In re KONINKLIJKE PHILIPS N.V.

UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 97479 / May 11, 2023 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 4406 / May 11, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21411 
 
 
In the Matter of 
 
 KONINKLIJKE PHILIPS N.V., 
  
Respondent. 
 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER  
 
I 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Koninklijke Philips N.V. (“Philips” or 
“Respondent”). 
 
II 
 
In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, 
which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist 
Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and 
Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
 
 
 
 
 
 

 
 
2 
 
III 
 
On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
Summary 
 
1. These proceedings arise from violations of the books and records and internal 
accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (the “FCPA”). [15 
U.S.C. § 78dd]. Philips, headquartered in the Netherlands, is a global manufacturer of health 
technology products, including diagnostic imaging equipment and patient monitoring systems. 
Between 2014 and 2019, Philips China employees, distributors, or sub-dealers engaged in 
improper conduct to influence foreign officials in connection with tender specifications in certain 
public tenders to increase the likelihood that Philips’ products were selected. In some cases, 
Philips China’s employees, distributors, or sub-dealers also engaged in improper bidding practices 
to create the appearance of legitimate public tenders by preparing additional bids with other 
manufacturers’ products to meet the minimum bids requirement under Chinese public tender 
rules. As a result, Philips was unjustly enriched by approximately $41 million. 
 
2. In connection with some of these transactions, Philips China provided special 
pricing discounts to distributors, which created a corruption risk that the increased margins 
could be used to fund improper payments to employees of government-owned hospitals. During 
the relevant period, Philips China had insufficient internal accounting controls to prevent and 
detect the conduct described above and to provide reasonable assurances that certain 
transactions were recorded accurately in the books and records of Philips China, which were 
consolidated into the books and records of Philips. These deficiencies in China also created an 
environment that facilitated the conduct. 
 
Respondent 
 
3. Philips is a Dutch multinational corporation founded in Eindhoven, Netherlands 
and headquartered in Amsterdam. The company employs approximately 79,000 people in more 
than 100 countries. The company’s securities are listed on the Euronext Amsterdam stock 
exchange. As a foreign private issuer during the relevant period, Philips’ common stock was also 
registered with the Commission under Exchange Act Section 12(b) and publicly traded through a 
secondary listing on the New York Stock Exchange (symbol: PHG). Philips files annual reports 
on Form 20-F with the Commission. In 2013, Philips settled books and records and internal 
accounting controls charges by the Commission in connection with similar misconduct in Poland 
between 1999 and 2007. In the Matter of Koninklijke Philips Electronics N.V., Rel. No. 34-
69327 (April 5, 2013). 
                                                      
1
   The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding.   

 
 
3 
 
 
Other Relevant Individuals and Entities 
 
4. Philips China refers to Philips’ healthcare business in China. Two Philips China 
subsidiaries, Philips Electronics Hong Kong Ltd. and Philips (China) Investment Co., Ltd., sold 
diagnostic imaging equipment through distributors and sub-dealers contracting with 
government-owned hospitals. Philips consolidates Philips China’s financial results into its 
financial statements that are included in its filings with the Commission. 
 
Facts 
 
5. Philips entered the Chinese market in 1920 and established its first joint venture 
in 1985. Operating through Philips China, Philips has several wholly owned subsidiaries and 
representative offices in the region. In China, the majority of hospitals and other healthcare 
providers are state-owned enterprises. These government-owned entities purchase the majority 
of their diagnostic imaging equipment through public tenders. By 2016, the majority of Philips 
China’s sales were made indirectly through authorized distributors or sub-dealers engaged by 
the authorized distributors. By 2018, 91% of Philips’ diagnostic imaging revenue in China was 
earned through this indirect sales channel. 
 
6. In this same timeframe, Philips China sought to grow its diagnostic imaging 
business and win public tenders in an increasingly competitive market. In some transactions, at 
the request of distributors, Philips China provided special pricing discounts on the health 
technology equipment that it sold to its distributors. However, Philips China’s approval 
processes and its recording of the special pricing discounts were not subject to sufficient internal 
accounting controls to ensure appropriate management authorization of the discounts. 
 
