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By William Spain
CHICAGO (MarketWatch) — The Securities and Exchange Commission on Monday charged medical device company Smith & Nephew under the Foreign Corrupt Practices Act for bribing Greek public doctors over more than a decade. Smith & Nephew SNN -0.90% will pay more than $22 million as part of a deal with the SEC and U.S. Department of Justice. The complaint alleges that Smith & Nephew subsidiaries used a distributor that created a “slush fund” to forward payments to doctors working at government hospitals in Greece in order to win business. “Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition,” said Kara Brockmeyer, chief of the SEC enforcement division’s Foreign Corrupt Practices Act unit. “The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”
By Andrew Jack in London | Financial Times
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US regulators have fined Smith & Nephew $22m for bribing Greek doctors to use its products over the past decade, in an intensifying series of actions against healthcare companies for corruption that took place in foreign countries.
The UK-based medical devices company agreed to a settlement with the Department of Justice and the appointment of an official to supervise its compliance procedures over the coming 18 months.
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The action follows a similar $77m settlement by regulators with Johnson & Johnson last year concerning bribes paid in Greece, Poland, Romania and Iraq, with at least another dozen healthcare companies under investigation for violations of the US Foreign Corrupt Practices Act.
It comes as officials struggle to restructure Greece’s public sector after years during which corruption and mismanagement helped substantially inflate use of medical products.
Charges filed by the justice department alleged that Smith & Nephew oversaw a system that channelled more than $9m in bribes through a maze of offshore companies to persuade Greek surgeons to use its artificial hips and knees. The network was one of several unearthed during a probe by the US in 2007 into corruption by medical device groups in Greece, with probes continuing against rivals including Biomet, Stryker, Zimmer and Medtronic.
In an email cited by prosecutors, Smith & Nephew’s Greek distributor, who controlled three offshore shell companies designed to strip out up to 40 per cent of the nominal sale price for commissions, justified the system to a senior US executive, saying competitors were paying 30-40 per cent more. “I absolutely need this fund to promote my sales with surgeons, at a time when competition offers substantially higher rates,” he wrote in 2002, describing the cash incentives as “a real pain in the neck but an unavoidable fact of Greek life”. He added: “I am paying cash incentives right after each surgery.”
As a result of the probe, Smith & Nephew also identified separate problems with Plus, another orthopaedics company that it acquired in 2008, leading to substantial restructuring.
Olivier Bohuon, Smith & Nephew’s chief executive, said: “These legacy issues do not reflect Smith & Nephew today. But they underscore that we must remain vigilant every place we do business and let nothing compromise our commitment to integrity.”
The system described by prosecutors shows the supply of orthopaedic products by Smith & Nephew’s German subsidiary with manufacturing operations in Greece via its Greek distributor who used shell companies to receive a share of sales for “promotion support” and “marketing” although no true services were provided in exchange.