The SEC filed its first Foreign Corrupt Practices Act
case of the year, a settled administrative proceeding which named Philips
Electronics as a Respondent. In the Matter of Koninklijke Philips
Electronics N.V., Adm. Proc. File No. 3-15265 (April 5, 2013). The company
settled FCPA books and records charges alleging violations of Exchange Act
Sections 13(b)(2)(A) and (B), consenting to the entry of a cease and desist
order based on the two sections and agreeing to pay disgorgement of $3,120,587
along with prejudgment interest. A penalty was not imposed based on the
cooperation of the company.
The Order for Proceedings alleges that over an eight year
period beginning in 1999 certain employees of Philips Poland made about 30 improper
payments to healthcare officials in connection with public tenders to purchase
equipment. Under the arrangements Philips employees submitted specifications
for their equipment to local officials who then incorporated them into the
tender. That significantly increased the chances that Philips would secure the
Philips Poland employees also made payments to officials
that ranged from 3% to 8% of the value of the contract. The Philips employees
kept a portion of the payment as their "commission." Frequently the payments,
which were recorded incorrectly in the books and records of the company, were
made through agents.
Philips first became aware of the issue in 2007 when a
search was conducted at its facilities by local officials and its employees
were arrested. Although an internal audit failed to discover the payments,
several employees were either terminated or disciplined. The company also made
certain changes to its internal controls.
In December 2009, 23 individuals were indicted in Poland.
Three were former Philips Poland employees and 16 were healthcare officials.
The indictment alleged violations of the laws regarding public tenders for
healthcare equipment. Philips then conducted an internal investigation and
discovered the improper payments. Early in 2010 the company self-reported and
made the results of its investigation available.
In response to the internal investigation Philips
terminated and disciplined several employees. New management was installed in
Philips Poland. The company also retained three law firms and two audit firms
to conduct the investigation and design remedial measures to address the
issues. The changes adopted included: revisions to the internal controls,
strict due diligence procedures relating to third parties, a centralized and
enhanced contracting function and a broad based verification process for
payments. The firm also made significant revisions to its Global Business
Principles and established an enhanced anti-corruption training program that
includes a certification process and a variety of training applications to
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