Philips China Employees and Distributors 
Improperly Influenced Public Hospital Tenders 
 
7. In numerous transactions  occurring  from  2014  through  2019,  Philips  China 
employees, distributors, or sub-dealers engaged in improper bidding practices to increase  the 
likelihood that Philips China’s distributors or their sub-dealers were awarded public tenders to sell 
medical equipment to government-owned hospitals. 
 
8. Each of the relevant transactions included, in whole or in part, elements of 
the following types of misconduct in public tenders: 
 
(a) The hospital employee responsible for writing the technical specifications, 
in consultation with a manufacturer’s employees, a distributor, or sub-
dealer, determined the hospital’s technical preferences and drafted technical 

 
 
4 
 
specifications that would provide a manufacturer with a competitive 
advantage in the public tender prior to the opening of the bidding period; 
 
(b) The hospital employee drafted the specifications to increase the 
likelihood that the selected manufacturer would qualify for the winning 
bid; and 
 
(c) The hospital employee directed the winning bidder or its distributor or 
sub-dealer to prepare the manufacturer’s bid and also two additional 
accompanying bids to meet the three-bid requirement of public tenders 
and give the appearance of legitimacy. 
 
9. The  improper  conduct  occurred  in  several  regions  of  China. The Philips  China 
employees who participated in the conduct described above included district sales managers, sales 
employees, and employees in the technical group that supported sales. 
 
10. One example of the conduct is a 2017 public tender in which a Philips China 
distributor won a procurement award for two Philips devices valued at $4.6 million. At the time 
of the bid submission in March 2017, the hospital had already taken steps to increase the 
likelihood that Philips China’s equipment would be selected for the award. The Philips China 
district sales manager for Hainan Province had delivered approximately $14,500 USD 
equivalent to the home of a director of the hospital’s radiology department in return for the 
director’s assistance in the procurement process. The sales team discussed the specifications to 
be included in the bid with the relevant hospital director, and its distributor prepared an 
accompanying bid with another manufacturer’s products. There also was at least one additional 
transaction involving improper conduct in which the Hainan district sales manager’s team was 
involved. 
 
11. A second example involved Philips China improperly influencing a public tender 
valued at $475,000. Prior to the award, the decision-making directors at the tendering hospital 
discussed tailoring the technical specifications with Philips China employees so that only 
Philips China and two other manufacturers would qualify to compete in the bidding process. In 
October 2017, a Philips China distributor won the bid to sell two Philips devices to the hospital. 
This tender was won as a result of inappropriately influencing the tender specifications. 
 
12. During the relevant period, Philips China’s use of special price discounts with 
distributors created the risk that excessive distributor margins could be used to fund improper 
payments to employees of government-owned hospitals. Philips China maintained inadequate 
books, records, and accounts concerning special price discounts, as the discounts were 
unsupported by adequate documentation to ensure their business justification and management’s 
approval of them. The company’s books and records also contained certain inaccurate 
documents relating to the special price discounts. The special price discounts granted by Philips 
China were consolidated into Philips’ books and records. In addition, Philips did not devise and 

 
 
5 
 
maintain an adequate system of internal accounting controls with respect to the approval process 
and recording of the special pricing discounts to provide reasonable assurances of appropriate 
management authorization of the discounts. This deficiency, combined with pressure to win 
additional sales, created an environment in which there was a risk that excessive distributor 
margins could be used to fund improper payments to employees of government-owned 
hospitals.   
 
13. In addition, during the relevant period, Philips China did not enforce certain of 
its due diligence and training procedures for the engagement of distributors or conduct adequate 
testing in high risk areas of sales to identify control failures. 
 
Legal Standards and Violations 
 
14. Under Exchange Act Section 21C(a), the Commission may impose a cease-and- 
desist order upon any person who is violating, has violated, or is about to violate any provision 
of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, 
or would be a cause of the violation due to an act or omission the person knew or should have 
known would contribute to such violation. 
 
15. Exchange Act Section 13(b)(2)(A) requires every issuer with a class of securities 
registered pursuant to Exchange Act Section 12 to make and keep books, records, and accounts, 
which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 
assets of the issuer. [15 U.S.C. § 78m(b)(2)(A)]. 
 
16. Philips violated Exchange Act Section 13(b)(2)(A) by keeping books and records 
relating to the special price discounts to its distributors that contained inaccurate documentation 
and  failed  to  include adequate  documentation  to  ensure  their  business  justification  and 
management’s approval of them. 
 
