In re Cardinal Health

 
 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 88303 / February 28, 2020 
 
ACCOUNTING AND AUDITING ENFORCEMENT  
Release No. 4118 / February 28, 2020 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-19718 
 
 
 
In the Matter of 
 
Cardinal Health, Inc. 
 
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 Cardinal Health, Inc. (“Cardinal” 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 out of Cardinal’s violations of the internal accounting 
controls and recordkeeping provisions of the Foreign Corrupt Practices Act of 1977 (the 
“FCPA”) through the operations of its former subsidiary in China. 
 
2.  In November 2010, Cardinal entered the Chinese market by acquiring the 
Chinese subsidiaries of an established pharmaceutical distribution company.  Cardinal 
rebranded the acquired entities as “Cardinal China” after the acquisition.  Prior to the 
acquisition, the pharmaceutical distribution company had longstanding distribution agreements 
with a number of global manufacturers of prescription medications, medical devices, and 
consumer health products. 
 
3.  In addition to its role as a distributor for the products sold by its business partners, 
Cardinal China also operated and maintained on its own books,  financial  accounts  that certain 
distribution  customers  used  to  fund  their  operations  and  marketing  efforts  in  China.  These 
accounts largely consisted of  excess  distribution  margin that Cardinal  China generated  from 
distributing customers’ products, and Cardinal China was obligated to return these funds to the 
customers in accordance with its contractual agreements.  Cardinal China authorized and made 
payments from these  marketing  accounts as  directed by  the employees of  its distribution 
customers. 
 
4.  After it was acquired by Cardinal, Cardinal China terminated most of the 
marketing accounts due in part to known FCPA-related compliance risks associated with 
channeling the marketing expenses of third parties through its own books and records.  But 
despite these risks, until 2016, Cardinal China maintained and operated marketing accounts 
for a European supplier of non-prescription, over-the-counter dermocosmetic products for 
which Cardinal China served as the exclusive product distributor in China. 
 
5.  In addition to maintaining and operating marketing accounts for the 
dermocosmetic company, Cardinal China also formally employed approximately 2,400 
employees for the dermocosmetic company pursuant to an administrative and HR services 
agreement.  The 2,400 employees reported to the dermocosmetic company, and while Cardinal 
China administratively managed the employees pursuant to its contractual agreement, it did not 
supervise their day-to-day activities.  Most of these employees were beauty assistants and 
supervisors, who worked in retail stores and interacted with individual consumers.  The remaining 
approximately 100 employees were sales, marketing, management, and back office employees.  
The sales and marketing employees were responsible for marketing and selling the 
                                                      
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 
dermocosmetic company’s products in China, and regularly drew down funds from the marketing 
accounts to pay third parties for marketing-related expenses. 
 
6.  Although Cardinal determined that other marketing accounts should be 
terminated because of their significant FCPA-related compliance risks, Cardinal 
inaccurately assessed the risks of the arrangements with the dermocosmetic company as 
minimal.  Cardinal thus did not apply its full internal accounting controls to these accounts, or 
to the conduct of the marketing employees Cardinal China employed for the company.  
Cardinal China regularly authorized and made payments from the marketing accounts at the 
direction of the dermocosmetic company without controls sufficient to provide reasonable 
assurance that the transactions were executed in accordance with management’s general or 
specific authorization, and failed accurately to record on its books and records payments made 
from the accounts.  
 
7.  In 2016, Cardinal China learned that the marketing employees and the 
dermocosmetic company had hidden the purpose of certain purported marketing payments, 
which were redirected to healthcare professionals who provided marketing services to the 
dermocosmetic company, and to other employees of state-owned retail entities who had 
influence over purchasing decisions related to the dermocosmetic company’s products.  Upon 
learning of the misconduct, Cardinal and Cardinal China took action to cease these payments in 
2016. 
 
8.  Cardinal benefitted from its arrangement with the dermocosmetic company. 
As the company’s exclusive distributor in China, Cardinal China directly profited from the 
distribution, administrative, and HR services it provided to the dermocosmetic company, and 
Cardinal was unjustly enriched by approximately $5,400,000 between March 1, 2013, and 
December 31, 2016, as a result of its deficient internal accounting controls relating to the 
marketing accounts.  
 
