Background

The Securities and Exchange Commission announced July 28 that a U.S. company has agreed to pay $12 million to settle charges that it violated the Foreign Corrupt Practices Act, including $7.77 million in disgorgement, $1.26 million in prejudgment interest and a $3 million penalty.

The SEC alleged that over a five-year period the company’s Chinese subsidiary made more than $2 million in improper payments to health care professionals at government-owned hospitals to recommend the company’s infant formula to patients who were new or expectant mothers. An agency investigation found that employees funded the improper payments through “distributor allowance” funds paid to third-party distributors who market, sell and distribute the company’s products in China. Although the funds contractually belonged to the distributors, employees exercised some control over how the money was spent and provided specific guidance to distributors on how to use the funds. Cash and other incentives were subsequently paid to health care professionals in China hospitals to recommend the company’s products and provide the company with contact information for patients who were new or expectant mothers so it could market its infant formula to them directly.

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