Medical Device Industry Remains in US Government's Crosshairs
for Foreign Bribery Enforcement
February 9, 2011
On February 6, 2012, Smith & Nephew plc, a UK-based medical
device company traded on the New York Stock Exchange, and its US
subsidiary, Smith & Nephew Inc., agreed to pay $22.2 million to
resolve investigations by the US Department of Justice ("DOJ") and
Securities and Exchange Commission ("SEC") into possible violations
of the Foreign Corrupt Practices Act. Specifically, Smith &
Nephew plc entered into a settlement agreement and, without
admitting or denying the allegations, agreed to pay $5.4 million in
disgorgement to resolve civil charges brought by the SEC, while its
US subsidiary entered into a deferred prosecution agreement with
the DOJ, pursuant to which it agreed to pay a $16.8 million penalty
and retain a compliance monitor for eighteen months. As alleged by
the government, since 1997, the US subsidiary, along with a German
subsidiary, had been using offshore shell companies to deliver
money falsely described as "promotional support" and "marketing
fees" to a Greek distributor, who in turn was allegedly using the
money to bribe publicly-employed doctors in Greece.
Smith & Nephew thus joins a long line of medical device and
other health care companies ensnarled by the wiry tentacles of the
FCPA, which, as interpreted by US regulators, includes in its
definition of "foreign officials" health care providers at
government-owned or operated hospitals abroad. To be sure, the fact
that another FCPA enforcement action has been brought against a
medical device company should come as no great surprise. First,
since as early as November 2009, several high ranking officials
within the DOJ, including Assistant Attorney General Lanny Breuer,
have publicly announced that a focus for the Department would be
the application of the FCPA to the medical device and
pharmaceutical industries. Second, according to the SEC's press
release announcing the Smith & Nephew action, the charges
"stem[ ] from the SEC's and DOJ's ongoing proactive global
investigation of bribery of publicly-employed physicians by
medical device companies." (Emphasis added). Third, this action
appears to date back to at least September 2007, when Smith &
Nephew, on the heels of entering into a deferred prosecution
agreement in connection with allegations of domestic bribery of US
doctors, disclosed in its annual report that it (along with several
of its major US competitors) had received a request for information
from the SEC in connection with an "informal investigation into
certain marketing practices in the Group's orthopedics
reconstruction business in Germany, Poland and Greece with
reference to the" FCPA. What is perhaps most noteworthy about this
week's settlement is that despite the fact that the medical device
industry has been a focus of FCPA enforcement for many years now,
the government is clearly not finished with it. How do we know? The
final sentence of the SEC's press release ominously states: "[t]he
SEC's investigation into the medical device industry is
continuing."
Accordingly, the charges against Smith & Nephew should serve
as an important reminder to all medical device and other health
care companies that operate globally (including not only those
based in the US, but also those that, like Smith & Nephew, are
based abroad but publicly traded in the US) that: (1) the
government has not yet turned off its spotlight, and
(2) proactive steps must be taken to avoid and investigate
potential FCPA violations.
The
SEC's complaint against Smith & Nephew plc
The deferred prosecution agreement between the DOJ and Smith &
Nephew Inc