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Philips to pay $62 million settlement over bribery charges for equipment sales in China

por John R. Fischer, Senior Reporter | May 15, 2023
Business Affairs
Philips will pay $62 million to settle charges of bribery related to equipment sales in China.
Dutch manufacturer Philips will pay over $62 million to resolve charges that it violated the internal controls and books-and-records provisions of the Foreign Corrupt Practices Act by bribing Chinese government and hospital officials to secure medical equipment sales, including for MR and CT systems.

It will pay $15 million in civil penalties and over $47 million in disgorgement and prejudgment interest, according to an SEC order.

Under the U.S. Foreign Corrupt Practices Act of 1977 (FCPA), Americans, U.S. companies and foreign enterprises whose securities are listed in the U.S. are prohibited from paying foreign officials in exchange for business, with retribution including fines from the Securities and Exchange Commission.

The SEC said that between 2014 and 2019, Philips’ Chinese subsidiaries paid distributors special discount prices to bribe Chinese government employees, as well as hospital officials to include technical specifications in public tenders that favored its products.

In its 2019 investigation, the SEC said data from Chinese hospitals showed that distributors and their sub-dealers charged providers 40% more than what they paid to Philips, as well as GE Healthcare, Siemens Healthineers and Toshiba Medical Corp. (now part of Canon), who are accused of colluding with Philips, with part of the difference used as bribes to government employees, and the rest pocketed by the distributor and put back into the companies.

The distributors, sub-dealers and employees then created additional bids with other manufacturer products to present the appearance of a legitimate, competitive public tender process, in accordance with the minimum bids requirement under Chinese public tender laws.

In a statement, Philips said it fully cooperated with the SEC and Department of Justice. “The company undertook a thorough internal investigation into the matter, supported by third-party experts, and took remedial measures,” said Steve Klink, head of the company’s global press office and industry analyst relations.

The allegations were first brought forth in a 2018 shareholder lawsuit. The companies faced similar accusations in a separate 2019 investigation into their conduct in Brazil for two decades.

Philips previously paid $4.5 million in 2013 to settle FCPA allegations over its conduct in Poland between 1999 and 2007.

“Despite remediation done in connection with its prior violations, Phillips 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," said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit.

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