Technology

Analogic settles European foreign bribery charges

Massachusetts medical device maker Analogic Corp. agreed to pay nearly $15 million Tuesday to settle a federal investigation into foreign bribery allegations in Russia and several other countries.

US Attorney Carmen M. Ortiz said that BK Medical ApS, an Analogic subsidiary in Denmark that makes ultrasound equipment, admitted to creating fake invoices for a distributor of its equipment in Russia that inflated the price of the equipment; the subsidiary would then funnel the excess proceeds to foreign third parties at the direction of the distributor.

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From 2001 to 2011, BK Medical “served as a conduit” for at least 180 payments totaling about $16.1 million, investigators said; during that period, the company recorded $21.6 million in revenue.

The government’s case included an e-mail exchange in 2004 between BK Medical and its Russian distributor that said the inflated payments were needed due to “Russian market conditions.” Without them, the e-mail said, BK risked losing 90 percent of its business.

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Since “the level of official salaries in many sectors are still extremely low,” the payments supported “general improvements of the standard of living of . . . persons on high levels,” according to a copy of the e-mail included in the complaint filed by the US Securities and Exchange Commission.

The e-mail went on to state: “Please understand that your western word ‘bribe’ is not used in our Russian market. We talk about customer obligations, nothing else.”

In exchange for not facing charges, BK Medical will pay a $3.4 million penalty to resolve the government’s investigation.

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In its agreement with the SEC, Analogic agreed to pay about $7.7 million in damages and another $3.8 million in interest.

Investigators claimed BK Medical violated the Foreign Corrupt Practices Act. The scheme also caused Analogic, based in Peabody, to falsify its books and records, according to the SEC.

BK Medical had “no legitimate business relationship with those third parties and had not conducted due diligence on them,” according to prosecutors. At least some of those payments went to doctors employed by Russian-owned entities, officials said.

Separately, Lars Frost, a Danish citizen and former chief financial officer of BK Medical, agreed to a $20,000 civil settlement with the SEC, without admitting to any wrongdoing.

Analogic, which makes imaging technology used in medical devices and airport security systems, first reported the scheme to investigators, according to federal documents. The company’s director of investor relations, Mark Namaroff, said all employees involved in the activity have been let go, and that Analogic also cut ties to the distributors.

Namaroff said Analogic welcomed the settlement and has introduced internal safeguards to “prevent this from happening again.”

Though the Russian operation was the “most extensive,” according to federal authorities, the scam also played out on a smaller scale with distributors in five other countries: Ghana, Israel, Kazakhstan, Ukraine, and Vietnam.

‘Please understand that your western word “bribe” is not used in our Russian market. We talk about customer obligations, nothing else.’

Part of an e-mail exchange between BK Medical and its Russian distributor 
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The complex scheme had several steps: BK Medical and its distributor would agree on a price, then the distributor would request another, fake invoice that regularly doubled the original cost, according to the SEC. The distributor would pay the inflated price via wire transfer, but BK Medical would record only the original invoice on its books.

Then, sometimes weeks or months later, the Russian distributor would request a payment from BK Medical and provide a wire transfer number for its destination. BK Medical would routinely remit the money, though the company claimed to not know the “purpose of the payments or the nature of the payees,” the SEC said in its complaint. The wire payments, kept off BK’s books, went to “apparent shell companies” from Belize to Cyprus, as well as “specific individuals in Russia,” the government said.

Earlier this month, Cambridge-based Akamai Technologies Inc., a software company, agreed to pay more than $670,000 to avoid prosecution over an employee who investigators said bribed Chinese government officials.

Michael Bodley can be reached at michael.bodley@globe.com. Follow him on Twitter @michael_bodley.
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