Respondent 
 
9.  Cardinal is a global, integrated healthcare services and products company, 
incorporated and headquartered in Ohio, specializing in the distribution of pharmaceuticals and 
other medical products.  Cardinal’s common stock is registered with the Commission pursuant to 
Section 12(b) of the Exchange Act, and trades on the New York Stock Exchange.  Cardinal 
operates in forty-six countries and has over 50,000 employees worldwide. 
 
10. Between November 2010 and February 2018, Cardinal China was owned and 
controlled by Cardinal, and distributed pharmaceuticals, medical devices, and consumer health 
products into the Chinese market.  Cardinal China’s books and records were consolidated into 
Cardinal’s financial statements. 
 
 
 
 

 
4 
Facts 
 
Cardinal China Failed to Implement Sufficient Controls Over Marketing Accounts it 
Administered and Marketing Employees that it Hired on Behalf of a Customer 
 
11. Between 2010 and 2016, Cardinal China acted as the exclusive distributor in the 
Chinese market for a large European dermocosmetic company.  As part of its commercial 
agreement with the company, Cardinal China administered marketing accounts on the 
company’s behalf.  As part of an administrative and HR service agreement with the 
dermocosmetic company, Cardinal Health also retained approximately 2,400 employees on the 
company’s behalf.  Most of these employees were beauty assistants and supervisors, who worked 
in retail stores and interacted with individual consumers.  The remaining approximately 100 
employees were sales, marketing, management and back office employees.  The sales and 
marketing employees were responsible for promoting the sale of the dermocosmetic company’s 
products and interacted with employees of state-owned hospitals and retailers.    
 
12. Although the marketing employees were managed day-to-day by, and reported to 
the dermocosmetic company, Cardinal China entered into employment contracts with the 
marketing employees, administered their payroll, and assumed other human resource and 
administrative functions for them.  Because Cardinal China received a distribution margin 
from the sales of the dermocosmetic company’s products, Cardinal China profited from the 
marketing employees’ successful marketing efforts, including through improper payments made 
from the marketing accounts. 
 
13. Despite these facts, Cardinal assessed the risk of the arrangements with the 
dermocosmetic company as minimal, and as a result, Cardinal China did not subject the 
marketing employees, who it employed on behalf of the dermocosmetic company, to its full 
internal accounting controls, such as providing FCPA and anti-bribery training, or providing any 
oversight of their interactions with third parties in China.  In addition, as Cardinal China knew 
from its business arrangement with the dermocosmetic company, a large portion of the marketing 
employees conducted some of their business using e-mail accounts and computer systems that 
belonged to the dermocosmetic company and were inaccessible to Cardinal’s and Cardinal 
China’s compliance personnel, and Cardinal China had no ability to review the full scope of the 
marketing employees’ activities.   
 
14. From at least March 2013 through December 2016, Cardinal failed to apply 
sufficient internal accounting controls to the marketing employees and the marketing accounts.  
For example, Cardinal China executed payments requested by the marketing employees without 
requiring sufficient supporting documentation to verify the purpose of the transactions.  Over the 
four-year period from 2013 through 2016, Cardinal China authorized and paid more than $250 
million from the marketing accounts, but had insufficient policies and procedures in place 
concerning the payments. 
 
15. Without the authorization of Cardinal’s management, Cardinal China, at the 
request of the marketing employees, regularly made payments from the marketing accounts that 
were improperly redirected to government-employed healthcare providers and employees of 
Chinese state-owned retailers to promote the sale of the dermocosmetic company’s products.  

 
5 
The improper payments took varied forms, including cash, luxury goods, gift cards, and travel. 
 
16. Due to Cardinal’s insufficient internal accounting controls, the marketing 
employees were able to easily disguise these payments by channeling funds through complicit 
third-party vendors and by characterizing transactions with healthcare providers as payments to 
printing companies for “production fees,” and they were also reimbursed for high-value gifts 
based on falsified or incomplete documentation. 
 
Cardinal Did Not Properly Evaluate Red Flags and Failed to Resolve Known 
Internal Control Deficiencies 
 
17. At the time that it operated the marketing accounts on behalf of the 
dermocosmetic company, Cardinal and Cardinal China were aware of the compliance risks posed 
by marketing accounts in China.   
 
