On July 28, 2015, the U.S. Securities and Exchange Commission
(the "SEC") announced that Mead Johnson Nutrition Company
("Mead Johnson") has agreed to a $12 million settlement,
which includes a $3 million penalty, for charges that its Chinese
subsidiary made improper payments to health care professionals at
government-owned hospitals in China.
The SEC investigation found that employees of Mead Johnson in
China violated the Foreign Corrupt Practices Act
("FCPA") by funding improper payments through
"distributor allowance" funds which were paid to
third-party distributors and subsequently used to fund bribes to
health-care professionals in Chinese hospitals to recommend Mead
Johnson's infant formula to new mothers and provide the company
with patients' contact information so it could market its
infant formula to them directly. It is now well-established that
health care professionals and medical staff at government-owned
hospitals are "foreign officials" for the purposes of the
The SEC found that the company made more than $2 million in
improper payments during a five-year period, and that these
payments were not accurately reflected in its books and records.
According to the SEC, Mead Johnson's "lax internal control
environment enabled its subsidiary to use off-the-books slush
funds" for these bribes.
It has been reported in the press that the Department of Justice has
informed Mead Johnson that it has closed its parallel investigation
into the underlying allegations of bribery.
From the Canadian perspective, this case is noteworthy for a
number of reasons:
1. The Importance of Early Discovery
In 2011, after Mead Johnson received an allegation of possible
violations of the FCPA in China, it conducted an internal
investigation and concluded that the allegation was not
substantiated. The bribery scheme was not discovered until two
years later when Mead Johnson hired outside counsel to
re-investigate the matter in response to an inquiry by the SEC. In
its findings, the SEC emphasized that Mead Johnson had failed to
voluntarily self-report the 2011 allegation and to promptly
disclose the existence of the allegation in response to the
SEC's inquiry. Although Mead Johnson had anti-corruption
policies in place and conducted its own investigation in 2011, this
was not sufficient to shield the company from liability. This
highlights the importance of conducting a robust and thorough
internal investigation by independent counsel.
2. Comparison to Canada's Enforcement Regime
This action also illustrates the important role the SEC plays as
the central body for FCPA enforcement in the U.S. In Canada, there
is no centralized regulatory body accountable for coherent
enforcement of the Corruption of Foreign Public Officials
Act. Although the RCMP maintains criminal prosecutorial
authority under the CFPOA, similar to the U.S. Department of
Justice's criminal jurisdiction over the FCPA, Canada does not
have a body responsible for handling anti-corruption matters from a
civil/regulatory perspective. The Cooperative Capital Markets
Regulatory Authority ("CCMRA"), once it is established,
could be a key player in this regard.
3. Risk of Doing Business in China
The Mead Johnson action follows a series of enforcement actions
by the SEC against companies in China in the last few years.
Companies doing business in China should be attuned to the
corruption risks and adapt their polices and internal controls
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Canadian engineering and construction giant SNC-Lavalin has been charged by the RCMP with paying bribes of nearly $48 million to Libyan government officials and defrauding Libya of nearly $130 million.
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