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 Claims of malfeasance reached the highest levels of the Dutch
conglomerate as early as 2010, according to court records filed by
federal prosecutors, internal company documents and Reuters
interviews with a former manager at a Philips subsidiary in Brazil
who says he told superiors of the suspected scheme and was later
sacked.
That ex-employee, Jose Israel Masiero Filho, a former supply-chain
executive with Dixtal Biomedica Industria e Comercio Ltda., spoke
extensively with Reuters in his first interview with foreign media.
He said in January 2010 he spotted irregularities in three deals to
sell Philips and Dixtal equipment to an obscure Brazilian middleman
who had landed big contracts with Brazil's Ministry of Health.
Masiero said he suspected payoffs had been used to secure that
government business, allegations now at the heart of a burgeoning
graft probe in Brazil, court records show.
Masiero emailed an internal Philips hotline immediately to report
his suspicions, met soon after with the company's top compliance
officer, and alerted at least three other senior executives during
2010. Among them was Steve Rusckowski, former chief executive of
Philips Healthcare, the company's largest division. Masiero's
warnings were detailed in emails, internal company memos and court
records viewed by Reuters.
"Philips should consider that by approving and accepting these
sales, it will be involved in illegal activities if discovered,"
Masiero wrote to Rusckowski in an email dated October 14, 2010.
Still, Koninklijke Philips <PHG.AS>, as the company is formally
known, continued to sell to the Brazilian intermediary to fulfill
the Health Ministry contracts, invoices show.
Rusckowski, who served as Philips Healthcare's chief executive until
April 2012, did not respond to requests for comment. He is now CEO
of New Jersey-based Quest Diagnostics <DGX.N>.
In an emailed statement to Reuters, Philips said it is cooperating
with Brazilian authorities investigating the nation's medical device
industry. The company said it launched an internal investigation in
2010 in response to an "anonymous complaint" but "did not identify
direct evidence of wrongdoing." The company said it did, however,
tighten up its internal control processes in Brazil.
Philips would not discuss ex-employee Masiero or the circumstances
surrounding his dismissal.
Brazil's Health Ministry did not respond to requests for comment.
HEALTHCARE IN THE CROSSHAIRS
Philips is now among the targets in a widening investigation into
medical contracting graft in Brazil that authorities say is still in
its early stages, and which has sparked additional probes by U.S.
law enforcement.
Masiero is cooperating with Brazilian prosecutors. They allege
Philips and other multinationals conspired with intermediaries to
pay bribes for public contracts, charging Brazil's state healthcare
system inflated prices to recoup the cost of the kickbacks. Twenty
four people were charged last year in connection with the alleged
scheme. All are currently on trial in Rio de Janeiro.
Germany's Siemens AG <SIEGn.DE> and the American firms Johnson &
Johnson <JNJ.N>, General Electric Co <GE.N> and Stryker Corp <SYK.N>,
all major manufacturers of medical devices, have been swept up in
the probe.
Johnson & Johnson, Siemens and GE declined to comment. They
previously denied wrongdoing and said they were cooperating with the
investigation. Stryker said it was committed to working in an
ethical manner and that it was unable to comment further.
In the United States, the FBI, Department of Justice and the
Securities and Exchange Commission have launched their own
investigations into suspected corruption in sales of medical
equipment in Brazil as well as China, according to people with
knowledge of the matter.
The whistleblower Masiero said he is cooperating with all those
agencies, an assertion confirmed in emails viewed by Reuters. The
Justice Department, SEC and FBI all declined to comment.
Philips told Reuters it is "reviewing" inquiries from the Justice
Department and SEC in connection with the Brazil probe.
MYSTERIOUS MIDDLEMAN
Now 52, Masiero was hired in 2006 to be Dixtal's exports manager,
rising to become the top logistics and supply chain executive for
the Sao Paulo-based medical device firm in early 2009. Philips
purchased Dixtal in 2008.
In early 2010, Masiero noticed what he considered irregularities
with three large contracts awarded by Brazil's Health Ministry. The
deals, one for 750 Philips heart defibrillators, the others for a
total of 3,972 Dixtal vital-signs monitors, were worth a combined
68.9 million reis (about $40 million at the time), government
records show.
Masiero said he found it odd that Philips did not compete directly
for such a major piece of business. Neither Philips or Dixtal
submitted bids, according to government records of tender
competitors viewed by Reuters.
Instead the contracts were won by Rizzi Comercio e Representacoes
Ltda., a little-known Brazilian medical supply firm. Masiero, tasked
with getting the equipment to Rizzi Comercio, was surprised to find
its billing address was a tiny storefront with peeling purple paint
in a dilapidated Sao Paulo neighborhood.
