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In the Matter of Koninklijke Philips Electronics N.V.

 
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Koninklijke Philips Electronics N.V.
:
SEC Civil
:
April 5, 2013
:
In the Matter of Koninklijke Philips Electronics N.V.
:
In the Matter of Koninklijke Philips Electronics N.V., Administrative Proceeding File No. 3-15265
:
In finding that Philips violated Section 13(b)(2)(B) of the Exchange Act, the SEC emphasized Philips's failure to implement an FCPA compliance and training program which was "commensurate with the extent of its international operations".

Under the FCPA, health care professionals such as hospital directors in state-run systems such as Poland's are considered "foreign officials". This case thus continues an interesting trend from last year: of the 12 corporate enforcement actions in 2012, a full 50% (6) involved, in whole or in part, foreign health care providers.

The Polish authorities have brought a case against former Philips employees and 16 hospital directors accused of paying or receiving bribes. A trial in Polish court is currently ongoing.
:
Healthcare-Medical Devices
:
Poland
:
1999; 2000; 2001; 2002; 2003; 2004; 2005; 2006; 2007
:
Public officials of various Polish healthcare facilities
:
Koninklijke Philips Electronics N.V. ("Philips") is a Netherlands-based parent of an affiliation of companies that manufacture and supply goods and services related to the healthcare, consumer lifestyle, and lighting sectors. Philips’s New York Registry Shares are listed on the NYSE, and it files periodic reports pursuant to Section 12 of the Exchange Act as a foreign private issuer.

Since at least 1999, Philips has participated in public tenders to sell medical equipment to Polish healthcare facilities. From 1999 through 2007, in at least 30 transactions, employees of Philips's Polish subsidiary--Philips Polska sp. z o.o. ("Philips Poland")--made improper payments to public officials of Polish healthcare facilities, including hospital directors, in order to increase the likelihood that Philips would be awarded these tenders. Philips would submit the technical specifications of its medical equipment to officials drafting the tenders, who would incorporate these specifications into the contracts. This greatly increased the likelihood that Philips would win the bids. Certain officials involved in these arrangements also made the actual decision of whom to award the tenders, and when Philips won, these officials were allegedly paid the improper payments by employees of Philips Poland.

The alleged improper payments usually amounted to 3% to 8% of the contracts’ net value. Occasionally, Philips Poland employees pocketed a portion of the improper payments as a “commission”. The employees also often utilized a third party agent to assist with the improper arrangements and payments to the officials. These improper payments were falsely characterized and accounted for in Philips’s books and records as legitimate expenses, and were at times supported by false documentation created by Philips Poland employees and/or third parties.

Philips became aware of misconduct by Philips Poland employees in August 2007, when Polish officials searched three Philips offices in Poland and arrested two employees. Philips then conducted an internal audit in 2007, which failed to discover the improper payments to healthcare officials. Nonetheless, Philips terminated and disciplined several employees, and made substantial changes to Philips Poland’s management and to the company’s internal controls.

In December 2009, the Prosecutor’s Office in Poznan, Poland, indicted 23 individuals, including three former Philips Poland employees, for allegedly violating laws related to public tenders for the purchase of medical equipment. In response to this indictment, Philips conducted an internal investigation, for which it retained three law firms and two auditing firms. The investigation revealed that Philips Poland employees had made unlawful payments to Polish healthcare officials, that its books, records and accounts did not accurately account for these, and that its internal controls had failed to ensure that transactions were properly recorded.
:
Books and records (Issuer), Internal controls (Issuer)
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Cease and Desist, Disgorgement, Prejudgment Interest
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Cease and desist; disgorgement of $3,120,597; and prejudgment interest of $1,394,581. No civil penalty was imposed by the SEC, based upon Philips's cooperation in the SEC investigation and related enforcement action.
:
4,515,178
:
0
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Issuer
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Foreign
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Netherlands
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Contract Procurement/Retention
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Not stated.
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Cash
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Direct
:
Not stated.
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Poland
:
No
:
Yes
:
Poland