Mead Johnson Nutrition to pay $12m to settle SEC China bribery charges

By Mark ASTLEY contact

- Last updated on GMT

Mead Johnson Nutrition to pay $12m to settle SEC China bribery charges

Related tags: Mead johnson nutrition

Mead Johnson Nutrition has agreed to pay $12m (€10.9m) to settle a US Securities and Exchange Commission (SEC) investigation into the "promotional practices" of its Chinese business.

In a statement, SEC said Mead Johnson Nutrition has agreed to pay a total of $12m to "settle charges that its Chinese subsidiary made improper payments"​ to hospital workers.

Mead Johnson Nutrition's Chinese business made "improper"​ off-the-books payments of more than $2m (€1.8m) between 2008 and 2013, it said.

The actions of its Chinese subsidiary were deemed a violation of of the US Foreign Corrupt Practices Act (FCPA).

"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.

While accepting the fine, which includes $7.77m (€7m) in disgorgement (a repayment of ill-gotten gains), $1.26m (€1.1m) in interest, and a penalty of $3m (€2.7m), Illinois-based Mead Johnson Nutrition has refused to admit guilt. 

“The settlement agreement provides that Mead Johnson neither admits nor denies the allegations in the settlement and order,"​ Mead Johnson Nutrition said in a statement.

"Further, the agreement credits Mead Johnson for its cooperation with investigation and for taking a number of positive steps to bolster its compliance program, function and processes.”

Distributor allowance

Mead Johnson Nutrition - the world's second largest infant formula manufacturer - announced in October 2013 that SEC had begun probing "certain expenditures" ​connected to the promotion of Enfamil infant formula by its Chinese business. 

enafmil

The investigation found that Mead Johnson Nutrition employees in China funded "improper"​ payments through "distributor allowance"​ paid to third-party distributors who market, sell and distribute Mead Johnson Nutrition products in China.

"Although 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,"​ SEC said.

"Cash and other incentives were subsequently 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 it could market its infant formula to them directly."

In October 2013, Mead Johnson Nutrition simultaneously launched its own investigation to assess whether the actions of its Chinese business violated internal policy or US law.

No update has been given by Mead Johnson Nutrition on the internal investigation. 

Kasper Jakobsen, CEO, Mead Johnson Nutrition, did, however, welcome the end of the SEC probe.

"We are pleased to have reached this final resolution with the SEC,"​ he said.

“Integrity and compliance with laws and regulations are central to the success of our operations around the world. We will continue to reinforce these operating principles in all our interactions with customers and business partners.”

Related topics: Business, East Asia, Dairy, China

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