18. Shortly after it acquired Cardinal China in November 2010, Cardinal determined 
that Cardinal China’s practice of administering marketing accounts for its suppliers created 
excessive FCPA-compliance risks because the accounts could be used by suppliers to facilitate 
surreptitious payments to government officials without Cardinal China’s knowledge.  By July 
2011, Cardinal directed Cardinal China to wind down all of its pharmaceutical marketing 
accounts due to these risks.  Nevertheless, Cardinal China continued to administer marketing 
accounts for certain large suppliers for several years.  
 
19. After it was acquired by Cardinal, on at least two occasions, Cardinal China 
abruptly terminated third-party marketing accounts amid allegations that they had been used 
to facilitate improper payments: 
   Cardinal China terminated a marketing account it administered for an 
Italian pharmaceutical manufacturer after receiving an internal report in 2012 
that Chinese authorities had fined the Chinese subsidiary of the Italian 
pharmaceutical manufacturer for violating China’s Pharmaceutical 
Administration Law by providing certain benefits to hospitals. 
 
   Cardinal China terminated a marketing account it administered for a U.K.-
based pharmaceutical manufacturer after Cardinal’s CEO received an internal 
report in 2013 alleging that Cardinal China employees were using the account 
to bribe employees of China’s Center for Disease Control. 
 
20. Despite these events, Cardinal failed to assess whether Cardinal China followed its 
instruction to wind down the pharmaceutical marketing accounts, or implement stricter controls to 
reduce the compliance risks for the marketing accounts that it administered for the dermocosmetic 
company. 
 
21. In December 2012, Cardinal received a report from a Cardinal China employee 
raising questions about the legality of the marketing accounts and the marketing employees.  The 
report recommended that Cardinal China hire an external auditor to assess its business 
arrangement with the dermocosmetic company.  In response to the 2012 report, neither Cardinal 

 
6 
nor Cardinal China took sufficient steps to enhance their compliance practices concerning the 
marketing accounts or the marketing employees. 
 
22. In September 2014, Cardinal China was fined by the Shanghai Administration of 
Industry and Commerce (“AIC”) for providing luxury dermocosmetic products to employees of a 
Chinese retailer equal to a percentage of the retailer’s sales of the dermocosmetic company’s 
products.  The AIC found that Cardinal China had provided a “secret commission” to employees 
of the retailer in violation of Chinese unfair competition law.  Cardinal China had engaged in the 
practice at the request of the dermocosmetic company, and the products were funded by the 
marketing accounts that Cardinal China administered on behalf of the dermocosmetic company.  
Cardinal and Cardinal China, again, failed to sufficiently enhance the supervision of the 
marketing employees and oversight of the marketing accounts. 
 
23. In July 2015, after discovering that the marketing employees had recently used 
the marketing accounts to purchase smart phones for undisclosed reasons, Cardinal China’s Vice 
President of Compliance emailed a colleague, copying Cardinal China’s President, 
acknowledging that the dermocosmetic company was unlikely to allow Cardinal China to 
implement its standard compliance protocols to the marketing employees, and observing that this 
gap in controls had created an “enormous compliance risk” for Cardinal China.  Another Cardinal 
China employee highlighted that, “This is a big exposure indeed as we have no control [over] 
how [the marketing employees] may be gifting and spending on entertaining.”  Neither Cardinal 
nor Cardinal China took steps to enhance the controls associated with the marketing account or 
marketing employees until 2016. 
 
24. As a result of the conduct described above, Cardinal violated Sections 13(b)(2)(A) 
and 13(b)(2)(B) of the Exchange Act.  Cardinal violated Section 13(b)(2)(A), which 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 disposition of the assets of the issuer.  Cardinal also violated Section 13(b)(2)(B) 
of the Exchange Act, which 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.   
 
25. Cardinal China directly profited from the distribution, administrative, and HR 
services it provided to the dermocosmetic company, and Cardinal was unjustly enriched by 
approximately $5,400,000 between March 1, 2013, and December 31, 2016. 
 
