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Episode 276 — Review of Philips and Franks Int’l SEC FCPA Enforcement Actions

The SEC recently announced two separate FCPA SEC enforcement actions — the first against Franks International for $8 million for FCPA violations in Angola; and the second against Philips, a Dutch medical device company, for $62 million for FCPA violations in China.

The SEC settlement actions underscored important bribery risks in Angola and China.

Philips’ recent settlement is its second in the last ten years.  In 2013, Philips resolved FCPA charges with the SEC arising from bribery violations in Poland.  In that case, Philips paid more than $4.5 million to settle charges that Philips bribed Polish health care officials. 

Philips’ subsidiaries in China (collectively referred to as “Philips China”) engaged in several distinct bribery schemes to advance Philips business. Philips was committed to increasing its diagnostic imaging business and aggressively competed in public tenders against rival suppliers of the same equipment.  In some cases, at the request of distributors, Philips China gave distributors pricing discounts on the health technology equipment that it sold to distributors.  However, Philips failed to maintain and adhere to its internal approval processes and recording of pricing discounts to ensure that management properly authorized the discounts. These pricing discounts created a significant risk that “excessive distributor margins could be used to fund improper payments to employees” of state-owned hospitals.

In the Frank’s case, from January 2008 through October 2014, Frank’s paid commissions to a sales agent in Angola when Frank’s employees in the Angola area knew that there was a high probability that the agent would use the commissions to bribe Angolan government officials on behalf of Frank’s.  A substantial portion of the funds were diverted to an Angolan government official to influence the award of oil and natural gas services contracts.  The SEC further noted that, during this time period, Frank’s lacked adequate internal accounting controls related to retention and payment of agents that interacted with Angolan foreign government officials on behalf of Frank’s.

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