17. Exchange Act Section 13(b)(2)(B) requires every issuer with a class of securities 
registered pursuant to Exchange Act Section 12 to devise and maintain a system of internal 
accounting controls sufficient to provide reasonable assurances that (i) transactions are executed 
in accordance with management’s general or specific authorization; (ii) transactions are recorded 
as necessary (I) to permit preparation of financial statements in conformity with generally 
accepted accounting principles or any other criteria applicable to such statements, and (II) to 
maintain accountability for assets; (iii) access to assets is permitted only in accordance with 
management’s general or specific authorization; and (iv) the recorded accountability for assets is 
compared with the existing assets at reasonable intervals and appropriate action is taken with 
respect to any differences. [15 U.S.C. § 78m(b)(2)(B)]. 
 
18. Philips violated Exchange Act Section 13(b)(2)(B) by failing to devise and 
maintain an adequate system of internal accounting controls regarding distributor transactions 

 
 
6 
 
and the use of these third parties. In addition, Philips’ internal accounting controls were not 
sufficient to provide reasonable assurances that transactions were executed in accordance with 
management’s general or specific authorization and that access to assets was permitted only in 
accordance with management’s general or specific authorization. 
 
Disgorgement and Civil Penalties 
 
19. The disgorgement and prejudgment interest ordered in paragraph IV.B is 
consistent  with equitable  principles and does  not  exceed  Respondent’s net profits from  its 
violations, and permitting Respondent to retain those profits would be inconsistent with equitable 
principles.  Therefore, in these circumstances, distributing disgorged funds to the United States 
Treasury is the most equitable alternative. The disgorgement and prejudgment interest ordered in 
paragraph IV.B shall be transferred to the general fund of the U.S. Treasury, subject to Section 
21F(g)(3) of the Exchange Act. 
 
Commission Consideration of Philips’ Cooperation and Remedial Efforts 
 
20. In determining to accept the Offer, the Commission considered the ongoing 
remedial efforts undertaken by Respondent and cooperation afforded the Commission staff. 
Philips undertook an internal investigation and regularly shared with Commission staff the facts 
developed in its inquiry, including facts previously unknown to the staff, and identified and 
voluntarily provided translations of key non-privileged documents. 
 
21. Philips’ ongoing remediation has included: structural improvements to its 
policies and procedures; improving its tone at the top and the middle, with a focus on Philips 
China; increased accountability for enforcing compliance policies by its business leaders; 
highlighting compliance as a key component of ethical business practices; terminating or 
disciplining Philips China employees involved in the conduct described above; and 
terminating business relationships with distributors involved in the conduct described above. 
The company also improved its internal accounting controls relating to distributors, bidding 
practices, and the use of discounts and special pricing. Additionally, Philips has revised its 
compliance training. 
 
Undertakings 
 
Respondent has undertaken to: 
 
22. Report to the Commission staff periodically during a two-year term, on the status 
of its ongoing remediation and implementation of compliance measures. The reports will focus 
particularly on due diligence on prospective and existing third-party consultants and vendors, 
FCPA training, and the testing of relevant controls, including the collection and analysis of 
compliance data. During this period, if Respondent discovers credible evidence, not already 

 
 
7 
 
reported to Commission staff, that corrupt payments or corrupt transfers of value to a foreign 
official may have been offered, promised, paid, or authorized by Respondent, or any entity or 
person while acting on behalf of Respondent, or that related false books and records have been 
maintained, Respondent shall promptly report such conduct to the Commission staff. During 
this two-year period, Respondent shall: (1) conduct an initial review and submit an initial report 
and (2) conduct and prepare a follow-up review and report, as described below: 
 
a. Respondent shall submit to the Commission staff a written report within 
360 calendar days of the entry of this Order setting forth a complete description of 
its FCPA and anti-corruption related remediation efforts to date, its proposals 
reasonably designed to improve the policies and procedures of Respondent for 
ensuring compliance with the FCPA and other applicable anti-corruption laws, 
and the parameters of the subsequent review (the “Initial Report”). The Initial 
Report shall be transmitted to Charles E. Cain, Chief, FCPA Unit, Division of 
Enforcement, United States Securities and Exchange Commission, 100 F Street, 
NE, Washington, DC, 20549-5631. Respondent may extend the time period for 
issuance of the Initial Report with prior written approval of the Commission staff. 
 
