Johnson & Johnson Will Pay $70 Million Over Bribery Claims

Johnson & Johnson (JNJ), the world’s second-biggest seller of medical products, will pay $70 million after admitting that the company bribed doctors in Europe and paid kickbacks in Iraq to win contracts and sell drugs and artificial joints.

Subsidiaries of J&J paid bribes to doctors and hospital administrators in Greece, Poland and Romania, the Securities and Exchange Commission and Department of Justice said today in filings at U.S. District Court in Washington. The company also made illegal payments to Iraqi officials to win contracts under the U.N. oil-for-food program, the filings said.

J&J, based in New Brunswick, New Jersey, used slush funds, sham contracts and off-shore companies in the Isle of Man to carry out the bribery, the SEC said. Public health system doctors and administrators who ordered J&J products such as surgical implants or prescribed the company’s drugs were rewarded in a variety of ways, including with cash and travel.

“Any competitive advantage gained through corruption is a mirage,” SEC Enforcement Director Robert Khuzami said in a statement. “J&J chose profit margins over compliance.”

From 1998 to 2006, J&J earned more than $24 million in profits by bribing Greek doctors to buy surgical implants including artificial knees and hips, the SEC said. The company earned $4.3 million in Poland from 2000 to 2006 as a result of bribes and about $3.5 million through illegal rewards in Romania from 2000 to 2007, according to the filing.

Remediation, Compliance

The company agreed to pay $48.6 million in disgorgement and interest to settle the SEC’s claims and a $21.4 million fine to settle criminal charges filed by the Justice Department. As part of a deferred prosecution agreement with Justice, J&J admitted to the allegations and agreed to report on remediation and compliance measures every six months for three years.

J&J’s DePuy International Ltd. subsidiary was ordered to pay 4.8 million pounds ($7.9 million) to resolve U.K. claims related to the bribery in Greece, the Serious Fraud Office said in a statement today.

“We are deeply disappointed by the unacceptable conduct that led to these violations,” J&J Chairman and Chief Executive Officer William C. Weldon said today in a statement. “We have undertaken significant changes since then to improve our compliance efforts, and we are committed to doing everything we can to ensure this does not occur again.”

Kickbacks

J&J admitted it paid kickbacks to the former government of Iraq from 2000 to 2003 in exchange for contracts to provide supplies under the UN oil-for-food Program, according to the Justice Department agreement. The company, which made $6.1 million in profits through the Iraq bribes, resolved the SEC’s claims without admitting or denying the agency’s allegations.

J&J funneled payments to Greek surgeons through an “agent,” who drew funds from a private company set up in the Isle of Man, the SEC said. The company’s internal audit group discovered the payments in early 2006 after receiving a whistleblower complaint, the SEC said.

J&J was charged under the 1977 Foreign Corrupt Practices Act, which prohibits making improper payments to government official to win or retain business. The SEC and Justice Department have in recent years stepped up the number of FCPA cases, which have been among the most expensive regulatory claims for companies to resolve.

Commuter Rail

In December 2008, Siemens AG, Europe’s largest engineering firm, agreed to pay $800 million to the U.S. and $814 million to German authorities to settle claims that units of the company paid bribes to win contracts from Iraq’s government in the U.N. oil-for-food program and for projects including commuter rail in Venezuela, mobile-phone networks in Bangladesh, power plants in Israel and traffic-control systems in Russia.

In November, Panalpina World Transport Holding Ltd., a Swiss freight-forwarding company, Royal Dutch Shell Plc, and five oil-services firms agreed to pay $237 million to settle civil and criminal claims that they paid thousands of bribes to African, Asian and South American officials on behalf of customers in the oil and gas industry.

The SEC this year launched an inquiry into whether investment firms have made improper payments ranging from kickbacks to lavish gifts and entertainment to get business from sovereign wealth funds.

Consent Decree

The settlement comes less than a month after J&J’s McNeil Consumer Healthcare unit signed a consent decree giving the Food and Drug Administration more oversight at three plants making children’s Tylenol, Motrin and other over-the-counter drugs recalled in the past year because of faulty ingredients or foul odors caused by chemical contamination of storage pallets.

The March 10 agreement left the plants under enhanced scrutiny for five years, and J&J faces fines of as much as $10 million a year if the FDA doesn’t approve of changes at the facilities, the company said in a statement last month.

J&J has recalled more than 50 products since the start of 2010, from the consumer medications to failing artificial hips, improperly rinsed contact lenses, insulin cartridges that may leak and cracked syringes loaded with prescription drugs. The company installed a new corporate quality-control director and announced companywide compliance standards in August.

In February, J&J reorganized its consumer division and announced the head of its DePuy Orthopaedics unit had resigned.

Pfizer Inc., based in New York, is the biggest maker of health-care products by annual sales.

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net; Alex Nussbaum in New York anussbaum1@bloomberg.net.

To contact the editors responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net; Reg Gale at rgale5@bloomberg.net.

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