INSURANCE : Amsterdam’s Phillips to Pay $62M to U.S. for China Sales Misconduct


The U.S. Securities and Exchange Commission reported that Amsterdam-based health technology firm Koninklijke Philips N.V. will pay more than $62 million to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA) with respect to its sales of medical diagnostic equipment in China.

According to the SEC’s order, Philips’ subsidiaries in China used special price discounts with distributors that created a risk that excessive distributor margins could be used to fund improper payments to government employees.

The SEC also found that employees, distributors, or subdealers of Philips’ subsidiaries in China engaged in improper conduct to influence hospital officials to draft technical specifications in public tenders to favor Philips’ products. For example, the order found that, in one instance, a district sales manager at Philips China provided funds to a hospital director in return for the director’s assistance in the procurement process.

In another instance, Philips China employees discussed tailoring technical specifications for a public tender with hospital directors so that only Philips China and two other manufacturers would qualify for the bid.

The order further found that Phillips associates engaged in improper bidding practices by preparing additional bids with other manufacturers’ products to create the appearance of legitimate public tenders and to meet the minimum bids requirement under Chinese public tender laws.

“This matter highlights the need for companies to design and implement internal accounting controls sufficient for the scale of their business. 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, in announcing the agreement.

Philips consented to the SEC order without admitting or denying the findings, and agreed to pay $15 million in civil penalties and more than $47 million in disgorgement and prejudgment interest.

The SEC said it considered Phillips’ cooperation with investigators and remedial steps it has undertaken, including terminating or disciplining the China employees involved in the misconduct.

Philips entered the Chinese market in 1920 and established its first joint venture in 1985. Operating through Philips China, Philips has several wholly owned subsidiaries and representative offices in the region. In China, the majority of hospitals and other healthcare providers are state-owned enterprises.

In April 2013 the SEC charged Philips with similar misconduct in Poland that had occurred between 1999 and 2007.

Source: Securities and Exchange Commission


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