Company pays $12m to settle charges over bribery
The U.S. Department of Justice has officially closed an investigation related to bribery charges involving Mead Johnson Nutrition Co, the formula maker's China subsidiary said Wednesday, following an agreement reached between the company and U.S. regulators.
According to a statement that Mead Johnson Nutrition (China) sent to the Global Times on Wednesday, Mead Johnson Nutrition Co has agreed to pay $12 million to settle charges with the U.S. Securities and Exchange Commission (SEC).
"We are pleased to have reached final resolution with the SEC. Integrity and compliance with laws and regulations are central to the success of our operations around the world," Mead Johnson President and CEO Kasper Jakobsen said in the statement.
According to a press release posted on the SEC's website on Tuesday, Mead Johnson violated the Foreign Corrupt Practices Act (FCPA), as it was found to have failed to reflect in its books and records the more than $2 million in improper payments made from 2008 to 2013, which were used to bribe healthcare professionals at China's State-owned hospitals.
"Mead Johnson Nutrition's lax internal control environment enabled its subsidiary to use off-the-books slush funds to pay doctors and other healthcare 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 the release.
The company neither admitted nor denied the SEC's allegations, according to the settlement agreement.
Mead Johnson is not the only foreign baby-formula producer that has been accused of bribery in China.
In September 2013, State broadcaster China Central Television claimed that Dumex Baby Food Co had bribed doctors and nurses at hospitals to recommend its infant formula products to new mothers. In April 2013 alone, the company paid about 500,000 yuan ($80,507) to healthcare professionals in seven provinces in China, the report said.
There has been no news of any ongoing investigation by Chinese authorities into alleged bribery by formula makers, and it is unlikely that a new investigation will be opened in China following the SEC settlement, according to Wang Dingmian, a dairy industry expert and a former official with the Dairy Association of China.
"As regards Mead Johnson itself, the settlement won't have much impact on the company's future business in China as the investigation has taken nearly two years, which is too long for it to affect the changing market," Wang told the Global Times on Wednesday.
The last time Mead Johnson and other foreign formula makers were fined by Chinese authorities was in August 2013, when the National Development and Reform Commission announced a combined 669 million yuan penalty for six dairy companies for violating anti-monopoly laws as they tried to set minimum resale prices of their products. Mead Johnson paid a fine of 203.8 million yuan at that time.
But regulatory action is no longer the most pressing problem for the infant formula industry, Wang noted.
Market attention has shifted to what impact a slowing Chinese economy would have on the sector after Mead Johnson's recent cut to its 2015 sales forecast. The company said in a statement on July 14 that its 2015 sales will grow no more than 2 percent, sharply down from the 7 percent estimated in April.
According to its results released on July 23, Mead Johnson's sales in the Asia segment fell 10 percent in the second quarter from a year earlier, which the company said was partly the result of competitors' price-cutting in China.
"Our China business is one of Mead Johnson's most important operations, and we remain confident in its continued long-term growth," Jakobsen was quoted as saying in the Wednesday statement.