WASHINGTON — A wide-ranging government investigation of corrupt overseas marketing practices by drug and device makers scored its first major victory Friday when Johnson & Johnson admitted bribing European doctors and agreed to pay $70 million in civil and criminal fines.

Intriguingly, prosecutors said that Johnson & Johnson had provided “significant assistance” in their investigation of others in the industry, resulting in a reduced criminal fine for the health conglomerate. At least a dozen other major drug and device makers are under investigation for similar crimes.

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A criminal complaint filed by the Justice Department against a Johnson & Johnson subsidiary that makes knee and hip implants quoted internal company e-mails as stating that providing “cash incentives to surgeons is common knowledge in Greece,” and that, were the company to stop paying bribes, “we’d lose 95% of our business by the end of the year.”

In a written statement, the company said that it originally reported its illegal marketing activities to the government in 2007. “We are deeply disappointed by the unacceptable conduct that led to these violations,” said William C. Weldon, the company’s chairman and chief executive. Indeed, Johnson and Johnson’s admission appeared to have set off the industrywide inquiry.

Officials at the Securities and Exchange Commission said that Johnson & Johnson’s bribes might have harmed public health in several European countries. For years, the company tried to hide its illegal activities by “using sham contracts, off-shore companies and slush funds to cover its tracks,” said Robert Khuzami, director of the Securities and Exchange Commission’s division of enforcement.

The case is the latest in a string of criminal investigations into illegal marketing practices by drug and device makers. Companies have repeatedly settled allegations that they paid kickbacks to doctors in the United States to induce them to prescribe drugs for, or implant medical devices in, patients who are unaware of their doctors’ financial incentives.

With the settlement agreement from Johnson & Johnson, prosecutors have now begun penalizing companies in foreign bribery cases as well. Some top executives in the drug industry have suggested in recent months that the industry’s marketing practices may need to undergo wholesale changes.

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According to statements by the Justice Department and the Securities and Exchange Commission, the payments violated the Foreign Corrupt Practices Act, which outlaws bribes paid to foreign government officials, because doctors in many other countries are government employees.

For Johnson & Johnson, the settlement comes at a difficult time. The company has issued more than 50 product recalls since the start of last year involving such household brands as Tylenol, Motrin, Rolaids and Benadryl. Last year, it recalled two popular hip implants that a recent study suggested might fail soon after surgery in close to half of the patients who received them.

Mr. Weldon has denied that the company’s many missteps suggest broader problems in management or in the company’s structure as a set of loosely affiliated subsidiaries.

Also on Friday, Johnson & Johnson agreed to pay $7.9 million to settle bribery allegations with the United Kingdom Serious Fraud Office. And it admitted as part of its deferred prosecution agreement with the United States government to having paid kickbacks to the Iraqi regime of Saddam Hussein under a United Nations oil-for-food program that investigations have since found was rife with fraud.

According to a criminal complaint here and a case summary in Britain, Johnson & Johnson undertook an elaborate scheme to pay about 20 percent of the price of the company’s devices to Greek surgeons.

Such bribes were so routine in Greece, according to the document, that an accountant for the company’s Greek sales agent had trouble understanding why he had to disguise the purpose of the money in his statements to Johnson & Johnson.

A December 2001 e-mail from a top Johnson & Johnson executive stated that he was “very disappointed to read in your proposal references” to bribes “which cannot be mentioned in written correspondence.” Executives debated how to bring its bribes into compliance with the law, with one executive writing, “when we abandon the consultancy, we might as well abandon the business.”

The company also paid bribes to Polish doctors and administrators who served on hospital committees that made purchasing decisions for medical equipment. Some of the bribes included paying for travel arrangements for doctors to attend medical conferences, a common practice throughout the industry. The company also bribed doctors in Romania who prescribed the company’s drugs.

J&J Settlement in Bribery Case, Wall Street Journal

By PETER LOFTUS And JESSICA HOLZER, 

Johnson & Johnson agreed to pay $70 million to settle U.S. and U.K. allegations that it paid bribes to doctors in three European countries, as well as kickbacks to Iraq to illegally obtain business under former leader Saddam Hussein.

