Dutch conglomerate Royal Philips will pay more than $62 million to settle allegations it violated the Foreign Corrupt Practices Act (FCPA) when its subsidiaries engaged in improper conduct to win contracts in China.
Philips healthcare subsidiaries in China used special price discounts with distributors to influence contracts with state-run hospitals in Philips’ favor, the Securities and Exchange Commission (SEC) said in its order issued Thursday. The alleged misconduct violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934.
Without admitting or denying the SEC’s allegations, Philips agreed to pay $15 million in penalties and more than $47 million in disgorgement and prejudgment interest.
“This matter highlights the need for companies to design and implement internal accounting controls sufficient for the scale of their business,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, in a press release. “Despite remediation done in connection with its prior violations, Phillips [sic] nevertheless failed over the course of several years to implement sufficient internal accounting controls with respect to its sales of medical technology products in China.”
Philips agreed to pay more than $4.5 million in 2013 to settle FCPA violation charges regarding improper payments to officials in Poland.
The details: From 2014-19, Philips employees, distributors, or sub-dealers “engaged in improper bidding practices to increase the likelihood” distributors or sub-dealers in China were “awarded public tenders to sell medical equipment to government-owned hospitals,” the SEC’s order said.
The company used special pricing discounts to influence the bidding processes used by state-run hospitals, but its approval processes and recording of these discounts “were not subject to sufficient internal accounting controls to ensure appropriate management authorization of the discounts,” the order said.
Philips China “maintained inadequate books, records, and accounts concerning special price discounts, as the discounts were unsupported by adequate documentation to ensure their business justification and management’s approval of them,” the SEC said.
Philips cooperated with the agency’s investigation, including providing the results of its own internal investigation that included facts previously unknown to SEC investigators. As part of its remediation, the company terminated or disciplined employees involved in the misconduct; terminated business relationships with distributors; and added new internal controls related to distributors, bidding practices, and the use of discounts and special pricing. The company made improvements to its compliance policies and procedures and increased training of its employees regarding ethical practices.
Philips response: The company noted it cooperated with the SEC’s investigation into the alleged FCPA violations and that the settlement closed a parallel inquiry by the Department of Justice.
“Resolving these legacy matters is important to Philips,” the company said in an emailed statement. “Everyone at Philips is committed to achieving and maintaining the highest standards in its global business, building on a culture of integrity and compliance. Philips has substantially invested in the deployment and enhancement of compliance policies, procedures, controls, and awareness programs, which are regularly reviewed and updated.”
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