The SEC settled charges against a medical device manufacturer and its wholly owned Danish subsidiary for engaging in "hundreds of sham transactions with distributors that funneled about $20 million to third parties, including individuals in Russia and apparent shell companies in Belize, the British Virgin Islands, Cyprus and Seychelles." The SEC found these "sham transactions" to be in violation of the Foreign Corrupt Practices Act of 1977 ("FCPA").
The SEC determined that the Danish subsidiary, under the direction of its distributors:
- participated in hundreds of highly suspicious transactions that posed significant risks of bribery and other improper conduct, including embezzlement and tax evasion;
- issued inflated invoices to distributors and directed the overpayments it received to third parties identified by the distributors (the subsidiary did not have a relationship with the third parties and was unaware of the business purpose, if any, that the payments might have had); and
- acted as a conduit for at least 260 payments totaling approximately $19.8 million, including 180 payments related to a Russian distributor that totaled more than $16 million.
In addition, the SEC determined that the subsidiary's Danish CFO personally authorized approximately 150 conduit payments and submitted false quarterly sub-certifications to the manufacturer. SEC Enforcement Division FCPA Unit Chief Kara Brockmeyer emphasized that:
Issuers and their subsidiaries cannot turn a blind eye to suspicious payments, even if they believe they are simply "helping out" a business partner.
The manufacturer agreed to pay $7.67 million in disgorgement and $3.8 million in prejudgment interest to settle SEC charges that it failed to keep accurate books and records and maintain adequate internal accounting controls. In a related matter, the Danish subsidiary agreed to pay a $3.4 million penalty and entered into a non-prosecution agreement with the U.S. Department of Justice. Lastly, the Danish subsidiary's CFO agreed to pay a $20,000 penalty to the SEC to settle charges that he (i) knowingly circumvented the internal controls in place at the subsidiary, and (ii) falsified its books and records.
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