The Securities and Exchange Commission has announced that Ohio-based pharmaceutical company Cardinal Health has agreed to pay more than $8 million to resolve charges that it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA).
According to the SEC’s order, Cardinal’s internal accounting controls were not sufficient to detect improper payments made by employees of its former Chinese subsidiary. The order finds that, between 2010 and 2016, Cardinal China retained thousands of employees and managed two large marketing accounts for the benefit of a European cosmetic company whose products Cardinal China distributed.
“Cardinal’s foreign subsidiary hired thousands of employees and maintained financial accounts on behalf of a supplier without implementing anti-bribery controls surrounding these high-risk business practices,” said Anita B. Bandy, an Associate Director in the SEC’s Division of Enforcement. “The FCPA is designed to prohibit such conduct, which undermined the integrity of Cardinal’s books and records and heightened the risk that improper payments would go undetected.”
Improper Payments
According to the SEC’s order: “In 2016, Cardinal China learned that the marketing employees and the cosmetic company had hidden the purpose of certain purported marketing payments, which were redirected to healthcare professionals who provided marketing services to the cosmetic company, and to other employees of state-owned retail entities who had influence over purchasing decisions related to the cosmetic company’s products. Upon learning of the misconduct, Cardinal and Cardinal China took action to cease these payments in 2016.
The SEC order finds an internal controls violation, where Cardinal did not apply its full accounting controls to the accounts and regularly authorized the payments without reasonable assurances that the transactions were executed appropriately. A profit-sharing agreement with the cosmetic company provided Cardinal with a percentage of profits from sales derived from the improper payments. As a result, the order finds, Cardinal also failed to maintain complete and accurate books and records concerning the marketing accounts.
Without admitting or denying the SEC’s internal controls violation findings, Cardinal consented to the entry of an order requiring the company to cease and desist from committing violations of the books and records and internal accounting controls provisions of the FCPA and to pay $5.4 million in disgorgement, $916,887 in prejudgment interest, and a civil penalty of $2.5 million. 