The health-care giant also agreed to enhance its compliance with U.S. anti-foreign bribery laws and other requirements. If it meets these enhanced standards for three years, it may avoid criminal charges.

The news is the latest black eye for J&J, which has been grappling with a series of product recalls because of manufacturing quality lapses, as well as government investigations of its U.S. marketing practices. J&J recently agreed to heightened government oversight of manufacturing in its McNeil Consumer Healthcare unit, the source of recalls of millions of bottles of over-the-counter medicines including Tylenol since 2009.

The latest settlement, which resulted from a multiyear investigation, also highlights U.S. authorities’ stepped-up enforcement of the Foreign Corrupt Practices Act, or FCPA, which bars U.S. companies from bribing foreign officials. Other U.S.-based drug makers, including Eli Lilly & Co. and Merck & Co., have received inquiries from the government in recent years regarding their activities in foreign countries.

Shares of New Brunswick, N.J.-based J&J fell two cents to $59.46 in 4 p.m. trading Friday on the New York Stock Exchange.

As part of the settlement, J&J acknowledged responsibility for the actions of its units, employees and agents who made “various improper payments to publicly employed health-care providers in Greece, Poland and Romania in order to induce the purchase of medical devices and pharmaceuticals manufactured by J&J subsidiaries,” according to the Justice Department.

The alleged bribery netted over $32 million in business for J&J, the Securities and Exchange Commission and the Justice Department alleged in civil and criminal complaints unveiled Friday.

J&J also acknowledged that kickbacks were paid on behalf of J&J units to the former government of Iraq under the United Nations Oil-for-Food program in order to secure contracts to provide humanitarian supplies. A U.N.-commissioned report had alleged over 2,000 companies acquiesced to Iraqi government demands between 2001 and 2003 that they pay a 10% fee as a condition of importing humanitarian goods into the country. The U.S. invasion of Iraq in 2003 toppled Saddam Hussein’s government.

J&J had informed U.S. authorities of possible violations of anti-foreign bribery laws in February 2007, a development that led to the departure of the head of the company’s medical-device and diagnostics unit, Michael Dormer.

In April 2010, Robert John Dougall, a former executive with J&J’s DePuy unit, was sentenced to 12 months in a U.K. prison after pleading guilty to charges related to his involvement in DePuy payments in Greece. DePuy makes joint-replacement and spinal-care products.

J&J said Friday that it entered into a deferred-prosecution agreement with the Justice Department and a consent to final judgment with the SEC. Also, J&J settled an investigation by the U.K. Serious Fraud Office into J&J’s payments in Greece.

“More than four years ago, we went to the government to report improper payments and have taken full responsibility for these actions,” J&J Chief Executive William C. Weldon said in a press release. “We are deeply disappointed by the unacceptable conduct that led to these violations. We have undertaken significant changes since then to improve our compliance efforts, and we are committed to doing everything we can to ensure this does not occur again.”

The Justice Department said the terms of the settlement reflect J&J’s voluntarily disclosures to the government, its cooperation and the company’s “role in identifying improper practices in the life sciences industry.”

J&J’s payments to settle the various probes include $48.6 million to the SEC in disgorgement and prejudgment interest, a $21.4 million criminal penalty to the Justice Department, and £4.8 million ($7.8 million) to the U.K. Serious Fraud Office.

Johnson & Johnson Pays $70 Million In Foreign Bribery Case, Wall Street Journal

By Joe Palazzolo

Johnson & Johnson paid $70 million to settle charges that it engaged in a multi-year scheme to bribe doctors and hospital administrators in several European countries and paid kickbacks to Iraq under the United Nations Oil for Food Program, The Wall Street Journal reports.

Johnson & Johnson subsidiaries paid bribes to Greek doctors who chose the company’s surgical implants, and to state doctors in Poland and Romania in exchange for contracts and agreements to prescribe its drug, the Securities and Exchange Commission and the Justice Department alleged in court documents filed Friday in Washington.

The government also alleged that Johnson & Johnson subsidiaries paid kickbacks to Iraq to obtain 19 contracts under the U.N. Oil for Food Program.

