On July 28, 2015, the U.S. Securities and Exchange Commission (the "SEC") announced that Mead Johnson Nutrition Company ("Mead Johnson") has agreed to a $12 million settlement, which includes a $3 million penalty, for charges that its Chinese subsidiary made improper payments to health care professionals at government-owned hospitals in China.

The SEC investigation found that employees of Mead Johnson in China violated the Foreign Corrupt Practices Act ("FCPA") by funding improper payments through "distributor allowance" funds which were paid to third-party distributors and subsequently used to fund bribes to health-care professionals in Chinese hospitals to recommend Mead Johnson's infant formula to new mothers and provide the company with patients' contact information so it could market its infant formula to them directly. It is now well-established that health care professionals and medical staff at government-owned hospitals are "foreign officials" for the purposes of the FCPA.

The SEC found that the company made more than $2 million in improper payments during a five-year period, and that these payments were not accurately reflected in its books and records. According to the SEC, Mead Johnson's "lax internal control environment enabled its subsidiary to use off-the-books slush funds" for these bribes.

It has been reported in the press that the Department of Justice has informed Mead Johnson that it has closed its parallel investigation into the underlying allegations of bribery.

From the Canadian perspective, this case is noteworthy for a number of reasons:

1. The Importance of Early Discovery

In 2011, after Mead Johnson received an allegation of possible violations of the FCPA in China, it conducted an internal investigation and concluded that the allegation was not substantiated. The bribery scheme was not discovered until two years later when Mead Johnson hired outside counsel to re-investigate the matter in response to an inquiry by the SEC. In its findings, the SEC emphasized that Mead Johnson had failed to voluntarily self-report the 2011 allegation and to promptly disclose the existence of the allegation in response to the SEC's inquiry. Although Mead Johnson had anti-corruption policies in place and conducted its own investigation in 2011, this was not sufficient to shield the company from liability. This highlights the importance of conducting a robust and thorough internal investigation by independent counsel.

2. Comparison to Canada's Enforcement Regime

This action also illustrates the important role the SEC plays as the central body for FCPA enforcement in the U.S. In Canada, there is no centralized regulatory body accountable for coherent enforcement of the Corruption of Foreign Public Officials Act. Although the RCMP maintains criminal prosecutorial authority under the CFPOA, similar to the U.S. Department of Justice's criminal jurisdiction over the FCPA, Canada does not have a body responsible for handling anti-corruption matters from a civil/regulatory perspective. The Cooperative Capital Markets Regulatory Authority ("CCMRA"), once it is established, could be a key player in this regard.

3. Risk of Doing Business in China

The Mead Johnson action follows a series of enforcement actions by the SEC against companies in China in the last few years. Companies doing business in China should be attuned to the corruption risks and adapt their polices and internal controls accordingly.

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