The Securities and Exchange Commission (SEC) charged Stryker Corp. with violating the Foreign Corrupt Practices Act (FCPA) when Stryker subsidiaries in five different countries reportedly made $2.2 million in unlawful payments to health care professionals in order to obtain or retain business.
Stryker has agreed to pay more than $13.2 million to settle the SEC's charges. The SEC Order required the Michigan-based medical technology company to disgorge $7,502,635 profits, pay prejudgment interest of $2,280,888, and a penalty of $3.5 million.
According to the Order, Stryker made the approximately $7.5 million in illicit profits as a result of categorizing payments improperly as charitable donations, consulting and service contracts, travel expenses, and commissions. The SEC provides numerous examples of alleged wrongful conduct, stretching back as far as 2003:
Stryker's subsidiary in Mexico directed a law firm to pay $46,000 to a Mexican government employee to secure the winning bid on a contract. Stryker reportedly made $1.1 million in profits.
In 2004, Stryker's Greece subsidiary made a "donation" of nearly $200,000 to a public university in Greece to fund a laboratory that was a "pet project" of a public hospital doctor. In exchange for the payment, the doctor agreed to provide business to Stryker.
Stryker paid travel costs for the director of a public hospital in Poland in exchange for the promise of future business. Costs included a six-night stay at a New York City hotel, attendance at two Broadway shows, and a five-day trip to Aruba.
Stryker Romania made almost two hundred payments totaling over $500,000 to foreign officials to obtain or retain contracts and recorded these payments as legitimate sponsorships for foreign officials to attend medical events and conferences. These payments allegedly resulted in more than $1.7 million in profits.
- The SEC claimed that Stryker Argentina made payments to doctors at public hospitals based on a percentage of the sales of Stryker equipment, which Stryker classified as "honoraria" payments.
The Order took aim at Stryker's corporate policies addressing anti-corruption which, although in place, were "inadequate and insufficiently implemented on the regional and country level."
Stryker's subsidiaries were organized such that the manager of a particular country's operations had primary responsibility for all business within that country. During the period of time at issue, each of Stryker's foreign subsidiaries operated pursuant to individual policies and directives implemented by country or regional management.
Per the SEC: "Accordingly, Stryker failed to devise and maintain an adequate system of internal accounting controls sufficient to provide reasonable assurance that the company maintained accountability for its assets and that transactions were executed in accordance with management's authorization."
In response to the Commission's investigation, Stryker has taken SEC-approved remedial measures that offer other medical companies a template to avoid similarly steep penalties.
Stryker implemented a company-wide anti-corruption compliance program, which includes:
Enhanced corporate policies setting forth specific due diligence and documentation requirements for relationships with foreign officials, health care professionals, consultants, and distributors;
Hiring of a chief compliance officer and a full-time dedicated staff in both its internal audit and compliance functions to ensure FCPA compliance and the implementation of periodic self-assessments;
Enhanced financial controls and governance;
Expanded anti-corruption training to all Stryker employees
- An ethics hotline which allows employees to report any actual or suspected illegal or unethical behavior.
In addition to Stryker's internal anti-corruption enhancements, the company engaged a third-party consultant to perform FCPA compliance assessments and compile written reports for Stryker's operations in dozens of foreign jurisdictions at least annually. Since 2007, Stryker has voluntarily produced documents that permit the Commission staff to assess how Stryker's internal audit and compliance functions use the results of each of the assessments to implement additional enhancements, to target jurisdictions for future assessments, and to collaborate with regional management.
"Based on these improvements," the SEC notes, "Stryker has demonstrated a commitment to designing and funding a meaningful compliance program in order to prevent and detect violations of the FCPA and other applicable anti-bribery laws."