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Wednesday, 18 May 2011

Employees of Philips Poland were accused of bribing hospital officials. Why? Probably because they were worth it…

Two employees of Philips Poland, together with 21 high-ranked hospital employees, are currently indicted as suspects in a long-term bribery scandal (1999-2007), concerning the sales of medical equipment to Polish hospitals.

Monika Scislowska of Associated Press comes up with the following story, of which I publish a few snips: Dutch Philips cited in bribes scandal in Poland (
A prosecutor said Tuesday that 23 Poles including two former employees of the Netherlands-based Philips company are to go on trial in Poland on corruption charges.
 [Prosecutor Andrzej] Laskowski said that the former head of the medical section and the former regional head of Philips Polska could face up to 12 years in prison if convicted of offering bribes of up to euro100,000 ($140,000) to hospital directors in southern Poland to persuade them to buy Philips equipment between 1999-2007.
Philips Polska is a branch of the Royal Philips Electronics NV, the world's biggest lighting maker and a major maker of healthcare products.
One of the defendants, Marian Kulig, who owned a company that sold Philips equipment told Dutch national broadcaster NOS that in return for the bribes the hospitals set technical requirements for equipment they wanted to buy on such levels that only those made by Philips could meet them.
I show this story neither because this case of bribery is very special, nor because the accused firm is Dutch (OK, you’re right. Just a little for the latter reason…). I want to look deeper inside these kinds of bribery, because these are so extremely hard to fight, especially at times when every Euro or Dollar of turnover for a company needs to be battled for.

I remember my father – an accountant for a large, Dutch building company –  saying about doing business in the Middle East (in the 1980’s): there are two ways of doing business with the people there.

1. You make an offer for a project, worth €35 mln – f.i. building a new museum -  by charging your principal the €35 mln fair and square… and you won’t get the assignment.

2. You make an offer for the same project, but you charge your principal €70 mln and return €35 mln in bribes to your principal, his family and whoever it may concern… and you get the assigment.

My father was an honest man and I’m sure he was disgusted that his company needed to do business this way. But having high moral standards is a luxury that not every company can afford. And therefore I suspect that almost EVERY company that does business in the Middle East, needs to deal with bribing people to get assignments.

But also closer to home these kinds of corruption were very widespread: even in “one of the least corrupted countries in the world” The Netherlands.

In Dutch large-scale (€10 mln+) RRE and CRE-projects, it was a common practice that representatives of the top ten building companies went to a café, drank a cup of coffee and decided together: who would get the RRE/CRE assigment and against what price. The agreed price was substantially higher than the real cost price, including profits and the difference was divided over the other nine building companies that didn’t get the assignment. Everybody happy. Of course, no official notes were made (unfortunately, however, a lot of unofficial notes that formed a total shadow administration).

This practice went on for years and years, until an accountant of one of these building companies got twitches of conscience and decided to become whistleblower. Of course the Dutch building world is straight as a line, since then. And the whistleblower? Not only was he spat out by the building company where he worked and any other building company, but he was indicted by the Dutch public prosecutor and after his trial, he heard from the Dutch government: “now you are on your own”.

And Philips Poland? Did they know it? And did the headoffice of Philips in The Netherlands know? Your guess is as good as mine and I’m certainly not going to make accusations in their direction!

But look at it objectively: X-Ray machines, radiation treatment machines, CT-Scanners and MRI-scanners are extremely expensive machines with price ranges between €100,000 and €2.5 mln. The following price list, I took from a dissertation on the purchase of a CT-scanner / PET-CT scanner from 2007.

Rough Price
(LightSpeed VCT)
950,000 (SOMATOM sensation)
(Discovery VCT)

The development costs for these machines are extremely high and the safety conditions and conditions for approbation by the international Health authorities are very, very stringent. This means that the producers of these machines, like GE Healthcare, Philips, Hewlett-Packard and Siemens, are operating in a very small and inaccessible market, where the margings are extremely high. Every machine that your company sells extra, means a machine less for your competitors.
Selling 20 extra CT-scanners or 10 extra PET-CT scanners per year means an extra turnover of €25 mln for your company. And the only thing you have to do for it, is giving a thick envelope with contents to the guys in the hospital that pull the shots. See it as a “special marketing investment”.

You can be sure that this kind of corruption will be there to stay for as long as a few people decide on such large investments.

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