WASHINGTON, D.C. - (Mealey's) Medical device maker Smith & Nephew PLC and its American subsidiary will pay $22.2 million to settle federal criminal and civil complaints that it bribed Greek government doctors to use the company's products, the parties announced Feb. 6 in press releases (United States of America v. Smith & Nephew, Inc., No. 1:12-cr-30; U.S. Securities and Exchange Commission v. Smith & Nephew plc, No. 1:12-cv-187, D. D.C.).
The U.S. Justice Department said that on Feb. 6, it filed a criminal complaint against Smith & Nephew Inc. in the U.S. District Court for the District of Columbia. The government alleges that Smith & Nephew agreed to sell products at full list price to a Greek distributor based in Athens and then pay the distributor discounts to off-shore shell companies controlled by the distributor.
Smith & Nephew Inc. is the American subsidiary of Smith & Nephew PLC of London.
The government said the "off-the-book" funds were used by the distributor to pay cash incentives and other things of value to publicly employed Greek health care providers to induce them to buy Smith & Nephew products.
The scheme ran from 1998 to 2008, the government said, during which about $9.4 million was paid to the shell companies. It said some or all of the money was passed on to physicians.
Simultaneously with the criminal filing, Smith & Nephew entered into a deferred prosecution agreement, the Justice Department said. Under it, Smith & Nephew agreed to pay a $16.8 million penalty and is required to implement rigorous controls, retain a compliance monitor for 18 months and continue cooperating with the Justice Department's ongoing investigation of bribery by orthopedic device makers.
In a separate action, the U.S. Securities and Exchange Commission on Feb. 6 filed a civil complaint in the District Court against Smith & Nephew PLC. The complaint alleges that Smith & Nephew violated the Foreign Corrupt Practices Act by using its American and German subsidiaries to create a slush fund to make illicit payments to bribe publicly employed Greek doctors to use Smith & Nephew products.
(Complaint. Document #28-120216-004C.)
The government said that "on paper" it appeared as though Smith & Nephew's subsidiaries were paying for "marketing services, but no services were actually performed. The scheme basically created off-shore funds that were not subject to Greek taxes to pay bribes to public doctors to purchase Smith & Nephew products."
The government said the shell corporations were set up in the United Kingdom.
Simultaneously with the filing of the complaint, the SEC said the company agreed to pay $4 million in disgorgement and $1.3 million in prejudgment interest to settle the corruption allegation. It said the company agreed to a court order permanently enjoining it from future violations of the Securities and Exchange Act.
Smith & Nephew does not admit or deny the SEC allegations, the government said.
Smith & Nephew also announced the two settlements and noted that they are part of a corruption investigation "of the medical device industry." The company said it and other medical device companies were asked in 2007 by the Justice Department and the SEC to look into possible improper payments and to voluntarily report any issues.
The company said the Greek distributor was terminated in 2008, adding, "The individuals implicated are no longer associated with the Group." "These legacy issues do not reflect Smith & Nephew today," it said.
As part of the same government investigation, Johnson & Johnson and orthopedic subsidiary DePuy International Ltd. in April 2011 agreed to pay $76.9 million to resolve criminal and civil allegations by the Justice Department and the SEC that they paid kickbacks to doctors in Greece, Poland and Romania and to government officials in Iraq to buy DePuy's medical devices.
In the criminal case, the government is represented by Kathleen M. Hamann of the Justice Department in Washington. In the SEC case, the government is represented by Tracy L. Price, Brent S. Mitchell, Reid A. Muoio and Kara N. Brockmeyer of the SEC in Washington.
Counsel for Smith & Nephew was not available.
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