The US Securities and Exchange Commission (SEC) has announced that Dutch device company Philips (BVMF: PHGN34) has agreed to a $62 million resolution to settle charges related to improper employee practices during the marketing of products in China between 2014 and 2019. In the settlement, which Philips accepted without admitting or denying the charges, the SEC detailed alleged misconduct by Philips and its distributors in China.
Allegations of Collusion and Tender Manipulation
The SEC’s charges claim that Philips, in collaboration with its distributors, worked with hospital employees prior to public tenders. These employees allegedly drafted technical specifications for the tenders to favor Philips’s medical equipment, ensuring qualification in exchange for payments. Furthermore, it is alleged that the hospital staff directed Philips or its distributor to prepare two additional bids from competing products to satisfy the three-bid requirement for public tenders, thereby giving the appearance of legitimacy.
Risk of Improper Payments and Violations of FCPA
The SEC also accused Philips China of employing “special price discounts with distributors,” which could lead to excessive distributor margins being used to fund improper payments to employees of government-owned hospitals. Poor record-keeping by distributors created a grey area for such payments. These practices are considered violations of the US Foreign Corrupt Practices Act (FCPA), which applies to all companies registered with the SEC. The SEC estimated that Philips benefited to the tune of $41 million from these improper behaviors.
Resolution and Payment Details
As part of the resolution, Philips has consented to pay over $47 million in disgorgement and prejudgment interest, in addition to $15 million in civil penalties. This settlement highlights the importance of adhering to international regulations and the consequences of non-compliance for global companies operating in various markets.-Fineline Info & Tech
