August 21, 2019 / 11:15 AM / 25 days ago

RPT-EXCLUSIVE-Philips, under investigation in U.S. and Brazil, fired whistleblower who warned of graft

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    By Brad Brooks
    SAO PAULO, August 21 (Reuters) - Healthcare giant Philips
was warned of suspicious sales of its medical equipment to the
Brazilian government, and failed to halt them, nearly a decade
before an alleged bribery racket was exposed in the company's
Brazil operations last year, Reuters has learned.
    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         , 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
       .
    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            and the American firms
Johnson & Johnson        , General Electric Co        and
Stryker Corp        , 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.
    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
          . 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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