AGA Medical Corporation Pays $2 Million to Settle FCPA Action

16 June 2008 Publication

In June 2008, AGA Medical Corporation ("AGA"), a privately-held Minnesota based medical manufacturer, entered into a deferred prosecution agreement with the U.S. Department of Justice in which it agreed to pay a $2 million criminal penalty for causing improper payments to be made through its Chinese distributor to physicians employed by Chinese government owned or controlled hospitals and officials in the Chinese State Intellectual Property Office.

According to the filed criminal information, AGA conspired with its Chinese distributor to make improper payments and authorized the distributor to make improper payments to physicians employed by the hospitals to cause them to purchase AGA products. The physicians either received a "reward" ranging from $300 to $1,000 per AGA product purchased or received kickbacks in an amount between 15% to 25% of the purchase price. AGA also acknowledged that it conspired with its Chinese distributor to make improper payments and authorized the distributor to make improper payments to officials in the Chinese State Intellectual Property Office in order to cause that office to approve AGA's patent applications. According to the information, the Chinese distributor informed AGA that in order to speed up review of AGA's patent applications and to solve other internal problems related to the application, AGA would have to "sponsor" a patent official to do the work. AGA agreed to cover the costs and authorized payment of approximately $20,000 to the patent official to approve patents for AGA products.

Pursuant to the deferred prosecution agreement, in addition to the $2 million criminal penalty, AGA also agreed to implement a compliance and ethics program designed to detect and prevent violations of the FCPA, adopt new internal control policies and procedures, and engage an independent compliance monitor to evaluate the company's FCPA compliance program. In resolving the matter, the DOJ noted that AGA voluntarily disclosed the conduct at issue, cooperated with the DOJ's investigation, and implemented enhanced compliance policies and procedures.

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