Koninklijke Philips N.V. (“Philips”), a multinational healthcare and consumer products company headquartered in the Netherlands, has agreed to pay over $62 million to settle an investigation by the US Securities and Exchange Commission into the company’s conduct in China.
According to the SEC, between 2014 and 2019 employees, distributors and sub-dealers of Philips’ Chinese subsidiaries, Philips Electronics Hong Kong Ltd. and Philips (China) Investment Co., Ltd. (collectively, “Philips China”), manipulated public tenders for the supply of diagnostic imaging and patient monitoring equipment to favor Philips China. The SEC stated that this misconducted consisted of Philips China or one of its distributors or sub-dealers:
- Working with a hospital employee to draft technical or other specifications for the tender that favored Philips China.
- In conjunction with a hospital employee, preparing multiple bids to give the appearance of a legitimate bid process and to meet a three-bid requirement applicable to public tenders.
The SEC order did not state that Philips China or its distributors or sub-dealers provided improper payments in exchange for this assistance in manipulating tenders. Nor does the SEC order find that Philips or Philips China violated the anti-bribery provisions of the Foreign Corrupt Practices Act. Rather, the SEC order states that during “the relevant period, Philips China’s use of special price discounts with distributors created the risk that excessive distributor margins could be used to fund improper payments to employees of government-owned hospitals.” (emphasis added). The SEC further stated that Philips China’s inadequate books and records did not provide support for these “special price discounts,” and those books and records were then consolidated into Philips’. In addition, the SEC said that Philips did not devise and maintain an adequate system of internal accounting controls with respect to the approval of these special pricing discounts, nor did Philips China enforce certain required due diligence and training procedures for the engagement of distributors.
Philips did not admit or deny the SEC’s findings, but agreed to settle these alleged books and records and internal controls violations by paying over $41 million in disgorgement, over $6 million in prejudgment interest, and a civil monetary penalty of $15 million. In assessing the appropriate penalty, the SEC stated it took into account Philips’ cooperation and ongoing remediation efforts. The SEC stated that Philips conducted an internal investigation and shared with the SEC staff facts previously unknown to the SEC staff and voluntarily produced translations of key documents. The SEC said that Philips’ remediation included revising policies and procedures, improving the tone at the top, increasing accountability for business leaders to enforce compliance policies, enhancements to Philips’ internal accounting controls relating to distributers and bidding practices, revisions to compliance trainings, terminating or disciplining Philips China employees, and terminating business relationships with distributors involved in the alleged misconduct.
As part of the settlement, Philips agreed to report periodically to the SEC during a period of two years on the status of the company’s FCPA remediation efforts, particularly due diligence on third-party consultants and vendors, FCPA training, and testing of relevant controls. Philips is required to report to the SEC any evidence it discovers of corrupt payments. The company must also certify its compliance with these undertakings.
Philips previously settled similar charges in 2013 following an investigation into improper conduct in Poland. The company, without admitting or denying the allegations, paid over $4.5 million in disgorgement and prejudgment interest as part of that settlement with the SEC.