Device Maker Smith & Nephew Pays $22 Million to Settle Bribery Case

Medical device maker, Smith & Nephew has been in the news lately as one of the manufacturers of metal-on-metal artificial hips. Now AP (here) reports the London-based company has agreed to pay $22.2 million to settle claims that its U.S. and German subsidiaries bribed public doctors in Greece for more than a decade to increase the sales of its devices.

The fine will settle criminal and civil charges in the U.S. filed by the Justice Department and the Securities and Exchange Commission (SEC). Here is the complaint.

This is just the latest in a series of investigations into bribery by large device makers of government-employed doctors.

Last April, Johnson & Johnson faced similar charges – of bribing doctors in Europe and offering kickbacks to the Iraqi government to increase sales. J & J agreed to pay $70 million to settle those charges.

Smith & Nephew, operates in 32 countries with a U.S. subsidiary based in Memphis, will pay $16.8 million in criminal fines with the Justice Department. In return, the company must hire an outside auditor to make sure it is no longer involved in bribery. Smith & Nephew will pay $5.4 million to settle SEC civil charges over bribery according to the SEC news release (here).

Foreign Bribery Charges

The company is accused of violating the Foreign Corrupt Practices Act which prevents executives from bribing government officials. Since Greek doctors work in public hospitals they are considered government employees under the nation’s health care system. Under the scheme, paid distributors would sell products at the full list price and refer the profit to off-shore funds that were not taxed under Greek law which were then used to bribe public doctors to buy Smith & Nephew products between the years 1997 to 2008.

The SEC’s News Release says:

“Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition,” said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Act Unit. “The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”

The SEC believes Smith & Nephew failed to act even though there were plenty of red flags of bribery such as an e-mail from an employee which admitted to “paying cash incentives right after each surgery." S & N makes orthopedic products such as artificial knees and metal-on-metal hip replacements, though the SEC would not comment to MDND the exact products that were involved.

Smith & Nephew blamed a Greek distributor for the bribery and said he is no longer working with the company. The company’s total sales in fiscal 2010 were $3.962 billion with operating profits of $920 million. #