 
 

 
7 
Cardinal’s Self-Disclosure, Cooperation, and Remedial Efforts 
 
26. In determining to accept the Offer, the Commission considered Cardinal’s 
self-disclosure, cooperation, and remedial efforts.   
 
27. In May to June 2016, Cardinal China compliance conducted an audit of the 
marketing account’s expenses, which identified evidence that payments from the marketing 
accounts did not comply with Cardinal China’s compliance policy requirements.  Also, in 
June 2016, Cardinal executives in the United States received an internal report stating that 
the marketing employees were using the marketing accounts to channel payments to 
government officials in China. 
 
28. In December 2016, Cardinal voluntarily disclosed the results of its 
investigation to the Commission staff and subsequently cooperated with its investigation.  
 
29. Cardinal China also undertook significant remedial measures, including 
terminating the marketing accounts and its employment contracts with the marketing 
employees, adding anti-bribery representations and obligations to the relevant contracts, and 
strictly limiting the use of the remaining balance of the dermocosmetic company’s funds to 
low-risk expenses, such as salary payments, with robust controls and monitoring from 
Cardinal China’s legal and compliance personnel.  
 
IV. 
 
In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Cardinal’s Offer. 
 
Accordingly, it is hereby ORDERED that: 
 
A.  Pursuant to Section 21C of the Exchange Act, Respondent Cardinal 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 Cardinal shall, within ten days of the entry of this Order, pay 
disgorgement of $5,400,000 and prejudgment interest of $916,887 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 is not made, additional interest shall accrue pursuant to 
SEC Rule of Practice 600. 
 
C.  Respondent Cardinal shall, within ten days of the entry of this Order, pay a civil 
money penalty in the amount of $2,500,000 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 is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§ 3717. 
 
Payment must be made in one of the following ways: 

 
8 
 
(1) Respondent may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request; 
 
(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 
Cardinal Health, Inc. 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 Anita Bandy, 
Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., 
NE, Washington, DC 20549. 
 
D.  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 thirty 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. 
 
By the Commission. 
 
 
Vanessa A. Countryman  
Secretary 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 88303 / February 28, 2020 

 

ACCOUNTING AND AUDITING ENFORCEMENT  

Release No. 4118 / February 28, 2020 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-19718 

 

 

 

In the Matter of 

 

Cardinal Health, Inc. 

 

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 Cardinal Health, Inc. (“Cardinal” 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 out of Cardinal’s violations of the internal accounting 

controls and recordkeeping provisions of the Foreign Corrupt Practices Act of 1977 (the 

“FCPA”) through the operations of its former subsidiary in China. 

 

2.  In November 2010, Cardinal entered the Chinese market by acquiring the 

Chinese subsidiaries of an established pharmaceutical distribution company.  Cardinal 

rebranded the acquired entities as “Cardinal China” after the acquisition.  Prior to the 

acquisition, the pharmaceutical distribution company had longstanding distribution agreements 

with a number of global manufacturers of prescription medications, medical devices, and 

consumer health products. 

 

3.  In addition to its role as a distributor for the products sold by its business partners, 

Cardinal China also operated and maintained on its own books, financial accounts that certain 

distribution customers used to fund their operations and marketing efforts in China.  These 

accounts largely consisted of excess distribution margin that Cardinal China generated from 

distributing customers’ products, and Cardinal China was obligated to return these funds to the 

customers in accordance with its contractual agreements.  Cardinal China authorized and made 

payments from these marketing accounts as directed by the employees of its distribution 

customers. 

 

4.  After it was acquired by Cardinal, Cardinal China terminated most of the 

marketing accounts due in part to known FCPA-related compliance risks associated with 

channeling the marketing expenses of third parties through its own books and records.  But 

despite these risks, until 2016, Cardinal China maintained and operated marketing accounts 

for a European supplier of non-prescription, over-the-counter dermocosmetic products for 

which Cardinal China served as the exclusive product distributor in China. 

 

5.  In addition to maintaining and operating marketing accounts for the 

dermocosmetic company, Cardinal China also formally employed approximately 2,400 

employees for the dermocosmetic company pursuant to an administrative and HR services 

agreement.  The 2,400 employees reported to the dermocosmetic company, and while Cardinal 

China administratively managed the employees pursuant to its contractual agreement, it did not 

supervise their day-to-day activities.  Most of these employees were beauty assistants and 

supervisors, who worked in retail stores and interacted with individual consumers.  The remaining 

approximately 100 employees were sales, marketing, management, and back office employees.  