b. Respondent shall undertake one follow-up review, incorporating any 
comments provided by the Commission staff on the previous report, to further 
monitor and assess whether the policies and procedures of Respondent are 
reasonably designed to detect and prevent violations of the FCPA and other 
applicable anti-corruption laws (the “Follow-Up Report”). 
 
c. The Follow-Up Report shall be completed by no later than 360 days after 
the Initial Report. Respondent may extend the time period for issuance of the 
Follow-up Report with prior written approval of the Commission staff. 
 
d. The periodic reviews and reports submitted by Respondent will likely 
include confidential financial, proprietary, competitive business or commercial 
information. Public disclosure of the reports could discourage cooperation, 
impede pending or potential government investigations or undermine the 
objectives of the reporting requirement. For these and other reasons, the reports 
and the contents thereof are intended to remain and shall remain nonpublic, 
except (1) pursuant to court order, (2) as agreed to by the parties in writing, (3) to 
the extent that the Commission determines in its sole discretion that disclosure 
would be in furtherance of the Commission’s discharge of its duties and 
responsibilities, or (4) as otherwise required by law. 
 
e. During this two-year period of review, Respondent shall provide its 
external auditors with its annual internal audit plan and reports of the results of 
internal audit procedures and, subject to Respondent’s attorney-client privilege 

 
 
8 
 
and work product protections, its assessment of its FCPA compliance policies 
and procedures. 
 
f. During this two-year period of review, Respondent shall provide 
Commission staff with any written reports or recommendations provided by 
Respondent’s external auditors in response to Respondent’s annual internal audit 
plan, reports of the results of internal audit procedures, and its assessment of its 
FCPA compliance policies and procedures. 
 
23. Certify in writing compliance with the undertakings set forth above. The 
certification shall identify the undertakings, provide written evidence of compliance in the form 
of a narrative, and be supported by exhibits sufficient to demonstrate compliance. The 
Commission staff may make reasonable requests for further evidence of compliance, and 
Respondent agrees to provide such evidence. The certification and supporting material shall be 
submitted to Charles E. Cain, Chief, FCPA Unit, Division of Enforcement, United States 
Securities and Exchange Commission, 100 F Street, NE, Washington, DC, 20549-5631, with a 
copy to the Office of Chief Counsel of the Enforcement Division, no later than sixty (60) days 
from the date of the completion of the undertakings. 
 
IV 
 
In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to 
in Respondent’s Offer. 
 
Accordingly, it is hereby ORDERED that: 
 
A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 
13(b)(2)(B) of the Exchange Act. 
 
B. Respondent shall, within 14 days of the entry of this Order, pay disgorgement 
of $41,126,170, prejudgment interest of $6,047,633, and a civil monetary penalty of 
$15,000,000 to the Securities and Exchange Commission for transfer to the general fund of 
the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment 
of disgorgement and prejudgment interest is not made, additional interest shall accrue 
pursuant to SEC Rule of Practice 600, and if timely payment of a civil money penalty is not 
made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. Payment must be made 
in one of the following ways: 
 
(1) Respondent may transmit payment electronically to the Commission, which will 
provide detailed ACH transfer/Fedwire instructions upon request; 
 

 
 
9 
 
(2) Respondent may make direct payment from a bank account via Pay.gov through 
the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
 
(3) Respondent may pay by certified check, bank cashier’s check, or United States 
postal money order, made payable to the Securities and Exchange Commission 
and hand-delivered or mailed to: 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
Payments by check or money order must be accompanied by a cover letter identifying 
Philips as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Charles E. Cain, Chief, FCPA Unit, 
Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 
20549-5631. 
 
C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties paid to the government for all purposes, including all tax purposes. To 
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants such 
a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
of the Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
penalty imposed in this proceeding. For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondent by or on behalf of one or more 
investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
D. Respondent shall comply with the undertakings enumerated in paragraphs III.22-
23 above. 
 
  By the Commission. 
 
 
Vanessa A. Countryman 
Secretary 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 
SECURITIES EXCHANGE ACT OF 1934 

Release No. 97479 / May 11, 2023 

 

ACCOUNTING AND AUDITING ENFORCEMENT 

Release No. 4406 / May 11, 2023 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-21411 

 

 

In the Matter of 

 

 KONINKLIJKE PHILIPS N.V., 

  

Respondent. 

