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AGA Medical Resolves China-Related FCPA Charges

Privately-held AGA Medical Corporation will pay a $2 million criminal penalty and enter into a deferred prosecution agreement for Foreign Corrupt Practices Act violations. It paid bribes of at least $460,000 to doctors in government-owned hospitals in China and to officials in the China patent office. The Plymouth, Minnesota-based firm makes products used for minimally invasive treatment of congenital heart defects.

AGA was charged in two counts with violating and conspiring to violate the FCPA, 15 U.S.C. § 78dd-2(a)(1) and 18 U.S.C. § 371. Between 1997 and 2005, AGA, a high-ranking officer of the company and other employees authorized corrupt payments to doctors employed by government-owned hospitals. The payments were made through AGA?s Chinese distributor. In exchange for the payments, the Chinese doctors directed the government-owned hospitals to purchase AGA?s products. Its sales in China for the period totaled approximately $13.5 million. Also, from 2000 through 2002, AGA applied for patents on several products from the China State Intellectual Property Office. A high-ranking AGA officer agreed to make payments through the distributor to officials employed by the Intellectual Property Office in order to have the patents approved.

AGA entered into a three-year deferred prosecution agreement that requires appointment of a compliance monitor. Similar to the provisions seen recently with Willbros Group Inc., AGA will pick the monitor and the DOJ will approve or reject its choice: "AGA agrees to engage an independent corporate monitor ('the Monitor') within sixty (60) calendar days of signing this Agreement. Within thirty (30) calendar days after the signing of this Agreement, and after consultation with the Department, AGA will propose to the Department a candidate to serve as the Monitor. The Department retains the right, in its sole discretion, to accept or reject any Monitor proposed by AGA pursuant to the Agreement. In the event the Department rejects a proposed monitor, AGA shall propose another candidate within ten (10) calendar days after receiving notice of the rejection. This process shall continue until a Monitor acceptable to all parties is chosen."

The deferred prosecution agreement also contains a now-customary successor liability clause, whereby anyone who acquires AGA's business will also be bound by the compliance obligations in the agreement: "AGA agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger or transfer, it shall include in any contract for sale, merger or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement."

AGA self-disclosed the illegal payments to the Department of Justice. It provided emails between the company's Chinese distributor and U.S.-based employees and officers that left no doubt that illegal activity had occurred. Here are some excerpts from the distributor's messages:

This week I have maken [sic] an appointment with one key person in China knowledge and Patent Protection Bureau, Any action in China I must pay money to do.

I am still in agreement with our prior discussions and will cover her fee as long as we can get the [sic] patent issued in a timely manner.

Please inform [Officer A] don't give up the application for the first three patents in China. I will contact with the officials of China patent bureau again after Chinese new year. Maybe money will help us.

My company also need to provide 20% kickback for physicians and sometimes 10% discount to hospitals.

The physicians suggest the patient to use which device according [to] the patient's family economic ability and the kickback.

View the DOJ's June 3, 2008 news release here.

View the criminal complaint against AGA Medical Corporation here and the deferred prosecution agreement here (courtesy of the Corporate Crime Reporter).

Full post as published by The FCPA Blog on June 03, 2008 (boomark / email).