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Cardinal China Failed to Detect Bribes Paid for Skincare Products

— March 13, 2020

Cardinal China failed to report bribes for some of the company’s products, parent company is set to pay $8 million.

Cardinal Health is set to pay more than $8 million to resolve charges that its Cardinal China subsidiary failed to detect bribes paid to government hospital officials and employees of state-owned companies to purchase skincare products.

Between 2010 and 2016, Cardinal China acted as the exclusive distributor in the market for a European company and, and in this position, was responsible for overseeing a marketing arrangement using 2,400 of its employees to call on state-owned facilities.  Employees would direct payments to designated purchasing points of contact while the subsidiary received a share of the profits.

“Cardinal China,” according to the order filed by the Securities and Exchange Commission (SEC), “failed to detect bribes or provide sufficient employee training.  Despite having closed other marketing accounts due to compliance issues, Cardinal inaccurately assessed the risks of this particular arrangement.”

Cardinal China Failed to Detect Bribes Paid for Skincare Products
Photo by Zhang Kaiyv on Unsplash

In December 2012, for instance, Cardinal received a report from a Cardinal China employee requesting the subsidiary hire an external auditor to assess an agreement with a European company, but the wholesaler and its subsidiary failed to take “steps to boost compliance practices,” the SEC determined.

Cardinal agreed not to violate accounting and internal control provisions of the Foreign Corrupt Practices Act, and to pay $5.4 million in disgorgement, nearly $1 million in prejudgment interest, and a civil penalty of $2.5 million, court records show.  A spokesperson said the wholesaler “sold the unit two years ago and voluntarily disclosed to the U.S. Department of Justice and the SEC possible violations of the U.S. Foreign Corrupt Practices Act.”

Meanwhile, in the U.S., Cardinal is facing even more litigation.  A consultant hired by the company reported to higher-ups back in 2008 it was violating federal guidelines by “filling large, potentially suspicious orders for drugs and failing to report them to the government,” according to an internal document.

“Customer orders that are in excess of three times the average (which would be the threshold) would be held for further investigation,” claims a report from Buzzeo to a Cardinal attorney dated January 23, 2008. “Orders that were held would be reduced to the threshold and sent to the customer.  Delayed orders would be investigated.  If the order was cleared of suspicion, the remainder of the order would be furnished to the customer.  If the order was not cleared of the suspicion, the order would not be filled above the threshold limit; however, no report would be made to the DEA.”

In a statement, Cardinal Health said that the report “was prepared as part of the company’s transition, based on significantly changing guidance from the Drug Enforcement Administration…to a new system for identifying and reporting potential suspicious drug orders…The report assisted the company in implementing programmatic changes based on DEA’s changing guidance.  Cardinal Health complied with the Controlled Substances Act.”  It has been fined $44 million by the Drug Enforcement Agency (DEA) or this failure to report these orders, and is among the ten opioid manufacturers and distributors who have been fined and/or are facing more than 1,600 lawsuits over the opioid crisis.


Cardinal Health Fined for Violating Federal Opioid Guidelines

Cardinal Health to pay $8 million for failing to prevent bribes paid in China

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