In a sign of things to come, Johnson & Johnson (J&J) and J&J wholly-owned subsidiaries Depuy, Inc. (DePuy) and DePuy International Limited (DePuy International) resolved corruption related investigations on both sides of the Atlantic on Friday, April 8.

Conduct

  • J&J, a New Jersey based issuer, resolved FCPA enforcement actions brought by the DOJ and SEC for the misconduct of certain subsidiaries and agents concerning payments to government officials in Greece, Poland and Romania, and to the government of Iraq under the UN Oil for Food Program (OFFP). To resolve the DOJ matter, J&J entered into a deferred prosecution agreement (DPA) that deferred the prosecution of DePuy, an Indiana based subsidiary. To resolve the SEC enforcement action, J&J neither admitted nor denied the allegations contained in a civil complaint.
  • The DPA and civil complaint concern similar behavior. In the DPA, J&J accepts and admits to the conduct of its subsidiaries, employees and agents who made improper payments to public healthcare providers in Greece, Poland and Romania, and the government of Iraq to induce the purchase of products manufactured by J&J or its subsidiaries.
  • For example, the deferred information filed against DePuy charges DePuy with one count of conspiracy to violate the FCPA and one count of violating and aiding and abetting a violation of the FCPA for conduct related to the bribing of Greek healthcare providers. The DOJ alleged DePuy made or caused to be made, directly and indirectly through agents, payments totaling approximately $16.4 million from 1998 to 2006 knowing that some or all of the payments would paid to publicly-employed healthcare providers to influence the purchase of DePuy products.
  • In respect to Poland, the DPA indicates a Polish subsidiary and its employees authorized the improper payment, directly or indirectly, of approximately $775,000 in monetary compensation and travel to publicly-employed healthcare providers to induce the purchase of J&J products.
  • From mid-2005 to mid-2008, a J&J Romanian subsidiary and its employees authorized the payment, directly or indirectly, of approximately $140,000 in cash, gifts (e.g., laptops and other electronics) and travel to publicly-employed healthcare providers to induce the purchase of pharmaceuticals manufactured by J&J subsidiaries and operating companies.
  • From December 2000 to March 2003, wholly owned J&J subsidiaries based in Belgium and Switzerland secured 18 OFFP pharmaceutical sales contracts through the payment of kickbacks to the government of Iraq.
  • The above described payments were euphemistically referred to as “cash incentives”, “sales promotional costs”, “local support payments”, “civil contracts” or “commissions” and were recorded as such in the corporate books and records of the J&J subsidiaries. These inaccurate books and records were then incorporated into J&J’s books and records for the purposes of preparing financial statements filed with the SEC.

Penalties

  • To resolve the enforcement actions, J&J agreed to pay $70 million in a criminal fine ($21.4 million), profit disgorgement and pre-judgment interest ($48.6 million).
  • The DPA has a term of three years and contains numerous conditions common in recent DPAs in the FCPA context. Notably, however, the DPA also contains several additional and onerous conditions not found in recent FCPA-related DPAs. For example, the DPA requires J&J to implement a system of annual certifications by senior managers in each of the company’s corporate-level functions, divisions, and business units in each foreign country wherein they confirm their local standard operating procedures adequately implement the company’s anticorruption policies and procedures, including training requirements, and that they are not aware of any FCPA or other corruption issues that have not already been reported to corporate compliance. This condition and several other onerous and expensive conditions have not appeared in recent prosecutorial agreements and may indicate the DOJ has raised the standard in FCPA compliance.
  • To resolve the SEC enforcement action, in addition to the disgorgement mentioned above, J&J also agreed “to comply with certain undertakings regarding its compliance program.” The SEC did not further delineate the nature of these “undertakings”. However, given the coordinated nature of the DOJ and SEC’s investigations and resolutions, the unprecedented nature of the DOJ’s compliance requirements may encompass those envisioned by the SEC.

Notes

  • The unprecedented nature of the DOJ’s FCPA compliance requirements sets an extremely high bar for FCPA compliance. In the prosecutorial agreements that follow, it will be interesting to see if the requirements of the J&J DPA are unique to J&J or whether they represent a new, heightened standard the DOJ will demand of corporate defendants to defer prosecution of FCPA charges.
  • On the same day the DOJ and SEC resolved their enforcement actions, the UK’s Serious Fraud Office (SFO) resolved its prosecution of DePuy International Limited, a UK-based subsidiary of J&J, which the DOJ had referred to the SFO. The conduct of certain DePuy International personnel figured prominently in the U.S. enforcement actions. To resolve the UK matter, the SFO sought and obtained a civil recovery order in the amount of £4.829 million, plus prosecution costs. The SFO’s press release indicates principles of double jeopardy prevented a UK criminal prosecution and, consequently, the most appropriate resolution was a civil recovery order pursuant to the Proceeds of Crime Act 2002.
  • In addition to the US and UK enforcement actions, Greek authorities have reportedly frozen at least €5.785 in assets belonging to a J&J subsidiary.