 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER  

 

I 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), against Koninklijke Philips N.V. (“Philips” or 

“Respondent”). 

 

II 

 

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, 

which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist 

Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and 

Imposing a Cease-and-Desist Order (“Order”), as set forth below. 

 

 

 

 

 

 



 

 

2 

 

III 

 

On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

 
Summary 

 

1. These proceedings arise from violations of the books and records and internal 

accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (the “FCPA”). [15 

U.S.C. § 78dd]. Philips, headquartered in the Netherlands, is a global manufacturer of health 

technology products, including diagnostic imaging equipment and patient monitoring systems. 

Between 2014 and 2019, Philips China employees, distributors, or sub-dealers engaged in 

improper conduct to influence foreign officials in connection with tender specifications in certain 

public tenders to increase the likelihood that Philips’ products were selected. In some cases, 

Philips China’s employees, distributors, or sub-dealers also engaged in improper bidding practices 

to create the appearance of legitimate public tenders by preparing additional bids with other 

manufacturers’ products to meet the minimum bids requirement under Chinese public tender 

rules. As a result, Philips was unjustly enriched by approximately $41 million. 

 

2. In connection with some of these transactions, Philips China provided special 

pricing discounts to distributors, which created a corruption risk that the increased margins 

could be used to fund improper payments to employees of government-owned hospitals. During 

the relevant period, Philips China had insufficient internal accounting controls to prevent and 

detect the conduct described above and to provide reasonable assurances that certain 

transactions were recorded accurately in the books and records of Philips China, which were 

consolidated into the books and records of Philips. These deficiencies in China also created an 

environment that facilitated the conduct. 

 

Respondent 

 

3. Philips is a Dutch multinational corporation founded in Eindhoven, Netherlands 

and headquartered in Amsterdam. The company employs approximately 79,000 people in more 

than 100 countries. The company’s securities are listed on the Euronext Amsterdam stock 

exchange. As a foreign private issuer during the relevant period, Philips’ common stock was also 

registered with the Commission under Exchange Act Section 12(b) and publicly traded through a 

secondary listing on the New York Stock Exchange (symbol: PHG). Philips files annual reports 

on Form 20-F with the Commission. In 2013, Philips settled books and records and internal 

accounting controls charges by the Commission in connection with similar misconduct in Poland 

between 1999 and 2007. In the Matter of Koninklijke Philips Electronics N.V., Rel. No. 34-

69327 (April 5, 2013). 

                                                      
1   The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 

other person or entity in this or any other proceeding.   



 

 

3 

 

 
Other Relevant Individuals and Entities 

 

4. Philips China refers to Philips’ healthcare business in China. Two Philips China 

subsidiaries, Philips Electronics Hong Kong Ltd. and Philips (China) Investment Co., Ltd., sold 

diagnostic imaging equipment through distributors and sub-dealers contracting with 

government-owned hospitals. Philips consolidates Philips China’s financial results into its 

financial statements that are included in its filings with the Commission. 

 

Facts 

 

5. Philips entered the Chinese market in 1920 and established its first joint venture 

in 1985. Operating through Philips China, Philips has several wholly owned subsidiaries and 

representative offices in the region. In China, the majority of hospitals and other healthcare 

providers are state-owned enterprises. These government-owned entities purchase the majority 

of their diagnostic imaging equipment through public tenders. By 2016, the majority of Philips 

China’s sales were made indirectly through authorized distributors or sub-dealers engaged by 

the authorized distributors. By 2018, 91% of Philips’ diagnostic imaging revenue in China was 

earned through this indirect sales channel. 

 
6. In this same timeframe, Philips China sought to grow its diagnostic imaging 

business and win public tenders in an increasingly competitive market. In some transactions, at 

the request of distributors, Philips China provided special pricing discounts on the health 

technology equipment that it sold to its distributors. However, Philips China’s approval 

processes and its recording of the special pricing discounts were not subject to sufficient internal 

accounting controls to ensure appropriate management authorization of the discounts. 

