Mead Johnson was fined $12 million today by the SEC for violations of the books and records provisions of the Foreign Corrupt Practices Act.
The company’s majority owned subsidiary in China improperly compensated health care providers, who were foreign officials under the law because they were employees of state-owned hospitals, to recommend its infant formula to expectant and new mothers. The payments came from distributor allowance funds which acted like an off-the-books slush fund. Ultimately, the subsidiary paid approximately $2 million to health care providers and made approximately $8 million in profits from the 2008 until 2013 time period.
The payments made by the employees of Mead Johnson China were not accurately reflected in the books and records of the Chinese subsidiary which was consolidated into the publicly reported accounting records. Moreover, the company had inadequate internal accounting controls in place to detect the improper practices.
The company received a tip about possible violations of the FCPA in 2011 regarding the conduct at issue but the company did not turn up evidence of the misconduct and did not either self-report the allegation or disclose it to the SEC when it inquired in connection with this matter.
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