Foreign Corrupt Practices Act for Medical Device Companies: Ramifications of Non-Compliance

10 April 2007 Publication

The Pulse

Johnson & Johnson (J & J) issued a statement on February 12, 2007 advising that the company voluntarily disclosed to the United States Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) that subsidiaries outside of the United States may have made improper payments in connection with the sale of medical devices in two small-market countries. J & J advised that the improper payments violated company policies, and may be covered by the U.S. Foreign Corrupt Practices Act (FCPA). The DOJ and SEC are reviewing the matter, and J & J is cooperating with the review. The press statement also advised that as a result of the above payments, the Worldwide Chairman of J & J Medical Devises & Diagnostics retired because those subsidiaries were his "ultimate responsibility by virtue of [his] position."

With the above public statement and voluntary disclosure, J & J has reminded all medical device and equipment companies that they, too, are at risk of an FCPA criminal and civil violation if any company, its employees, officers, subsidiaries, or agents offer, promise, make, or give bribes or anything of value, directly or indirectly, to foreign officials (including foreign government agency employees, foreign medical professional staff, health ministry personnel, or foreign procurement agencies or their staff, among others), corruptly, in order to obtain or retain business, or to gain some improper advantage. Medical device companies should ensure that they have effective FCPA and international antibribery compliance procedures and training, and also ensure that they and their subsidiaries maintain accurate books, records, and accounts, as well as an adequate system of financial internal controls. Medical equipment and other companies also must evaluate their programs to ensure that product incentive programs that may be lawful in one country or circumstance do not violate the broad FCPA prohibitions against promises, offers, or payments of anything of value to foreign officials for an improper business purpose.

Medical equipment companies that fail to comply in these areas risk criminal and civil fines and penalties, multi-year U.S. enforcement agency compliance monitoring and reporting, reputational damage, prosecution of individual offenders, business disruption, and multi-million dollar investigative and attorneys’ fees. J & J's voluntary disclosure of improper payments to the DOJ and SEC is just the beginning of an arduous, costly, and serious FCPA enforcement agency process. Medical device companies engaged in overseas sales and projects with foreign governments, their agencies, and personnel are particularly vulnerable and are required to have compliance programs that address their level of risk. Importantly, the companies must establish the system to minor and track the implementation of the programs. 

This article is a part of the April 2007 edition of The Pulse, a newsletter for leaders in the Medical Device Industry.