S&N pays $22m to settle Greek bribery case

Stephen Foley

Stephen Foley is Associate Business Editor of The Independent, based in New York. In a decade at the paper, he has covered personal finance, the UK stock market and the pharmaceuticals industry, and been the Business section's share tipster. And since arriving with three suitcases in Manhattan in January 2006, he has witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.

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Smith & Nephew, the FTSE 100 maker of artificial hips and knees, funnelled £6m through shell companies in the UK to pay bribes to Greek doctors over more than a decade, it was revealed last night.

The company is the latest caught in the wide net of the US Foreign Corrupt Practices Act (FCPA), under which any firm with US operations can be charged for paying bribes to public officials anywhere in the world.

S&N said it would pay penalties of more than $22m (£14m) in settlements with the US Department of Justice and the country's financial regulator, the Securities and Exchange Commission (SEC).

According to charges filed in Washington, S&N used a distributor to create a slush fund which made illicit payments to doctors employed by government hospitals or agencies in Greece. The payments were disguised as "marketing services", the US alleged, but no services were actually performed. The doctors were able to reap big payments simply for choosing to use S&N devices.

"Smith & Nephew's subsidiaries chose a path of corruption rather than fair and honest competition," said Kara Novaco Brockmeyer, the head of FCPA enforcement at the SEC.

Yesterday's settlement is another signal of the US authorities' intention to widen the scope of the FCPA, which has been on the books since 1977, by defining doctors working for state-run health services in Europe as "foreign officials".

The British drugs giants GlaxoSmithKline and AstraZeneca have both revealed that they are under investigation for suspected breaches of the Act, and last year the US firm Johnson & Johnson paid $70m to settle claims that it paid doctors in Greece, Romania and Poland in return for them agreeing to use its surgical implants in hospital procedures.

Medical device companies were asked by the SEC and the Justice Department in late 2007 to look into possible improper payments to government-employed doctors outside the US, and to voluntarily report their findings. That followed an investigation into the industry's relationships with US doctors, which suggested that routine payments and perks could be corrupting their judgements over which devices to use in surgery. In 2009, S&N entered into a deferred prosecution agreement with the Justice Department over its actions in the US.

S&N said it found and reported evidence of improper payments by a distributor in Greece that had been appointed by a subsidiary and was terminated in 2008. The individuals implicated are no longer associated with the group, it said.

"These legacy issues do not reflect Smith & Nephew today," its chief executive, Olivier Bohuon, said. "We have what I believe to be a world-class compliance programme, having enhanced it significantly since this investigation began in 2007."

S&N set aside money for the FCPA settlement in its most recent financial results last week. It will pay back $5.4m of ill-gotten profits, a $16.8m fine and employ a "compliance monitor" for the next 18 months.