Mead Johnson Nutrition agreed to pay $12 million to settle a finding by the US Security and Exchange Commission that its China subsidiary violated the Foreign Corrupt Practices Act, the SEC said.
The unit of the global manufacturer of infant formula allegedly made improper payments to health care professionals at government-owned hospitals to recommend its formula to patients who were new or expectant mothers.
The SEC said an investigation found that employees made improper payments through “distributor allowance” funds paid to third-parties who market, sell, and distribute the company’s products in China. Though 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 paid to health care professionals in China hospitals to recommend Mead Johnson Nutrition products and provide the company with contact information for patients who were new or expectant mothers, so that it could market its infant formula to them directly.
The company did not accurately reflect in its books and records the more than $2 million in improper payments made during a five-year period.
“Mead Johnson Nutrition’s lax internal control environment enabled its subsidiary to use off-the-books slush funds to pay doctors and other health care professionals in China to recommend its baby formula and give the company marketing access to mothers,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, in a July 29 press release.
The SEC’s order instituting a settled administrative proceeding finds that Mead Johnson Nutrition violated the books and records and internal control provisions of the Securities Exchange Act of 1934. The company consented to the order without admitting or denying the findings and agreed to pay $7.77 million in disgorgement, $1.26 million in prejudgment interest, and a $3 million penalty.
