Current trends in FCPA enforcement are evident in the latest settlement with Johnson & Johnson. U.S. v. Depuy, Inc., (D.D.C. Filed April 8, 2011); SEC v. Johnson & Johnson, Civil Action No. 1:11-cv-00686 (D.D.C. Filed April 8, 2011). To resolve the case with DOJ and the SEC the company agreed to pay a total of $77 million, making it number ten on the list of the largest amounts paid by a company to resolve FCPA charges. This is the second addition to the top ten this year according to the list maintained by the FCPA blog (here).
The cases are based on payments by J&J subsidiaries to publicly-employed health care provided in Greece, Poland and Romania. Kickbacks were paid on behalf of a company subsidiaries to the former government of Iraq under the U.N. Oil for Food Program.
In Greece the payments involved DePuy Inc., a medical implant manufacturer. The payments were channeled through a local agent and made to facilitate the sale of their products began in 1997. In 1998 J& J purchased the company. At the time Johnson and Johnson had a policy which prohibited such payments. Nevertheless, the payments continued and steps were taken to conceal them. From 1998 through 2006 the company earned $24,258,072 in profits on sales obtained through bribery.
In Poland employees of MD&D Poland, a J&J subsidiary, bribed publicly employed doctors and hospital administrators to obtain business. From 2000 through 2006 the company earned $4,348,000 in profit from sales made through bribery. The scheme was implemented through the use of sham civil contracts and false travel invoices. Those documents were used to create a slush fund from which payments were made to doctors and administrators.
In Romania J&J subsidiary J&Jd.o.o. paid bribes through local distributors to obtain business. The employees of the subsidiary worked with distributors to sell the company products to doctors and pharmacies in Romania. At the time of sale company employees or the distributor delivered cash payments that were 3-5% of the cost of the drugs. Over a seven year period beginning in 2000 this scheme yielded the company $3,515,500 in profits from the bribery.
Finally, Johnson and Johnson participated in the U.N. program through two subsidiaries, Cilag AG International and Janssen Pharmaceutica N.V. During the program the subsidiaries sold pharmaceuticals to an arm of the Iraqi Ministry of Health known as Kimadia. This business was conducted through an agent. That agent was paid on a commission basis prior to the program. Once bribes were demanded the commission for the agent was increased to cover them. In total the company paid $857,387 in bribes in connection with the program. These were not properly recorded in the books and records of the company.
To settle with DOJ the company entered into a deferred prosecution agreement with respect to its subsidiary Depuy Inc. which was charged in two count information alleging conspiracy and violations of the FCPA. In addition, the company agreed to pay a criminal fine of $21.4 million. To settle with the SEC the company consented to the entry of a permanent injunction prohibiting future violations of the anti-bribery and book and records and internal control provisions of the FCPA. J&J also agreed to pay $38,227,826 in disgorgement and $10,438,490 in prejudgment interest.
The resolution with DOJ reflects the cooperation of the company as do other criminal FCPA settlements. As DOJ’s press release notes, J&J furnished “extraordinary cooperation . . .to the department, the SEC and multiple foreign enforcement authorities, including significant assistance in the industry-wide investigation; and extensive remedial efforts and compliance improvements undertaken by the company.” This impacted the charges and the amount of the criminal fine which was at a level significantly below the lower end of the sentencing guideline calculation. DOJ also noted that it took into account the fact that a criminal fine would have to be paid by the company in the U.K.
The investigative efforts of the company were aided by its existing internal FCPA compliance procedures according to the SEC. The Commission did not however specify that it was giving the company credit for those procedures or its cooperation. Indeed, the terms of J&J’s settlement with the SEC are consistent with those in other corporate cases.