 

Philips China Employees and Distributors 

Improperly Influenced Public Hospital Tenders 

 

7. In numerous transactions occurring from 2014 through 2019, Philips China 

employees, distributors, or sub-dealers engaged in improper bidding practices to increase the 

likelihood that Philips China’s distributors or their sub-dealers were awarded public tenders to sell 

medical equipment to government-owned hospitals. 

 

8. Each of the relevant transactions included, in whole or in part, elements of 

the following types of misconduct in public tenders: 

 

(a) The hospital employee responsible for writing the technical specifications, 

in consultation with a manufacturer’s employees, a distributor, or sub-

dealer, determined the hospital’s technical preferences and drafted technical 



 

 

4 

 

specifications that would provide a manufacturer with a competitive 

advantage in the public tender prior to the opening of the bidding period; 

 

(b) The hospital employee drafted the specifications to increase the 

likelihood that the selected manufacturer would qualify for the winning 

bid; and 

 
(c) The hospital employee directed the winning bidder or its distributor or 

sub-dealer to prepare the manufacturer’s bid and also two additional 

accompanying bids to meet the three-bid requirement of public tenders 

and give the appearance of legitimacy. 
 

9. The improper conduct occurred in several regions of China. The Philips China 

employees who participated in the conduct described above included district sales managers, sales 

employees, and employees in the technical group that supported sales. 

 

10. One example of the conduct is a 2017 public tender in which a Philips China 

distributor won a procurement award for two Philips devices valued at $4.6 million. At the time 

of the bid submission in March 2017, the hospital had already taken steps to increase the 

likelihood that Philips China’s equipment would be selected for the award. The Philips China 

district sales manager for Hainan Province had delivered approximately $14,500 USD 

equivalent to the home of a director of the hospital’s radiology department in return for the 

director’s assistance in the procurement process. The sales team discussed the specifications to 

be included in the bid with the relevant hospital director, and its distributor prepared an 

accompanying bid with another manufacturer’s products. There also was at least one additional 

transaction involving improper conduct in which the Hainan district sales manager’s team was 

involved. 

 

11. A second example involved Philips China improperly influencing a public tender 

valued at $475,000. Prior to the award, the decision-making directors at the tendering hospital 

discussed tailoring the technical specifications with Philips China employees so that only 

Philips China and two other manufacturers would qualify to compete in the bidding process. In 

October 2017, a Philips China distributor won the bid to sell two Philips devices to the hospital. 

This tender was won as a result of inappropriately influencing the tender specifications. 

 

12. During the relevant period, Philips China’s use of special price discounts with 

distributors created the risk that excessive distributor margins could be used to fund improper 

payments to employees of government-owned hospitals. Philips China maintained inadequate 

books, records, and accounts concerning special price discounts, as the discounts were 

unsupported by adequate documentation to ensure their business justification and management’s 

approval of them. The company’s books and records also contained certain inaccurate 

documents relating to the special price discounts. The special price discounts granted by Philips 

China were consolidated into Philips’ books and records. In addition, Philips did not devise and 



 

 

5 

 

maintain an adequate system of internal accounting controls with respect to the approval process 

and recording of the special pricing discounts to provide reasonable assurances of appropriate 

management authorization of the discounts. This deficiency, combined with pressure to win 

additional sales, created an environment in which there was a risk that excessive distributor 

margins could be used to fund improper payments to employees of government-owned 

hospitals.   
 

13. In addition, during the relevant period, Philips China did not enforce certain of 

its due diligence and training procedures for the engagement of distributors or conduct adequate 

testing in high risk areas of sales to identify control failures. 

 
Legal Standards and Violations 

 

14. Under Exchange Act Section 21C(a), the Commission may impose a cease-and- 

desist order upon any person who is violating, has violated, or is about to violate any provision 

of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, 

or would be a cause of the violation due to an act or omission the person knew or should have 

known would contribute to such violation. 

 
15. Exchange Act Section 13(b)(2)(A) requires every issuer with a class of securities 

registered pursuant to Exchange Act Section 12 to make and keep books, records, and accounts, 

which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 

assets of the issuer. [15 U.S.C. § 78m(b)(2)(A)]. 

 
16. Philips violated Exchange Act Section 13(b)(2)(A) by keeping books and records 

relating to the special price discounts to its distributors that contained inaccurate documentation 

and failed to include adequate documentation to ensure their business justification and 

management’s approval of them. 

