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Cardinal Health pays SEC $8.8 million to settle China FCPA offenses

Cardinal Health paid the SEC $8.8 million Friday to settle FCPA offenses related to a Chinese subsidiary that provided marketing services.

In an internal administrative order, the SEC charged Cardinal Health with violating the FCPA’s books and records and internal accounting controls provisions.

Dublin, Ohio-based Cardinal Health agreed to disgorged $5.4 million to the SEC, plus prejudgment interest of $916,887, and pay a civil penalty of $2.5 million.

Cardinal entered the Chinese market in November 2010 when it acquired a company that was later re-branded as Cardinal China.

After it was acquired, Cardinal China abruptly terminated at least two third-party marketing accounts amid allegations that they had been used to facilitate improper payments.

In one instance, a marketing account it administered for a UK- based pharmaceutical manufacturer was terminated in 2013 after Cardinal’s CEO received an internal report alleging that Cardinal China employees were using the account to “bribe employees of China’s Center for Disease Control.”

Cardinal China also operated marketing accounts for a European supplier of non-prescription, over-the-counter dermocosmetic products for which Cardinal China was the exclusive distributor in China. Cardinal employed 2,400 people on the European company’s behalf, the SEC said.

In 2016, Cardinal China learned that the marketing employees and the dermocosmetic company had disguised some “marketing payments” that were funneled to healthcare professionals who provided marketing services, as well as other employees of state-owned retail entities. The state-owned entities had influence over purchasing decisions related to the dermocosmetic company’s products.

Cardinal took steps to stop the suspect payments in 2016 when it learned about the misconduct, the SEC said. In December 2016, Cardinal voluntarily disclosed the results of its internal investigation to the SEC.

According to the SEC, Cardinal determined that other marketing accounts should be terminated because of their significant FCPA-related compliance risks, but the company “inaccurately assessed the risks of the arrangements with the dermocosmetic company as minimal” and didn’t apply its full internal accounting controls to those accounts.

As a result, some critical employees didn’t receive FCPA and anti-bribery training, and weren’t properly supervised when they dealt with third parties in China.

“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,” the SEC’s Anita Bandy said in a statement Friday.

Cardinal Health employs around 50,000 people worldwide.

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