Diagnostic Products Corporation ("DPC"), a California corporation based in Los Angeles, developed and manufactured medical diagnostic test systems and related test kits. DPC sold its products through subsidiaries and distributors in over 100 countries, and overseas sales accounted for over 70% of its annual revenues. DPC's common stock was registered with the SEC and traded on the New York Stock Exchange.
In October 1991, DPC established DePu Biotechnological & Medical Products Inc. ("DePu") in Tianjin, China as a joint venture. Initially, DPC owned 90% of DePu, and the joint venture partner was a local Chinese government entity. In 1997, DePu became a wholly-owned subsidiary of DPC. Throughout the relevant period, the financial results of DePu were a component of the consolidated financial statements included in DPC's filings with the SEC. DePu was later renamed DPC (Tianjin) Co. Ltd. ("DPC Tianjin").
From 1991 through 2002, DPC Tianjin routinely made improper commission payments totaling approximately $1.6 million to doctors and laboratory employees who controlled purchasing decisions at Chinese state-owned hospitals. The commissions represented a certain percentage of sales to the hospitals (typically 3% to 10%), and DPC Tianjin determined the percentages based on the prevailing rate in the customer's region, the sales amount, and the prior relationship with the customer. In most cases the payments were made in cash and delivered by DPC Tianjin's sales employees by mail or wire transfer. During the relevant period, DPC Tianjin's then management knew about, approved, and administered the payment of these commissions. DPC Tianjin improperly recorded the payments as legitimate sales expenses in its books and records.
In late October 2002, DPC Tianjin's auditors raised certain Chinese tax issues related to the commission payments. In November 2002, DPC Tianjin's then senior manager discussed the payments and the tax issues in a monthly report to the then current DPC management, which led to DPC's discovery of these payments. In January 2003, DPC instructed DPC Tianjin management to stop all commission payments. DPC also took remedial measures, revised its code of ethics and compliance procedures, and established a compliance program with respect to the FCPA.
On May 20, 2005, the DOJ filed a single count Information in the Central District of California against DPC Tianjin alleging violations of the anti-bribery provisions of the FCPA. On the same date, DPC Tianjin entered into a plea agreement with the DOJ. Under the terms of the agreement, DPC Tianjin pleaded guilty to the bribery charge, agreed to pay a $2 million fine plus a mandatory assessment of $400, and to implement enhanced anti-corruption compliance policies and procedures as well as hire an independent monitor for a term of three years. In calculating the appropriate fine, the DOJ noted acceptance of responsibility and parent company DPC's voluntary disclose and disgorgement of $2,038,727 plus prejudgment interest of $749,895 in a related SEC cease and desist proceeding.
In a related proceeding on May 20, 2005, the SEC issued an order instituting cease and desist proceedings against DPC alleging violations of the anti-bribery, books & records, and internal controls provisions of the FCPA. DPC consented to the institution of the proceedings. Under the order, DPC was ordered to stop its violations of the FCPA, to pay disgorgement of $2,038,727 plus prejudgment interest of $749,895, and to hire an independent compliance monitor for a period of three years.
