Current trends in FCPA enforcement are evident in the
latest settlement with Johnson & Johnson. U.S. v. Depuy, Inc.,
(D.D.C. Filed April 8, 2011); SEC v. Johnson & Johnson, Civil Action
No. 1:11-cv-00686 (D.D.C. Filed April 8, 2011). To resolve the case with DOJ and
the SEC the company agreed to pay a total of $77 million, making it number ten
on the list of the largest amounts paid by a company to resolve FCPA charges.
This is the second addition to the top ten this year according to the list
maintained by the FCPA blog (here).
The cases are based on payments by J&J subsidiaries
to publicly-employed health care provided in Greece, Poland and Romania.
Kickbacks were paid on behalf of a company subsidiaries to the former
government of Iraq under the U.N. Oil for Food Program.
In Greece the payments involved DePuy Inc., a medical
implant manufacturer. The payments were channeled through a local agent and
made to facilitate the sale of their products began in 1997. In 1998 J& J
purchased the company. At the time Johnson and Johnson had a policy which
prohibited such payments. Nevertheless, the payments continued and steps were
taken to conceal them. From 1998 through 2006 the company earned $24,258,072 in
profits on sales obtained through bribery.
In Poland employees of MD&D Poland, a J&J
subsidiary, bribed publicly employed doctors and hospital administrators to
obtain business. From 2000 through 2006 the company earned $4,348,000 in profit
from sales made through bribery. The scheme was implemented through the use of sham
civil contracts and false travel invoices. Those documents were used to create
a slush fund from which payments were made to doctors and administrators.
In Romania J&J subsidiary J&Jd.o.o. paid bribes
through local distributors to obtain business. The employees of the subsidiary
worked with distributors to sell the company products to doctors and pharmacies
in Romania. At the time of sale company employees or the distributor delivered
cash payments that were 3-5% of the cost of the drugs. Over a seven year period
beginning in 2000 this scheme yielded the company $3,515,500 in profits from
Finally, Johnson and Johnson participated in the U.N.
program through two subsidiaries, Cilag AG International and Janssen
Pharmaceutica N.V. During the program the subsidiaries sold pharmaceuticals to
an arm of the Iraqi Ministry of Health known as Kimadia. This business was
conducted through an agent. That agent was paid on a commission basis prior to
the program. Once bribes were demanded the commission for the agent was
increased to cover them. In total the company paid $857,387 in bribes in
connection with the program. These were not properly recorded in the books and
records of the company.
To settle with DOJ the company entered into a deferred
prosecution agreement with respect to its subsidiary Depuy Inc. which was
charged in two count information alleging conspiracy and violations of the
FCPA. In addition, the company agreed to pay a criminal fine of $21.4 million.
To settle with the SEC the company consented to the entry of a permanent
injunction prohibiting future violations of the anti-bribery and book and
records and internal control provisions of the FCPA. J&J also agreed to pay
$38,227,826 in disgorgement and $10,438,490 in prejudgment interest.
The resolution with DOJ reflects the cooperation of the
company as do other criminal FCPA settlements. As DOJ's press release notes,
J&J furnished "extraordinary cooperation . . .to the department, the SEC
and multiple foreign enforcement authorities, including significant assistance
in the industry-wide investigation; and extensive remedial efforts and
compliance improvements undertaken by the company." This impacted the charges
and the amount of the criminal fine which was at a level significantly below
the lower end of the sentencing guideline calculation. DOJ also noted that it
took into account the fact that a criminal fine would have to be paid by the
company in the U.K.
The investigative efforts of the company were aided by
its existing internal FCPA compliance procedures according to the SEC. The
Commission did not however specify that it was giving the company credit for
those procedures or its cooperation. Indeed, the terms of J&J's settlement
with the SEC are consistent with those in other corporate cases.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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