The sales and marketing employees were responsible for marketing and selling the 

                                                      
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 

dermocosmetic company’s products in China, and regularly drew down funds from the marketing 

accounts to pay third parties for marketing-related expenses. 

 

6.  Although Cardinal determined that other marketing accounts should be 

terminated because of their significant FCPA-related compliance risks, Cardinal 

inaccurately assessed the risks of the arrangements with the dermocosmetic company as 

minimal.  Cardinal thus did not apply its full internal accounting controls to these accounts, or 

to the conduct of the marketing employees Cardinal China employed for the company.  

Cardinal China regularly authorized and made payments from the marketing accounts at the 

direction of the dermocosmetic company without controls sufficient to provide reasonable 

assurance that the transactions were executed in accordance with management’s general or 

specific authorization, and failed accurately to record on its books and records payments made 

from the accounts.  

 

7.  In 2016, Cardinal China learned that the marketing employees and the 

dermocosmetic company had hidden the purpose of certain purported marketing payments, 

which were redirected to healthcare professionals who provided marketing services to the 

dermocosmetic company, and to other employees of state-owned retail entities who had 

influence over purchasing decisions related to the dermocosmetic company’s products.  Upon 

learning of the misconduct, Cardinal and Cardinal China took action to cease these payments in 

2016. 

 

8.  Cardinal benefitted from its arrangement with the dermocosmetic company. 

As the company’s exclusive distributor in China, Cardinal China directly profited from the 

distribution, administrative, and HR services it provided to the dermocosmetic company, and 

Cardinal was unjustly enriched by approximately $5,400,000 between March 1, 2013, and 

December 31, 2016, as a result of its deficient internal accounting controls relating to the 

marketing accounts.  

 

Respondent 

 

9.  Cardinal is a global, integrated healthcare services and products company, 

incorporated and headquartered in Ohio, specializing in the distribution of pharmaceuticals and 

other medical products.  Cardinal’s common stock is registered with the Commission pursuant to 

Section 12(b) of the Exchange Act, and trades on the New York Stock Exchange.  Cardinal 

operates in forty-six countries and has over 50,000 employees worldwide. 

 

10. Between November 2010 and February 2018, Cardinal China was owned and 

controlled by Cardinal, and distributed pharmaceuticals, medical devices, and consumer health 

products into the Chinese market.  Cardinal China’s books and records were consolidated into 

Cardinal’s financial statements. 

 

 

 

 



 

4 

Facts 

 
Cardinal China Failed to Implement Sufficient Controls Over Marketing Accounts it 

Administered and Marketing Employees that it Hired on Behalf of a Customer 

 

11. Between 2010 and 2016, Cardinal China acted as the exclusive distributor in the 

Chinese market for a large European dermocosmetic company.  As part of its commercial 

agreement with the company, Cardinal China administered marketing accounts on the 

company’s behalf.  As part of an administrative and HR service agreement with the 

dermocosmetic company, Cardinal Health also retained approximately 2,400 employees on the 

company’s behalf.  Most of these employees were beauty assistants and supervisors, who worked 

in retail stores and interacted with individual consumers.  The remaining approximately 100 

employees were sales, marketing, management and back office employees.  The sales and 

marketing employees were responsible for promoting the sale of the dermocosmetic company’s 

products and interacted with employees of state-owned hospitals and retailers.    

 

12. Although the marketing employees were managed day-to-day by, and reported to 

the dermocosmetic company, Cardinal China entered into employment contracts with the 

marketing employees, administered their payroll, and assumed other human resource and 

administrative functions for them.  Because Cardinal China received a distribution margin 

from the sales of the dermocosmetic company’s products, Cardinal China profited from the 

marketing employees’ successful marketing efforts, including through improper payments made 

from the marketing accounts. 

