employees discussed tailoring technical specs for a public tender with hospital directors so only Philips China and two other manufacturers would qualify for the bid.
 
The SEC’s order further discovered the employees, distributors, or sub-dealers underwent improper bidding practices by preparing further bids with other manufacturers’ products to create the appearance of legitimate public tenders and 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, told the press.
 
Philips was charged by the SEC in April 2013 with similar misconduct that happened in Poland between 1999 and 2007.
 
Philips consented to the SEC order without admitting or denying the finding that it violated the books, records, and internal accounting controls provisions of the Securities Exchange Act and agreed to pay $15 million in civil penalties, with $47 million in disgorgement and prejudgment interest.