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Pharmaceuticals /Medical Devices /Health
Peabody, Massachussets, United States
Nationality of Foreign Officials: Ghana, Israel, Kazakhstan, Russian Federation, Ukraine, Vietnam
Summary of Allegations:
From 2001 to early 2011, BK Medical ApS ("BK Medical"), wholly-owned Danish subsidiary of Analogic Corporation ("Analogic") and seller of ultrasound equipment, acted as a conduit for its distributors to funnel money to unknown third parties for reasons unknown to BK Medical in hundreds of transaction. As part of the scheme, after the terms of a sale had been agreed upon between BK Medical and its distributor, the distributor would request that BK Medical issue invoices that falsely inflated the sales price on the equipment. The distributor then overpaid BK Medical the inflated amount and BK Medical transferred the excess funds to third parties, with no legitimate business relationship to BK Medical, as directed by the distributor.
These improper transactions mainly involved BK Medical's distributors in Russia, but also distributors in Ghana, Israel, Kazakhstan, Ukraine, and Vietnam. Approximately USD 20 million flowed through BK Medical from these distributors, with over USD 16 million from the Russian distributor, to third parties, including employees of Russian state-owned entities and apparent shell companies in Belize, the British Virgin Islands, Cyprus and Seychelles.
BK Medical and Analogic, by extension, derived millions in profits from its sales to these distributors. BK Medical maintained and created fictitious invoices for rending legitimate services, such as marketing, and kept inaccurate books and records. BK Medical's books, records and accounts with fictitious invoice were later incorporated into Analogic's books and records, causing Analogic to falsify its books and records as a result.
Approximately 150 of these conduit payments were personally authorized by Lars Frost, BK Medical's then Chief Financial Officer between 2008 and 2011, during his employment with BK Medical. Frost, in an attempt to hide the payments in violation of Analogic's internal accounting controls, allegedly submitted numerous false quarterly sub-certifications.
BK Medical's alleged participation in the transactions created a significant risk that BK Medical facilitated bribery or other prohibited conduct, such as embezzlement or tax evasion.
Approximate Alleged Payments to Foreign Officials: Unspecified
Business Advantage Allegedly Obtained: millions in profits from its sales to the distributors
Agencies: Denmark: Public Prosecutor for Serious Economic Crime
Results: Disgorgement
Year Resolved: 2016
Compliance Monitor:
Ongoing: No
Details:
In Analogic's Form 10-Q filed with the U.S. Securiteis and Exchange Commission ("SEC") on 08 June 2015, the company announced its ongoing cooperation with the Danish government.
In Analogic's Form 10-Q filed with the SEC on 09 December 2015, the company announced that although they are uncertain whether the Danish government will seek to impose sanctions or penalties against Analogic, amounts paid to the SEC and/or the U.S. Department of Justice ("DOJ") would be taken into account in determining penalties that may be sought by the Danish government.
In Analogic's Form 8-K filed with the SEC on 22 June 2016, the company disclosed that it had reached agreements with the SEC, DOJ, and Danish governments related to the FCPA investigations. As a result, the Company and its Danish subsidiary will pay approximately USD 14.9 million in disgorgement, interest, and penalties.
Agencies: United States: Department of Justice, United States: Securities and Exchange Commission
Results: Cease-and-Desist Order, Civil Penalty, Criminal Fine, Disgorgement, Non-Prosecution Agreement, Prosecution of Individuals
Year Resolved: 2016
Compliance Monitor:
Ongoing: No
Details:
In the fourth quarter of fiscal year 2011, Analogic identified transactions involving BK Medical and its foreign distributors which raised questions concerning compliance with Danish law, FCPA and its own business policies. In its Form 10-K filed with the SEC on 4 October 2011, Analogic disclosed that the company voluntarily disclosed the matter to the DOJ and SEC.
In Analogic's Form 10-Q filed with the SEC on 08 June 2015, the company announced that although they continue to be in cooperation with inquiries by the DOJ and SEC, the company believes that the U.S. authorities have substantially completed their investigation into the transactions at issue and that it is reasonably likely that one or both of these entities may seek to impose sanctions and/or penalties on us in connection with a resolution of their inquiries.
In Analogic's 16 September 2015 press release, the company announced that discussions with the SEC has commenced and USD 1.6 million settlement has been proposed. It was also confirmed that Analogic is not engaged in settlement discussions with the DOJ.
In Analogic's SEC Form 10-Q filed on 09 December 2015, the company disclosed that the SEC rejected the offered. However, the SEC and DOJ made separate settlement proposals that would include payments in the aggregate amount of approximately USD 15 million.
On 21 June 2016, BK Medical entered into a non-prosecution agreement with the DOJ. As part of the agreement, BK Medical agreed to pay a USD 3,402,000 criminal penalty, to continue to cooperate with the DOJ and foreign authorities in any related investigation and prosecutions, to enhance its compliance programs and to periodically report to the DOJ on the implementation of its enhanced compliance program. Although BK Medical received full credit for its voluntary disclosure, the company only received partial credit for cooperation as the company did not initially disclose certain relevant facts learned from its internal investigation, specifically regarding the identities of a number of the state-owned entity end-users of BK Medical's products and certain statements given by employees in the course of the internal investigation.
On the same day, Analogic reached a settlement with the SEC for violations of the books and records provisions and agreed to pay USD 7,672,651 in disgorgement and USD 3,810,311 in prejudgment interest. The Cease-and-Desist Order noted that the SEC is not imposing a civil penalty based partly on BK Medical's payment of criminal fine as part of its settlement with the DOJ. As part of the same settlement, Frost was also ordered to pay a civil money penalty of USD 20,000.
Discovery Method: Voluntary Disclosure
Details:
Analogic voluntarily disclosed this matter to the Danish Government, DOJ and SEC.
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