On February 6, 2012, Smith & Nephew plc, a UK-based medical device company traded on the New York Stock Exchange, and its US subsidiary, Smith & Nephew Inc., agreed to pay $22.2 million to resolve investigations by the US Department of Justice ("DOJ") and Securities and Exchange Commission ("SEC") into possible violations of the Foreign Corrupt Practices Act. Specifically, Smith & Nephew plc entered into a settlement agreement and, without admitting or denying the allegations, agreed to pay $5.4 million in disgorgement to resolve civil charges brought by the SEC, while its US subsidiary entered into a deferred prosecution agreement with the DOJ, pursuant to which it agreed to pay a $16.8 million penalty and retain a compliance monitor for eighteen months. As alleged by the government, since 1997, the US subsidiary, along with a German subsidiary, had been using offshore shell companies to deliver money falsely described as "promotional support" and "marketing fees" to a Greek distributor, who in turn was allegedly using the money to bribe publicly-employed doctors in Greece.
Smith & Nephew thus joins a long line of medical device and other health care companies ensnarled by the wiry tentacles of the FCPA, which, as interpreted by US regulators, includes in its definition of "foreign officials" health care providers at government-owned or operated hospitals abroad. To be sure, the fact that another FCPA enforcement action has been brought against a medical device company should come as no great surprise. First, since as early as November 2009, several high ranking officials within the DOJ, including Assistant Attorney General Lanny Breuer, have publicly announced that a focus for the Department would be the application of the FCPA to the medical device and pharmaceutical industries. Second, according to the SEC's press release announcing the Smith & Nephew action, the charges "stem[ ] from the SEC's and DOJ's ongoing proactive global investigation of bribery of publicly-employed physicians by medical device companies." (Emphasis added). Third, this action appears to date back to at least September 2007, when Smith & Nephew, on the heels of entering into a deferred prosecution agreement in connection with allegations of domestic bribery of US doctors, disclosed in its annual report that it (along with several of its major US competitors) had received a request for information from the SEC in connection with an "informal investigation into certain marketing practices in the Group's orthopedics reconstruction business in Germany, Poland and Greece with reference to the" FCPA. What is perhaps most noteworthy about this week's settlement is that despite the fact that the medical device industry has been a focus of FCPA enforcement for many years now, the government is clearly not finished with it. How do we know? The final sentence of the SEC's press release ominously states: "[t]he SEC's investigation into the medical device industry is continuing."
Accordingly, the charges against Smith & Nephew should serve as an important reminder to all medical device and other health care companies that operate globally (including not only those based in the US, but also those that, like Smith & Nephew, are based abroad but publicly traded in the US) that: (1) the government has not yet turned off its spotlight, and (2) proactive steps must be taken to avoid and investigate potential FCPA violations.
The SEC's complaint against Smith & Nephew plc
The deferred prosecution agreement between the DOJ and Smith & Nephew Inc
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