 

17. Exchange Act Section 13(b)(2)(B) requires every issuer with a class of securities 

registered pursuant to Exchange Act Section 12 to devise and maintain a system of internal 

accounting controls sufficient to provide reasonable assurances that (i) transactions are executed 

in accordance with management’s general or specific authorization; (ii) transactions are recorded 

as necessary (I) to permit preparation of financial statements in conformity with generally 

accepted accounting principles or any other criteria applicable to such statements, and (II) to 

maintain accountability for assets; (iii) access to assets is permitted only in accordance with 

management’s general or specific authorization; and (iv) the recorded accountability for assets is 

compared with the existing assets at reasonable intervals and appropriate action is taken with 

respect to any differences. [15 U.S.C. § 78m(b)(2)(B)]. 

 

18. Philips violated Exchange Act Section 13(b)(2)(B) by failing to devise and 

maintain an adequate system of internal accounting controls regarding distributor transactions 



 

 

6 

 

and the use of these third parties. In addition, Philips’ internal accounting controls were not 

sufficient to provide reasonable assurances that transactions were executed in accordance with 

management’s general or specific authorization and that access to assets was permitted only in 

accordance with management’s general or specific authorization. 

 

Disgorgement and Civil Penalties 

 

19. The disgorgement and prejudgment interest ordered in paragraph IV.B is 

consistent with equitable principles and does not exceed Respondent’s net profits from its 

violations, and permitting Respondent to retain those profits would be inconsistent with equitable 

principles.  Therefore, in these circumstances, distributing disgorged funds to the United States 

Treasury is the most equitable alternative. The disgorgement and prejudgment interest ordered in 

paragraph IV.B shall be transferred to the general fund of the U.S. Treasury, subject to Section 

21F(g)(3) of the Exchange Act. 

 

Commission Consideration of Philips’ Cooperation and Remedial Efforts 
 

20. In determining to accept the Offer, the Commission considered the ongoing 

remedial efforts undertaken by Respondent and cooperation afforded the Commission staff. 

Philips undertook an internal investigation and regularly shared with Commission staff the facts 

developed in its inquiry, including facts previously unknown to the staff, and identified and 

voluntarily provided translations of key non-privileged documents. 

 

21. Philips’ ongoing remediation has included: structural improvements to its 

policies and procedures; improving its tone at the top and the middle, with a focus on Philips 

China; increased accountability for enforcing compliance policies by its business leaders; 

highlighting compliance as a key component of ethical business practices; terminating or 

disciplining Philips China employees involved in the conduct described above; and 

terminating business relationships with distributors involved in the conduct described above. 

The company also improved its internal accounting controls relating to distributors, bidding 

practices, and the use of discounts and special pricing. Additionally, Philips has revised its 

compliance training. 

 

Undertakings 

 

Respondent has undertaken to: 

 

22. Report to the Commission staff periodically during a two-year term, on the status 

of its ongoing remediation and implementation of compliance measures. The reports will focus 

particularly on due diligence on prospective and existing third-party consultants and vendors, 

FCPA training, and the testing of relevant controls, including the collection and analysis of 

compliance data. During this period, if Respondent discovers credible evidence, not already 



 

 

7 

 

reported to Commission staff, that corrupt payments or corrupt transfers of value to a foreign 

official may have been offered, promised, paid, or authorized by Respondent, or any entity or 

person while acting on behalf of Respondent, or that related false books and records have been 

maintained, Respondent shall promptly report such conduct to the Commission staff. During 

this two-year period, Respondent shall: (1) conduct an initial review and submit an initial report 

and (2) conduct and prepare a follow-up review and report, as described below: 

 

a. Respondent shall submit to the Commission staff a written report within 

360 calendar days of the entry of this Order setting forth a complete description of 

its FCPA and anti-corruption related remediation efforts to date, its proposals 

reasonably designed to improve the policies and procedures of Respondent for 

ensuring compliance with the FCPA and other applicable anti-corruption laws, 

and the parameters of the subsequent review (the “Initial Report”). The Initial 

Report shall be transmitted to Charles E. Cain, Chief, FCPA Unit, Division of 

Enforcement, United States Securities and Exchange Commission, 100 F Street, 

NE, Washington, DC, 20549-5631. Respondent may extend the time period for 

issuance of the Initial Report with prior written approval of the Commission staff. 