"It was an immediate red flag for me," Masiero told Reuters.
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In addition, the Health Ministry was paying well above market prices
for the equipment, Masiero said, unusual for a large customer with
buying clout. On February 12, 2010, for example, Masiero allegedly
received an email from a Philips' sales executive, Frederik Knudsen,
directing him to deliver the first shipment of 60 defibrillators to
Rizzi Comercio, which marked up those devices an additional 67%,
according to correspondence included in court records.
"The value that should be on the order is what was agreed to with
the Health Ministry" – $16,700 per unit – "and not what we sold them
to Rizzi for ($9,991)," according to the email allegedly from
Knudsen, which was seen by Reuters.
Prosecutors say Philips and Rizzi Comercio conspired to disguise and
recoup the cost of bribes through inflated prices, fleecing
Brazilian taxpayers in the process.
Knudsen, whom Philips confirmed still works for them, is now among
those on trial in Rio. So is Daurio Speranzini, who led Philips
Healthcare's operations in Latin America for seven years before
joining GE in 2011. He left that firm last December. Both men were
charged last August with racketeering and fraud.
Knudsen's lawyers did not respond to requests for comment. In a
written defense filed with the court, they said Knudsen did not set
Philips' prices and that he is innocent. In a separate court filing,
they also questioned the veracity of the emails their client
allegedly sent to Masiero.
Speranzini's lawyers referred questions to their written defense,
which contends he had no knowledge of the alleged bribery scheme or
of Masiero's warnings.
Also on trial for racketeering and fraud are two brothers who own
Rizzi Comercio, Wlademir and Adalberto Rizzi.
Their lawyer, who did not respond to requests for comment, said in
court filings that her clients engaged in no illegal activities.
SOUNDING THE ALARM
Uneasy about the deals with Rizzi Comercio, Masiero on January 20,
2010, notified Philips' global compliance team in Amsterdam through
an email hotline.
Philips sent Caroline Visser, then-chief of Philips' global
compliance, to Brazil to meet with Masiero in March 2010. She
promised a swift investigation, according to emails the pair
exchanged.
Two months later, Masiero was transferred from Dixtal to a logistics
post within Philips in Sao Paulo, a move he considered a demotion
and an effort to silence him. The shipments continued, invoices
show.
Frustrated, Masiero on October 14, 2010, sent an email to Rusckowski,
the head of Philips' healthcare division.
Masiero expressed concern about Rizzi Comercio and its use of an
unfamiliar intermediary, Moses Trading American, to purchase the
U.S.-made Philips heart defibrillators on its behalf for export to
Brazil. Far more typical, Masiero told Reuters, would be for Philips
to sell directly to Rizzi.
Masiero's uneasiness only increased when he traced Moses Trading
American's address on Philips' invoices to a private home on a golf
course in suburban Phoenix.
"Moses Trading selling operation is clearly suspicious," Masiero
wrote to Rusckowski.
According to emails reviewed by Reuters, Rusckowski forwarded
Masiero's message to Clement Revetti, Jr., the chief legal officer
for Philips Healthcare. Revetti thanked Masiero and asked him not to
contact the CEO again.
Masiero defied that order. On November 9, 2010, he again emailed
Rusckowski and Revetti of his concerns.
On March 4, 2011, Masiero says he discussed his suspicions once more
in person in Sao Paulo with Visser, the compliance head. He was
fired later that day. Masiero said he was given no reason for his
dismissal. Paperwork required under Brazilian labor laws shows
Philips sacked Masiero "without cause," meaning the company made no
claims that it was performance-related.
Visser and Revetti did not respond to requests for comment.
As for Moses Trading American, Brazilian prosecutors say that
operation is run by a Peruvian named Oscar Moses whom they are
investigating in connection with a string of allegedly fraudulent
medical equipment deals in Brazil. He has not been charged with a
crime.
Moses did not respond to requests to comment sent to his LinkedIn
and Facebook profiles.
TALKING TO PROSECUTORS
Discouraged after his firing, Masiero dropped the matter.
Then in 2014, Brazil was engulfed by a corruption scandal centered
on contracting graft at state oil company Petrobras <PETR4.SA>. That
blockbuster probe, known as Car Wash, ultimately toppled leaders at
the highest levels of Brazilian business and politics.
Masiero got in touch with federal prosecutors.
"His information was key to helping us break up this scheme," said
Marisa Ferrari, a lead prosecutor on the case.
Masiero, meanwhile, is unemployed. He said he has been blacklisted
in Brazil.
He and his family recently left Brazil for a country Masiero does
not want to name.
(Reporting by Brad Brooks in Sao Paulo; Editing by Marla Dickerson)
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