Health and Science

FBI targets Johnson & Johnson, Siemens, GE, Philips in Brazil graft case: Sources

Key Points
  • The FBI is investigating corporate giants Johnson & Johnson, Siemens, General Electric and Philips for allegedly paying kickbacks as part of a scheme involving medical equipment sales in Brazil, two Brazilian investigators have told Reuters.
  • The firms are suspected by Brazilian prosecutors of channeling illegal payoffs to government officials to secure contracts with public health programs across the South American country over the past two decades.

The FBI is investigating corporate giants Johnson & Johnson, Siemens, General Electric, and Philips for allegedly paying kickbacks as part of a scheme involving medical equipment sales in Brazil, two Brazilian investigators have told Reuters.

The firms are suspected by Brazilian prosecutors of channeling illegal payoffs to government officials to secure contracts with public health programs across the South American country over the past two decades.

Brazilian authorities say more than 20 companies may have been part of a "cartel" that paid bribes and charged the government inflated prices for medical gear such as magnetic resonance imaging machines and prosthetics. The four multinationals, with a combined market capitalization of nearly $600 billion at Thursday's market close, are the largest foreign enterprises to be investigated in an unprecedented anti-corruption push in Brazil in recent years.

In this photo illustration, a container of Johnson's baby powder made by Johnson and Johnson sits on a table in San Francisco, California.
Justin Sullivan | Getty Images

Big U.S. and European firms found to have engaged in wrongdoing in Brazil could also face heavy fines and other punishment under the U.S. Foreign Corrupt Practices Act (FCPA). Since 1977, that law has made it illegal for American citizens, U.S. companies or foreign companies whose securities are listed in the United States to pay foreign officials to win business.

Foreign firms are the latest targets of government corruption probes in Brazil. Over the past five years, prosecutors have uncovered pervasive graft in state institutions and private-sector companies seeking to do business with them.

The sprawling investigations by prosecutors and federal police, including the famed "Car Wash" dragnet centered on Brazil's state-run oil company Petrobras, have toppled business and political leaders across Latin America.

Authorities say plea-bargain testimonies garnered from suspects alerted them to other possible schemes, including alleged bribes paid by multinationals to obtain public contracts in Brazil.

'Constantly sharing'

Brazilian federal prosecutor Marisa Ferrari confirmed in an interview with Reuters that U.S. authorities from the Justice Department and the Securities and Exchange Commission were assisting in the Brazilian medical equipment investigation she helps lead.

In 2016, U.S. and Brazilian prosecutors jointly negotiated the world's largest-ever compliance penalty, a $3.5 billion fine against Brazilian construction conglomerate Odebrecht SA for its part in the Car Wash scandal.

"We are constantly sharing information with the FBI on this (medical equipment) case. They ask for documents and we send them, and they are assisting our investigation in return," Ferrari said. In addition, Ferrari said, "we've received a lot of material from the Department of Justice and from the SEC."

She declined to name which companies U.S. law enforcement agencies were investigating.

Two Brazilian investigators with direct knowledge of the matter confirmed to Reuters that Johnson & Johnson, Siemens AG, General Electric Co, and Koninklijke Philips NV were being targeted by the FBI for alleged bribery in Brazil. The people requested anonymity because they were not authorized to discuss the U.S. side of the investigation.

The FBI would not confirm or deny the existence of any investigations. The SEC, which also investigates FCPA allegations, said by email that it declined to comment.

Boston-based GE declined to comment on any investigation related to its business in Brazil. It said in an emailed statement that "we are committed to integrity, compliance and the rule of law in Brazil and every other country in which we do business."

Siemens, which is based in Munich, said in an emailed statement that the firm "is not aware of any FBI investigation of the company related to cartel activity in Brazil." It said its policy is always to cooperate with law enforcement investigations when they occur.

Amsterdam-based Philips confirmed in an email that it is under investigation in Brazil. In its 2018 annual report, Philips acknowledged that it "has also received inquiries from certain US authorities in respect to this matter."

In its emailed response to Reuters, Philips said "it is not uncommon for US authorities to show an interest in these matters and it is too early to draw any conclusions."

New Brunswick, New Jersey-based Johnson & Johnson said in an emailed response that the Department of Justice and the SEC "have made preliminary inquiries to the company" in regard to a raid by Brazilian federal police on its Sao Paulo offices last year, and that the firm is cooperating.

'Truly massive'

Ferrari, the Brazilian prosecutor, said the medical equipment investigation was in its early stages. Still, she said evidence points to widespread bribery and price-gouging by firms looking to tap into Brazil's public healthcare system, one of the world's largest, serving 210 million people.

"Because the Brazilian government's health budget is so huge, this scheme is truly massive," Ferrari said. "This first case is just a tiny sliver of what is to come."

In addition to paying kickbacks through intermediaries to secure contracts, some suppliers charged Brazil's government inflated prices — up to eight times the market price — to help cover the cost of their bribes, according to court filings and plea-bargain testimony secured by prosecutors.

GE's former chief executive for Latin America, Daurio Speranzini, and 22 others were charged last year in the first case connected to the alleged scheme.

Prosecutors say that case, focused on Rio de Janeiro state, saw Brazilian taxpayers bilked out of at least 600 million reals ($149.38 million) between 2007 and 2018 through padded contracts awarded to crooked medical equipment suppliers.

Lawyers for Speranzini, who left GE in November, said by email that he is innocent.

Prosecutors allege Speranzini first took part in the cartel as the head of the Philips Healthcare operation in Latin America from 2004 until the end of 2010. A whistleblower told Philips' compliance office about the fraud, and Speranzini was fired after an internal probe, according to the documents.

He was hired by GE a few months after leaving Philips. Investigators say they have strong evidence that Speranzini continued with the scheme while at GE.

GE declined to comment on Speranzini's hiring or exit from the company.

Next Article
Tech

Hewlett Packard Enterprise to buy supercomputer maker Cray in a $1.3 billion deal