The Securities and Exchange Commission on Tuesday announced that Mead Johnson Nutrition had agreed to pay $12 million to settle charges that it paid Chinese government-owned hospital workers to recommend the company’s infant formula to patients who were new or expectant mothers.
Employees in the company’s Chinese unit violated the U.S. Foreign Corrupt Practices Act by funding improper payments through “distributor allowance” funds paid to third-party distributors, the SEC said. Although the funds contractually belonged to the distributors, Mead Johnson China 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, funded from the distributor allowance, were subsequently paid to health-care professionals in Chinese hospitals to recommend Mead Johnson Nutrition products and provide the company with contact information for patients who were new or expectant mothers so 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,” Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said in a press release.
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, the SEC said.