In its 2013 annual report, filed with SEC last week, Illinois-based Mead Johnson confirmed that it is awaiting the conclusion of an October 2013 investigation by the regulator into “certain expenditures” by its subsidiary in China relating to the promotion of infant formula products .
If determined by SEC to have violated laws including the US Foreign Corrupt Practices Act (FCPA), which makes it illegal for American companies to give anything of value to foreign officials in order to obtain or retain business or other advantages, Mead Johnson could face civil and criminal penalties.
SEC investigations are conducted privately. In line with this policy, Washington DC-based SEC declined to discuss the details or the timescale of its investigation into Mead Johnson.
“We cannot confirm or deny if we are or are not investigating a company or an individual,” a SEC spokesperson told DairyReporter.com.
"Civil and criminal sanctions"
Launched alongside SEC's October 2013 request for specific document, Mead Johnson is “continuing an internal investigation of such business activities.”
The company investigation, which is being conducted by external legal counsel, is “focused on certain expenditures that were made in connection with the promotion of the Company’s products or may have otherwise been made.”
Mead Johnson said that the “status and results of the investigation are being discussed with the SEC and other government authorities" but declined to speculate when its or SEC's investigation would come to a conclusion.
"At this time, the Company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter," the company said. "If a violation of the FCPA or other laws is determined to have occurred, the Company could become subject to monetary penalties as well as civil and criminal sanctions.”
"Exposed to risks"
The SEC investigation was launched within months of another setback for Mead Johnson in China.
In July 2013, the Chinese National Development and Reform Commission (NDRC) handed several infant formula manufacturers including Mead Johnson substantial fines after an investigation into price fixing and anti-monopoly law violations. With a cash penalty of RMB 203.7m ($33m), Mead Johnson Nutrition was worst hit by the NDRC probe.
In response to the investigation, Mead Johnson also reduced the price of its infant nutrition product offering in China by between 7% and 15%.
Mead Johnson added that operating in countries such as China, which are "less developed, have less stability in legal systems and financial markets, and are potentially more corrupt business environments than the United States" presents "greater political, economic and operational risks."
“A significant portion of our revenue and profit is derived from sales in China. Consequently, our overall financial results are dependent on this market, and our business is exposed to risks there," it said.