Medical device manufacturer Analogic Corp. has agreed to pay nearly $15 million to settle charges that its Danish subsidiary engaged in a scheme with distributors in Russia and other countries to make improper payments to third parties.
The U.S. Securities and Exchange Commission on Tuesday said the subsidiary, BK Medical, participated in hundreds of “highly suspicious transactions” at its distributors’ direction that “posed a significant risk of bribery or other improper conduct.”
About $20 million was funneled to third parties including individuals in Russia and apparent shell companies in Belize, the British Virgin Islands, Cyprus, and Seychelles, the SEC said in an administrative order alleging violations of the Foreign Corrupt Practices Act.
“Please understand that your western word ‘bribe’ is not used in our Russian market,” a BK Medical official wrote in an email summarizing his understanding of the views of his principal contact at the Russian distributor.
The SEC also accused BK Medical’s former CFO Lars Frost of aiding the scheme by falsifying its books and records.
Analogic agreed to pay $7.67 million in disgorgement and $3.8 million in prejudgment interest to settle the SEC’s charges and another $3.4 million to resolve a parallel criminal investigation. Frost, a Danish citizen, will pay a $20,000 penalty.
BK Medical “allowed itself to be used as a slush fund for its distributors, funneling millions of dollars around the world at its distributors’ direction without knowing the purpose of the payments or anything about the recipients,” Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, said in a news release. “Issuers and their subsidiaries cannot turn a blind eye to suspicious payments, even if they believe they are simply ‘helping out’ a business partner.”
According to the SEC, the scheme routinely involved BK Medical issuing fictitious invoices at inflated prices, overpayments by the distributors against the inflated invoices, and subsequent payments by BK Medical out of the distributors’ excess funds to third parties.
Frost, the SEC said, “personally authorized approximately 150 conduit payments to unknown third parties during his tenure at BK Medical despite knowing that the payments violated BK Medical’s internal accounting controls.”