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FDA
FDA Consumer magazine
May-June 2003
Table of Contents
By Carol Lewis
The president of a U.S. medical supply company and his Pakistani partner each were sentenced to prison terms after pleading guilty to smuggling surgical instruments into the United States and mislabeling them with a false country of origin.
In addition, two executives of the company, Sales and Marketing Services Inc. (SMS) of Columbia, Md., were sentenced to home confinement, probation and community service for their role in the scheme to alter the label of lower-priced tools made in Pakistan so that they resembled high-priced European instruments.
The trio, SMS president Winslow Richard Smith, vice president Laura Johnson, and operations manager Gregory Johnson, all conspired with Qaiser Shabbir, president of QSA Surgical in Pakistan, to defraud the government, according to documents filed with the U.S. District Court in Baltimore. The case is the first U.S. felony criminal prosecution of a foreign surgical instrument supplier.
To bolster company profits, the four conspired to smuggle the surgical instruments into the United States from sham companies set up in England, Pakistan, France, and Italy. In the fall of 1989, Smith and Laura Johnson met with Shabbir and others in Italy to arrange the fraudulent scheme. Investigators charged that Shabbir manufactured a "general practice" line of surgical steel instruments (for non-operating use only) in Pakistan and sent them through England to "front" companies in Italy and France to avoid detection by the Food and Drug Administration and the U.S. Customs Service. The European contacts repackaged the "potpourri of medical instruments" that the FDA case agent identified as scalpels, scissors, tweezers and a host of obstetrical and gynecological devices, and shipped them to SMS. The company then removed the "Pakistan" markings and etched "Italy" or "France" on the instruments, to fetch a higher price.
The mislabeling of the instruments resulted in customers paying a significantly higher-than-market price for the inferior instruments. According to court records, the overall loss to consumers was between $70,000 and $120,000. On occasion, SMS renamed entire shipments of instruments. In these cases, the company received unmarked instruments directly from QSA.
The first order of the mislabeled instruments occurred in October 1989 and was valued at more than $10,000. At least 20 additional shipments followed between December 1991 and October 1994, investigators say. The total import value of the shipments was $605,226, according to court documents.
During that period, most of SMS's customers were private medical facilities. However, in 1993, SMS was awarded a federal government contract by the Department of Veterans Affairs to provide surgical steel instruments to veterans' hospitals and other government health care facilities. Under the contract, the government specified that products from Pakistan were prohibited.
SMS representatives, meanwhile, continued to falsely assure government representatives that the instruments originated in Europe.
The FDA's Office of Criminal Investigations first received information from its Baltimore district office in 1995 that SMS was suspected of altering markings on Pakistani surgical instruments to indicate European manufacture. Authorities were alerted that a surgical company in San Jose, Calif., reported buying surgical instruments from SMS with both "France" and "Pakistan" stamped on the items as the country of origin.
A search warrant issued in June 1996 revealed that no imports of surgical tools had been made from Italy since 1994. And, only two imports from France were found. A review of SMS's importation documents indicated that the majority of surgical instruments were imported by SMS from QSA in Pakistan. The U.S. Customs Service and the Veterans Affairs Office of Inspector General then joined the investigation.
The manner of payment among SMS, QSA and the front companies was by letter of credit. Once the product arrived in Maryland, each of the two front companies and SMS received payment directly to their banks. The front companies received between 20 percent and 25 percent more than the cost of the merchandise for shipping the repackaged product.
Shabbir pleaded guilty to conspiracy to defraud the United States in August 1999. He also admitted introducing a misbranded device into interstate commerce and smuggling. In February 2000, U.S. District Judge Andre M. Davis sentenced Shabbir to one year and one day in jail and two years supervised release. Smith, Laura Johnson and Gregory Johnson pleaded guilty to all but the conspiracy to defraud the government charge. Smith received eight months in jail and two years supervised release. Laura and Gregory Johnson each were ordered to serve two years probation with home confinement and electronic monitoring. They also were fined $10,000 and $5,000 respectively and sentenced to community service.