Full article reprinted from "The Gray Sheet" - September 7, 2009
Device and pharmaceutical companies have been battered by government and congressional investigations of their domestic marketing practices. They now face increased scrutiny on another front as the Department of Justice and the Securities and Exchange Commission are stepping up their investigation of corporate corruption and bribery abroad. Read more...
Full article reprinted from "The Gray Sheet" - September 7, 2009
Device and pharmaceutical companies have been battered by government and congressional investigations of their domestic marketing practices. They now face increased scrutiny on another front as the Department of Justice and the Securities and Exchange Commission are stepping up their investigation of corporate corruption and bribery abroad.
The agencies have been pursuing these inquiries for several years under the U.S. Foreign Corrupt Practices Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other businesses. Now, however, they are devoting more attention and resources to the issue.
In an Aug. 5 speech to the New York City Bar, Robert Khuzami, the new director of the SEC's Division of Enforcement, announced that the agency is creating five special units, one of which is dedicated to the Foreign Corrupt Practices Act.
"While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations," Khuzami said.
Siemens, AGA Medical Have Been Targeted
In December, diversified German company Siemens AG reached the largest settlement ever in an FCPA case, agreeing to pay a $450 million criminal fine to DoJ, $350 million in disgorgement of profits to the SEC and approximately $569 million to the Office of the Prosecutor General in Munich.
The company had been charged with making thousands of payments totaling approximately $1.4 billion to third parties to bribe government officials to give their business to Siemens.
The bribery charges included various sectors of Siemens' business in a number of foreign countries, but the charges specific to medical devices related to bribes that occurred in Vietnam, China and Russia.
In another settlement, structural heart defect device firm AGA Medical last year agreed to pay a $2 million fine under the FCPA and enter into a deferred prosecution agreement with DoJ in connection with payments the company made to doctors in China (1 'The Gray Sheet' June 9, 2008).
China in particular has been associated with corruption. The country launched a campaign to crack down on corruption a few years ago, and in 2007 it executed the former head of China's State Food and Drug Administration, who was convicted of taking bribes to approve drugs.
Other device firms that have been targeted by SEC for potential FCPA violations in recent years include Biomet, Zimmer, Stryker, Smith & Nephew and Medtronic.
In February 2007, a Johnson & Johnson device executive resigned after the company voluntarily notified SEC and the U.S. Department of Justice of potential FCPA breaches (2 'The Gray Sheet' Feb. 19, 2007).
In the pharmaceutical sector, companies including Eli Lilly, Bristol-Myers Squibb and AstraZeneca have noted in SEC filings that they are under investigation for potential FCPA violations.
There are two parts to FCPA. The first part, generally prosecuted by DoJ, makes it a crime for any agent or employee of a U.S. company operating overseas to offer a bribe to any public official of a foreign country. Under the second part of the law, SEC goes after companies for keeping inaccurate books in cases where questionable payments might not have been recorded.
Fines and penalties for violating FCPA can be in the tens of millions, and up to a year of imprisonment is possible.
Doctor Ties To Government Hospitals Is Issue
Ted Acosta, leader of Ernst & Young's Life Sciences Fraud Investigation & Dispute Services, said pharmaceutical and medical device companies are particularly vulnerable to FCPA investigations because of the interaction of their sales forces with health care professionals.
He noted that in most markets outside the United States, doctors are affiliated with government hospitals and thus considered government officials under FCPA.
"There are millions of interactions with doctors and hospital administrators per year," Acosta said. "Any of them could potentially be under scrutiny."
Acosta co-authored an Ernst & Young report advising companies how to shield themselves from such investigations. The eight-page document, "Managing Bribery and Corruption Risk in Life Sciences," notes that multinational life sciences companies are also vulnerable because of their use of third parties, such as distributors or contract sales forces, in new markets.
The report says that under the FCPA and similar legislation in other countries, companies may be liable for corrupt payments or other benefits that these third parties provide to government officials.
Checklist To Ward Off FCPA Queries
Ernst & Young has identified what it considers to be essential elements for combating the risk of fraud and corruption. It advises companies to document interactions with health care professionals, know who owns and controls charitable organizations they donate to, and understand the local laws in each country where their products are sold.
The report also says it is important to control and monitor third parties. Whatever measure companies may take to limit their risk, Ernst & Young says, they should have a response plan in place to deal with investigations, regulatory inquiries and other complaints.
Companies should have a clearly defined protocol for soliciting, receiving and triaging notices or complaints and activating a multidisciplinary investigation team, the report states.
- Brenda Sandburg
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