Google Inc. is close to settling a U.S. criminal investigation into allegations it made hundreds of millions of dollars by accepting ads from online pharmacies that break U.S. laws, according to people familiar with the matter.
The Internet company disclosed in a cryptic regulatory filing earlier this week that it was setting aside $500 million to potentially resolve a case with the Justice Department. A payment of that size would be among the highest penalties paid by companies in disputes with the U.S. government.
Google gave few details in its filing about the probe, saying only that it involved “the use of Google advertising by certain advertisers.”
The federal investigation has examined whether Google knowingly accepted ads from online pharmacies, based in Canada and elsewhere, that violated U.S. laws, according to the people familiar with the matter.
A Google spokesman declined to comment, as did a Justice Department spokeswoman.
Search engines can be liable if they are found to be profiting from illegal activity. In December 2007, the three largest Internet companies, Google, Microsoft Corp. and Yahoo Inc. agreed to pay a combined $31.5 million fine to settle civil allegations brought by the Justice Department that they had accepted ads from illegal gambling sites.
Prosecutors can charge such acts under a number of different statutes. From a legal standpoint, a key distinction for Google would be that the illegal activity allegedly took place through its paid advertising service, not just the results that its search engine produces.
There are scores of websites that offer to sell prescription drugs. Some violate U.S. laws by selling counterfeit or expired medicines or dispensing without a valid doctor’s prescription.
One question under investigation is the extent to which Google knowingly turned a blind eye to the alleged illicit activities of some of its advertisers—and how much executives knew, the people familiar with the matter said.
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