 

13. Despite these facts, Cardinal assessed the risk of the arrangements with the 

dermocosmetic company as minimal, and as a result, Cardinal China did not subject the 

marketing employees, who it employed on behalf of the dermocosmetic company, to its full 

internal accounting controls, such as providing FCPA and anti-bribery training, or providing any 

oversight of their interactions with third parties in China.  In addition, as Cardinal China knew 

from its business arrangement with the dermocosmetic company, a large portion of the marketing 

employees conducted some of their business using e-mail accounts and computer systems that 

belonged to the dermocosmetic company and were inaccessible to Cardinal’s and Cardinal 

China’s compliance personnel, and Cardinal China had no ability to review the full scope of the 

marketing employees’ activities.   

 

14. From at least March 2013 through December 2016, Cardinal failed to apply 

sufficient internal accounting controls to the marketing employees and the marketing accounts.  

For example, Cardinal China executed payments requested by the marketing employees without 

requiring sufficient supporting documentation to verify the purpose of the transactions.  Over the 

four-year period from 2013 through 2016, Cardinal China authorized and paid more than $250 

million from the marketing accounts, but had insufficient policies and procedures in place 

concerning the payments. 

 

15. Without the authorization of Cardinal’s management, Cardinal China, at the 

request of the marketing employees, regularly made payments from the marketing accounts that 

were improperly redirected to government-employed healthcare providers and employees of 

Chinese state-owned retailers to promote the sale of the dermocosmetic company’s products.  



 

5 

The improper payments took varied forms, including cash, luxury goods, gift cards, and travel. 

 

16. Due to Cardinal’s insufficient internal accounting controls, the marketing 

employees were able to easily disguise these payments by channeling funds through complicit 

third-party vendors and by characterizing transactions with healthcare providers as payments to 

printing companies for “production fees,” and they were also reimbursed for high-value gifts 

based on falsified or incomplete documentation. 

 
Cardinal Did Not Properly Evaluate Red Flags and Failed to Resolve Known 

Internal Control Deficiencies 

 

17. At the time that it operated the marketing accounts on behalf of the 

dermocosmetic company, Cardinal and Cardinal China were aware of the compliance risks posed 

by marketing accounts in China.   

 

18. Shortly after it acquired Cardinal China in November 2010, Cardinal determined 

that Cardinal China’s practice of administering marketing accounts for its suppliers created 

excessive FCPA-compliance risks because the accounts could be used by suppliers to facilitate 

surreptitious payments to government officials without Cardinal China’s knowledge.  By July 

2011, Cardinal directed Cardinal China to wind down all of its pharmaceutical marketing 

accounts due to these risks.  Nevertheless, Cardinal China continued to administer marketing 

accounts for certain large suppliers for several years.  

 

19. After it was acquired by Cardinal, on at least two occasions, Cardinal China 

abruptly terminated third-party marketing accounts amid allegations that they had been used 

to facilitate improper payments: 

   Cardinal China terminated a marketing account it administered for an 
Italian pharmaceutical manufacturer after receiving an internal report in 2012 
that Chinese authorities had fined the Chinese subsidiary of the Italian 
pharmaceutical manufacturer for violating China’s Pharmaceutical 
Administration Law by providing certain benefits to hospitals. 

 

   Cardinal China terminated a marketing account it administered for a U.K.-

based pharmaceutical manufacturer after Cardinal’s CEO received an internal 

report in 2013 alleging that Cardinal China employees were using the account 

to bribe employees of China’s Center for Disease Control. 

 

20. Despite these events, Cardinal failed to assess whether Cardinal China followed its 

instruction to wind down the pharmaceutical marketing accounts, or implement stricter controls to 

reduce the compliance risks for the marketing accounts that it administered for the dermocosmetic 

company. 

 

21. In December 2012, Cardinal received a report from a Cardinal China employee 

raising questions about the legality of the marketing accounts and the marketing employees.  The 

report recommended that Cardinal China hire an external auditor to assess its business 

arrangement with the dermocosmetic company.  In response to the 2012 report, neither Cardinal 



 

6 

nor Cardinal China took sufficient steps to enhance their compliance practices concerning the 

marketing accounts or the marketing employees. 

