CHINA — Dutch manufacturing giant Philips has reached a settlement to pay a staggering sum of over US$62 million after being charged with violating the Foreign Corrupt Practices Act (FCPA) by engaging in bribery practices.
The charges stem from allegations that Philips bribed Chinese government and hospital officials in order to secure lucrative medical equipment sales, including MR and CT systems.
The settlement, as outlined in an SEC order, requires Philips to pay US$15 million in civil penalties, along with more than US$47 million in disgorgement and prejudgment interest.
The FCPA, enacted in 1977, prohibits Americans, U.S. companies, and foreign enterprises listed in the U.S. from paying foreign officials in exchange for business. Violations of this act can result in fines imposed by the Securities and Exchange Commission (SEC).
According to the SEC, Philips’ Chinese subsidiaries resorted to paying distributors discounted prices to facilitate bribery of Chinese government employees and hospital officials.
These illicit practices were aimed at influencing the inclusion of favorable technical specifications for Philips’ products in public tenders.
The SEC’s investigation, conducted between 2014 and 2019, revealed that distributors and their sub-dealers charged healthcare providers a staggering 40% more than the actual cost of Philips’ products, as well as those of other companies like GE Healthcare, Siemens Healthineers, and Toshiba Medical Corp. (now part of Canon).
The investigation further alleges collusion among these companies, with a portion of the price difference being utilized as bribes to government employees, while the rest was pocketed by the distributor and reinvested into the companies involved.
To create the illusion of a legitimate competitive bidding process, distributors, sub-dealers, and employees generated additional bids featuring products from other manufacturers, satisfying the minimum bid requirements set forth by Chinese public tender laws.
In response to the charges, Philips issued a statement expressing full cooperation with the SEC and the Department of Justice.
“The company undertook a thorough internal investigation into the matter, supported by third-party experts, and took remedial measures,” said Steve Klink, head of the company’s global press office and industry analyst relations.
These allegations first came to light through a shareholder lawsuit filed in 2018. Notably, the accused companies faced similar accusations in a separate 2019 investigation concerning their conduct in Brazil over a span of two decades.
This is not the first time Philips has faced FCPA-related penalties. Back in 2013, the company paid US$4.5 million to settle allegations of misconduct related to its operations in Poland between 1999 and 2007.
Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, emphasized that despite previous efforts at remediation, Philips had failed to establish sufficient internal accounting controls for its medical technology product sales in China over a significant period of time.
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