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Smith & Nephew Settles Bribe Cases With U.S. for $22 Million

Smith & Nephew Plc, Europe’s biggest maker of artificial hips and knees, agreed to pay $22.2 million to settle allegations by the U.S. Justice Department and Securities and Exchange Commission that it engaged in a scheme to pay bribes in Greece.

Smith & Nephew admitted in filings today in federal court in Washington that two of its units were involved in a scheme for more than a decade to make “illicit payments” to doctors employed by government hospitals or agencies in Greece in violation of the Foreign Corrupt Practices Act.

The London-based company, which entered into a deferred prosecution agreement with the U.S., agreed to pay a $16.8 million fine to settle the criminal allegations and another $5.4 million to settle a civil suit filed by the SEC.

“Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition,” Kara Novaco Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said in a statement. “The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”

Had Smith & Nephew been convicted of the allegations the company could have been excluded from participating in U.S. health-care programs, according to prosecutors.

In a criminal information filed in the U.S. District Court in Washington, the Justice Department charged Smith & Nephew’s U.S. and German units with one count of conspiracy, one count of violating the FCPA and one count of aiding and abetting.

Corporate Monitor

Prosecutors said they’ll seek to have the charges dismissed after three years as long as Smith & Nephew abides by its agreement with the Justice Department. The agreement requires the company to hire a corporate monitor and cooperate with any bribe probes.

“We have what I believe to be a world-class compliance program, having enhanced it significantly since this investigation began in 2007,” Olivier Bohuon, Smith & Nephew’s chief executive officer, said in a statement. “These legacy issues do not reflect Smith & Nephew today.”

Smith & Nephew, which began an internal probe in 2007 at the request of the SEC and Justice Department, said the individuals involved in the bribery are no longer with the company.

Smith & Nephew admitted that from 1997 until June 2008, its U.S. and German units bribed public doctors in Greece to win business. The bribes were paid through a person described in court documents as a “Greek distributor.” This person used shell companies that masked bribes as “marketing services,” according to the statement of facts filed in the criminal case.

Competitors’ Payments

The document cites a March 2002 e-mail from the Greek distributor to a Smith & Nephew vice president in Memphis, Tennessee, complaining that the “marketing services” payments weren’t enough, noting that competitors were paying 30 percent to 40 percent more.

“I absolutely need this fund to promote my sales with surgeons,” the distributor said in the e-mail, according to prosecutors.

Reforming a corrupt and dysfunctional public health system was one of the conditions of Greece’s acceptance of a European Union and International Monetary Fund bailout package in 2010. Doctors also supplement their income with payments from patients, called “fakelaki,” small envelopes with cash for prompt treatment.

On Feb. 2, Smith & Nephew said it would cut its 11,000- person workforce by 7 percent in the next three years, including 220 positions cut to date, as it seeks to save $150 million a year and shift spending toward emerging markets, research and development.

The case is U.S. Securities and Exchange Commission v. Smith & Nephew Plc (SN/), 12-00187, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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