 

22. In September 2014, Cardinal China was fined by the Shanghai Administration of 

Industry and Commerce (“AIC”) for providing luxury dermocosmetic products to employees of a 

Chinese retailer equal to a percentage of the retailer’s sales of the dermocosmetic company’s 

products.  The AIC found that Cardinal China had provided a “secret commission” to employees 

of the retailer in violation of Chinese unfair competition law.  Cardinal China had engaged in the 

practice at the request of the dermocosmetic company, and the products were funded by the 

marketing accounts that Cardinal China administered on behalf of the dermocosmetic company.  

Cardinal and Cardinal China, again, failed to sufficiently enhance the supervision of the 

marketing employees and oversight of the marketing accounts. 

 

23. In July 2015, after discovering that the marketing employees had recently used 

the marketing accounts to purchase smart phones for undisclosed reasons, Cardinal China’s Vice 

President of Compliance emailed a colleague, copying Cardinal China’s President, 

acknowledging that the dermocosmetic company was unlikely to allow Cardinal China to 

implement its standard compliance protocols to the marketing employees, and observing that this 

gap in controls had created an “enormous compliance risk” for Cardinal China.  Another Cardinal 

China employee highlighted that, “This is a big exposure indeed as we have no control [over] 

how [the marketing employees] may be gifting and spending on entertaining.”  Neither Cardinal 

nor Cardinal China took steps to enhance the controls associated with the marketing account or 

marketing employees until 2016. 

 

24. As a result of the conduct described above, Cardinal violated Sections 13(b)(2)(A) 

and 13(b)(2)(B) of the Exchange Act.  Cardinal violated Section 13(b)(2)(A), which 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 disposition of the assets of the issuer.  Cardinal also violated Section 13(b)(2)(B) 

of the Exchange Act, which 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.   

 

25. Cardinal China directly profited from the distribution, administrative, and HR 

services it provided to the dermocosmetic company, and Cardinal was unjustly enriched by 

approximately $5,400,000 between March 1, 2013, and December 31, 2016. 

 

 

 



 

7 

Cardinal’s Self-Disclosure, Cooperation, and Remedial Efforts 

 

26. In determining to accept the Offer, the Commission considered Cardinal’s 

self-disclosure, cooperation, and remedial efforts.   

 

27. In May to June 2016, Cardinal China compliance conducted an audit of the 

marketing account’s expenses, which identified evidence that payments from the marketing 

accounts did not comply with Cardinal China’s compliance policy requirements.  Also, in 

June 2016, Cardinal executives in the United States received an internal report stating that 

the marketing employees were using the marketing accounts to channel payments to 

government officials in China. 
 

28. In December 2016, Cardinal voluntarily disclosed the results of its 

investigation to the Commission staff and subsequently cooperated with its investigation.  

 

29. Cardinal China also undertook significant remedial measures, including 

terminating the marketing accounts and its employment contracts with the marketing 

employees, adding anti-bribery representations and obligations to the relevant contracts, and 

strictly limiting the use of the remaining balance of the dermocosmetic company’s funds to 

low-risk expenses, such as salary payments, with robust controls and monitoring from 

Cardinal China’s legal and compliance personnel.  

 

IV. 

 

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

agreed to in Respondent Cardinal’s Offer. 

 

Accordingly, it is hereby ORDERED that: 

 

A.  Pursuant to Section 21C of the Exchange Act, Respondent Cardinal 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 Cardinal shall, within ten days of the entry of this Order, pay 

disgorgement of $5,400,000 and prejudgment interest of $916,887 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 is not made, additional interest shall accrue pursuant to 

SEC Rule of Practice 600. 

 

C.  Respondent Cardinal shall, within ten days of the entry of this Order, pay a civil 

money penalty in the amount of $2,500,000 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 is not made, additional interest shall accrue pursuant to 31 U.S.C. 

§ 3717. 

 

Payment must be made in one of the following ways: 



 

8 

 

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

which will provide detailed ACH transfer/Fedwire instructions upon 

request; 

 

(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 

Cardinal Health, Inc. 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 Anita Bandy, 

Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., 

NE, Washington, DC 20549. 

 

D.  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 thirty 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. 

 

By the Commission. 

 

 

Vanessa A. Countryman  

Secretary 

http://www.sec.gov/about/offices/ofm.htm

	UNITED_STATES_OF_AMERICA
	In_the_Matter_of
	Cardinal_Health,_Inc.
	Respondent.
	IV.