J&J's Other Headache: Foreign Bribery Probe Targets Shanghai Unit

(MoneyWatch)  As if Johnson & Johnson (JNJ) didn't have enough problems with the Tylenol recall, the company's medical devices unit in Shanghai is being investigated for allegedly paying bribes to Zhang Jingli, a deputy chief of the Chinese state FDA, according to Chinese media. The probe is almost certainly linked to the resignation of J&J's worldwide chairman for medical devices & diagnostics, Michael J. Dormer, in 2007.

When Dormer resigned, J&J said it conducted an internal review of whether its executives paid bribes in foreign countries to advance the company's medical devices. No details have ever been publicly released. Instead, a steady drip of individual reports has come from three continents, and they all have one thing in common: Prosecutors investigating J&J executives for corruption in the marketing of medical devices.

Although paying bribes in some countries, such as China, is considered the price of doing business, it's a prosecutable offense in the U.S. if the person paying the baksheesh is an American. Aside from Dormer's resignation, these other events have occurred:

• Robert John Dougall, director of marketing at J&J's DePuy medical-device unit since 1999, was convicted of making ?£4.5 million in corrupt payments to medical professionals in the Greek state healthcare system.
• The Department of Justice warned the pharmaceutical industry in November 2009 that it was coming after companies who pay bribes under the Foreign Corrupt Practices Act.
• Other medical-device makers such as Biomet, Zimmer Holdings (ZMH), Smith & Nephew (SNN) and Medtronic (MDT) all disclosed that federal regulators were investigating their foreign sales.

Here's what J&J currently says about the investigation (page 27):

In February 2007, the Company voluntarily disclosed to the DOJ and the SEC 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, which payments may fall within the jurisdiction of the Foreign Corrupt Practices Act (FCPA). In the course of continuing dialogues with the agencies, other issues potentially rising to the level of FCPA violations in additional markets have been brought to the attention of the agencies by the Company. The Company has provided and will continue to provide additional information to the DOJ and SEC, and will cooperate with the agencies' reviews of these matters. Law enforcement agencies of a number of other countries are also pursuing investigations of matters voluntarily disclosed by the Company to the DOJ and SEC. Discussions are underway in an effort to resolve these matters ... but whether agreement can be reached and on what terms is uncertain.

The fat lady has yet to sing, it would seem.

Related:

• J&J's Rude Education: So There Is a Difference Between Doctor Bribery and "Professional Education"

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