 

b. Respondent shall undertake one follow-up review, incorporating any 

comments provided by the Commission staff on the previous report, to further 

monitor and assess whether the policies and procedures of Respondent are 

reasonably designed to detect and prevent violations of the FCPA and other 

applicable anti-corruption laws (the “Follow-Up Report”). 

 
c. The Follow-Up Report shall be completed by no later than 360 days after 

the Initial Report. Respondent may extend the time period for issuance of the 

Follow-up Report with prior written approval of the Commission staff. 

 

d. The periodic reviews and reports submitted by Respondent will likely 

include confidential financial, proprietary, competitive business or commercial 

information. Public disclosure of the reports could discourage cooperation, 

impede pending or potential government investigations or undermine the 

objectives of the reporting requirement. For these and other reasons, the reports 

and the contents thereof are intended to remain and shall remain nonpublic, 

except (1) pursuant to court order, (2) as agreed to by the parties in writing, (3) to 

the extent that the Commission determines in its sole discretion that disclosure 

would be in furtherance of the Commission’s discharge of its duties and 

responsibilities, or (4) as otherwise required by law. 

 

e. During this two-year period of review, Respondent shall provide its 

external auditors with its annual internal audit plan and reports of the results of 

internal audit procedures and, subject to Respondent’s attorney-client privilege 



 

 

8 

 

and work product protections, its assessment of its FCPA compliance policies 

and procedures. 

 

f. During this two-year period of review, Respondent shall provide 

Commission staff with any written reports or recommendations provided by 

Respondent’s external auditors in response to Respondent’s annual internal audit 

plan, reports of the results of internal audit procedures, and its assessment of its 

FCPA compliance policies and procedures. 

 

23. Certify in writing compliance with the undertakings set forth above. The 

certification shall identify the undertakings, provide written evidence of compliance in the form 

of a narrative, and be supported by exhibits sufficient to demonstrate compliance. The 

Commission staff may make reasonable requests for further evidence of compliance, and 

Respondent agrees to provide such evidence. The certification and supporting material shall be 

submitted to Charles E. Cain, Chief, FCPA Unit, Division of Enforcement, United States 

Securities and Exchange Commission, 100 F Street, NE, Washington, DC, 20549-5631, with a 

copy to the Office of Chief Counsel of the Enforcement Division, no later than sixty (60) days 

from the date of the completion of the undertakings. 

 

IV 

 

In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to 

in Respondent’s Offer. 
 

Accordingly, it is hereby ORDERED that: 

 

A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 

committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 

13(b)(2)(B) of the Exchange Act. 

 

B. Respondent shall, within 14 days of the entry of this Order, pay disgorgement 

of $41,126,170, prejudgment interest of $6,047,633, and a civil monetary penalty of 

$15,000,000 to the Securities and Exchange Commission for transfer to the general fund of 

the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment 

of disgorgement and prejudgment interest is not made, additional interest shall accrue 

pursuant to SEC Rule of Practice 600, and if timely payment of a civil money penalty is not 

made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. Payment must be made 

in one of the following ways: 

 

(1) Respondent may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request; 

 



 

 

9 

 

(2) Respondent may make direct payment from a bank account via Pay.gov through 

the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

 
(3) Respondent may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission 

and hand-delivered or mailed to: 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

Payments by check or money order must be accompanied by a cover letter identifying 

Philips as a Respondent in these proceedings, and the file number of these proceedings; a copy of 

the cover letter and check or money order must be sent to Charles E. Cain, Chief, FCPA Unit, 

Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 

20549-5631. 

 

C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 

be treated as penalties paid to the government for all purposes, including all tax purposes. To 

preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 

Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 

award of compensatory damages by the amount of any part of Respondent’s payment of a civil 

penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants such 

a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 

granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 

of the Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be 

deemed an additional civil penalty and shall not be deemed to change the amount of the civil 

penalty imposed in this proceeding. For purposes of this paragraph, a “Related Investor Action” 

means a private damages action brought against Respondent by or on behalf of one or more 

investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding. 

D. Respondent shall comply with the undertakings enumerated in paragraphs III.22-

23 above. 

 

  By the Commission. 

 

 

Vanessa A. Countryman 

Secretary 

http://www.sec.gov/about/offices/ofm.htm%3B

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