(CNN) -- Illegal sales practices by CVS Pharmacy Inc. allowed criminals to make mass purchases of a component used in the manufacturer of methamphetamine, said federal prosecutors, who announced a settlement Thursday that will cost the company $77.6 million and bring new controls.
The company's improper sales of pseudoephedrine, an ingredient found in cold and sinus medicines, led directly to an increase in methamphetamine production in California, said the U.S. attorney's office in Los Angeles, California.
CVS is the biggest operator of retail pharmacies in the United States.
As part of the agreement, CVS -- which blamed the sales on "the flawed implementation of an electronic monitoring system" -- has agreed to pay $75 million in civil penalties and to forfeit the $2.6 million in profits the company earned from the sales, prosecutors said in a news release.
"This case shows what happens when companies fail to follow their ethical and legal responsibilities," said U.S. Attorney Andre Birotte Jr. "CVS knew it had a duty to prevent methamphetamine trafficking, but it failed to take steps to control the sale of a regulated drug used by methamphetamine cooks as an essential ingredient for their poisonous stew."
The company will not face criminal charges; instead it will implement a compliance and ethics program over the next three years, prosecutors said.
CVS changed its sales practices only after it became aware of the government's investigation, officials said.
Authorities found thousands of violations of a 2005 act which, among other things, limits the amount of pseudoephedrine a customer can purchase in a single day. Prosecutors said the violations occurred in California, Nevada and "likely" 23 other states where "CVS failed to implement appropriate safeguards."
In 2007, after Mexico banned the sale of pseudoephedrine, Los Angeles County experienced an epidemic of "smurfing", a practice in which individuals make multiple purchases of items containing pseudoephedrine with the aim of getting large amounts for use in meth production, the statement said. CVS, unlike other retailers, failed to prevent the practice, prosecutors allege.
"Smurfers inundated CVS stores in Los Angeles and Orange County, and later stores in the Las Vegas [Nevada] area, to purchase cough and cold remedies, sometimes cleaning out store shelves," authorities said.
CVS pledged to prevent such sales in the future.
"While this lapse occurred in 2007 and 2008 and has been addressed, it was an unacceptable breach of the company's policies and was totally inconsistent with our values," said Thomas M. Ryan, chairman and CEO of CVS Caremark. "CVS/pharmacy is unwavering in its support of the measures taken by the federal government and the states to prevent drug abuse."
CVS has strengthened internal controls and compliance measures, Ryan said in a written statement.