Johnson & Johnson paid $48.6 million in disgorgement and a $21.4 million criminal fine as part of a deferred prosecution agreement with the Justice Department.  The company agreed to pay GBP4.83 million in a related investigation by the U.K. Serious Fraud Office.

Johnson & Johnson admitted illegal conduct in the criminal case but neither admitted nor denied wrongdoing in the civil settlement.

The company reported the European bribes to U.S. authorities four years ago. Another pharma giant, Pfizer Inc., has been under investigation for several years in connection with foreign bribery allegations.

Merck & Co., AstraZeneca PLC, Bristol-Myers Squibb Co. and GlaxoSmithKline PLC also disclosed foreign bribery investigations in regulatory filings last year. Eli Lilly & Co. and Baxter International Inc. have also said they are being investigated.

Mythili Raman, principal deputy assistant attorney general in the Justice Department’s Criminal Division, said Johson & Johnson “cooperated extensively” and “played an important role in identifying improper practices in the life sciences industry.”

J&J Chairman and Chief Executive William C. Weldon said the company had “undertaken significant changes” since the violations to bolster its compliance efforts.

Johnson & Johnson In $77 Million Global Settlement, The FCPA Blog

Johnson & Johnson will pay a $21.4 million penalty to resolve criminal FCPA charges with the DOJ and $48.6 million in disgorgement and prejudgment interest to settle the SEC’s civil charges.

A criminal information filed by the DOJ in federal court in the District of Columbia today charged J&J subsidiary DePuy Inc. with conspiracy and violations of the FCPA through payments to public-sector doctors in Greece.

The SEC charged the company in a civil complaint with antibribery, books and records, and internal controls violations of the FCPA.

In the United Kingdom, DePuy International Limited settled corruption charges brought by the Serious Fraud Office. The company was ordered by the High Court to pay £4.8 million in a civil recovery action.

According to the DOJ, Johnson & Johnson “cooperated extensively with the government and, as a result, has played an important role in identifying improper practices in the life sciences industry.”

Medical-device makers Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007; Wright Medical reported a similar investigation in June 2008.

The DOJ and SEC both said they reduced Johnson & Johnson’s financial penalties in light of the company’s civil penalties in the U.K. In its release, the SFO referred to the “global” settlement and also said Greek authorities “have frozen the assets of the company DePuy Hellas worth €5.785 million.”

In its deferred prosecution agreement with the DOJ, Johnson & Johnson admitted violations in Greece, Poland, and Romania. The plea deal also resolved kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program.

In April 2010, a former DePuy executive pleaded guilty in court in London to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. He was sentenced to 12 months in prison.

Robert John Dougall, 45, was DePuy’s marketing director. The company, acquired by Johnson & Johnson in 1999, makes and sells orthopedic devices. The U.K. Serious Fraud Office said from 2002 to 2005, Dougall arranged the payment of commissions to surgeons as an inducement to use DePuy’s products. The payments were made through agents and offshore accounts.

The SFO said its investigation began “following a referral by the U.S. Department of Justice in October 2007.” Dougall, it said, is the first “co-operating defendant” in a major SFO corruption investigation.

In February 2007, Johnson & Johnson said it “voluntarily disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries.”

At the same time, the company said Michael J. Dormer, Worldwide Chairman of its Medical Devices & Diagnostics group, had retired. “In a letter to Johnson & Johnson,” the company said, “Mr. Dormer cited the internal review of these matters and noted he had ‘ultimate responsibility by virtue of my position’ for those subsidiaries that were the subject of the disclosure.”

J&J is headquartered in New Jersey and trades on the New York Stock Exchange under the symbol JNJ. It manufactures and sells medical devices, pharmaceuticals, and consumer health care products.

View the DOJ’s April 8, 2011 release here.

View the SEC’s Litigation Release No. 21922 and Accounting and Auditing Enforcement Release No. 3261 (both dated April 8, 2011) in Securities and Exchange Commission v. Johnson & Johnson, Civil Action No. 1: 11-CV-00686 (D.D.C.) (E.F.H.) (filed April 8, 2011) here.

Download the SEC’s civil complaint against Johnson & Johnson here.

View the SFO’s April 8, 2011 release here.