On September 4, 2018, the Securities and Exchange Commission (“SEC”) announced a $25.2 million settlement with French pharmaceutical company Sanofi (“Sanofi” or the “Company”) for violating the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe foreign officials to increase sales of Sanofi products.[2] The Sanofi settlement encompasses conduct by three Sanofi subsidiaries organized in Kazakhstan, Lebanon and the United Arab Emirates (“UAE”). The Sanofi settlement follows a recent enforcement action by U.S. authorities against another French company—Société Générale—for FCPA violations.[3] In announcing the Sanofi resolution, the SEC signaled its intention to focus further on bribery risk in the pharmaceutical industry.
According to the SEC, senior managers of the Kazakh subsidiary engaged in a scheme to use kickbacks from distributors to bribe Kazakh officials to influence the award of tenders for pharmaceuticals at public institutions.[4] Employees and agents of the Lebanese subsidiary participated in schemes to pay foreign officials—through product samples, consultancies and grants, for example—to increase prescriptions and boost sales of Sanofi products.[5] Sales managers and medical representatives at the UAE subsidiary distributed the proceeds of false travel and entertainment reimbursements to healthcare professionals in the private sector to increase prescriptions of Sanofi products.[6] The SEC identified deficiencies in Sanofi’s internal accounting controls and compliance program, including the failure to review discounts provided to distributors, insufficient documentation of the services provided by consultants and the use of cash to pay healthcare professionals.[7]
As a result of this conduct, the SEC determined that Sanofi violated the FCPA’s books and records provision by “falsely recording improper payments made by employees and agents as legitimate selling and marketing expenses” and the FCPA’s internal controls provision by “failing to devise and maintain sufficient accounting controls to detect and prevent the making of improper payments to foreign officials.”[8] The SEC ordered disgorgement of $17.5 million, prejudgment interest of $2.7 million and a civil money penalty of $5 million.[9]
The SEC highlighted Sanofi’s cooperation in the Commission’s investigation, which included providing regular and timely briefings to the SEC on the facts learned in the course of the Company’s internal investigation.[10] Based on the Company’s cooperation, the civil money penalty was limited to $5 million.[11] The SEC also recognized Sanofi’s remedial efforts, which include developing a centralized compliance program; increasing the number of compliance officers globally; improving policies governing interactions with health care professionals and government officials; enhancing anti-corruption training, audits and due diligence procedures for third-party agents; and taking disciplinary action.[12] Nonetheless, the SEC required the Company to undertake to report during a two-year period on the status of its FCPA and anti-corruption related remediation efforts.[13]
In connection with the resolution, FCPA Unit Chief Charles Cain commented that “[b]ribery in connection with pharmaceutical sales remains as a significant problem” and that “this matter illustrates that more work needs to be done to address the particular risks posed in the pharmaceutical industry.”[14] In 2015, then Director of the SEC Division of Enforcement, Andrew Ceresney, discussed factors, including pharmaceutical representatives’ regular contact with doctors, pharmacists and administrators from public hospitals in foreign countries (who are often classified as foreign officials for purposes of the FCPA), that make the pharmaceutical industry a high-risk industry for FCPA violations.[15] Similarly, in 2017, in a speech announcing increased coordination between prosecutors investigating domestic and foreign healthcare bribery, Acting Chief of the DOJ Criminal Division’s Fraud Section Sandra Moser highlighted the “number of significant FCPA cases involving the payment of bribes and kickbacks by healthcare companies” due to companies’ frequent interactions with “state-employed doctors and foreign public officials who work for government-owned hospitals and medical institutions” as well as “publicly funded and administered foreign health care programs.”[16]
In addition to the risks posed by working with state-owned entities, pharmaceutical companies’ reliance on distributors can also introduce FCPA risks associated with third parties. For example, in 2016, Teva Pharmaceutical Industries Ltd. (“Teva”) settled FCPA charges relating in part to a bribery scheme in Russia in which a distribution contract was given to a Russian distributor controlled by a Russian government official to increase sales and market access. In connection with the Teva settlement, Eric Bustillo, Director of the SEC’s Miami Regional Office, noted that “[w]hile distributors can help companies navigate complex regulatory environments and provide valuable industry relationships, they also can create significant corruption risks for companies.” Teva agreed to pay $519 million and retain a corporate monitor for three years as part of a settlement with the SEC and DOJ relating to the bribery scheme in Russia as well as bribery schemes in Ukraine and Mexico.[17]
The Sanofi investigation also demonstrates the particular risks faced by pharmaceutical industries due to their operations in high-risk markets, such as the Middle East, Russia, Central Asia and China. Notably, several healthcare companies, including Bristol-Meyers Squibb, Novartis and GlaxoSmithKline, have recently faced FCPA enforcement actions related in whole or in part to conduct occurring in China. GlaxoSmithKline was also fined $489 million in China in 2014 in connection with bribery allegations.[18] Anti-corruption enforcement actions by Chinese authorities may increase, as China has recently strengthened its anti-corruption laws and institutions. On March 20, 2018, China passed legislation establishing a new anti-corruption “super” agency, the National Supervisory Commission, which has the power to investigate government officials, individuals employed by state-owned entities and private individuals engaged in bribery or misconduct with public officials, collect evidence, seize assets and recommend cases for prosecution. Additionally, in November 2017, the Chinese legislature amended the Anti-Unfair Competition Law to revise the definition of commercial bribery to include conduct “seeking transaction opportunities or competitive advantage” and established civil liability for businesses that commit acts of unfair competition (including commercial bribery).[19]
The Sanofi investigation, and other recent FCPA enforcement actions in the pharmaceutical industry, underscore the importance of comprehensive anti-corruption compliance policies and strong internal controls across large multinational companies and their subsidiaries, particularly in high-risk markets and industries.[20]
[1] This Blog Post was prepared with the assistance of Martine B. Forneret.
[2] In re Sanofi, Exchange Act Release no. 84017 (Sept. 4, 2018), available at https://www.sec.gov/litigation/admin/2018/34-84017.pdf.
[3] See Joon H. Kim, Elizabeth Vicens, Abena Mainoo, Guillaume de Rancourt & Pekham Pal, Société Générale Enters Into First Coordinated Resolution of Foreign Bribery Case by U.S. and French Authorities (June 7, 2018), available at https://www.clearyenforcementwatch.com/2018/06/societe-generale-enters-first-coordinated-resolution-foreign-bribery-case-u-s-french-authorities/.
[4] In re Sanofi, Exchange Act Release no. 84017 at 3.
[5] Id. at 4.
[6] Id. at 5.
[7] Id. at 3-6.
[8] Id. at 6.
[9] Id. at 9.
[10] Id. at 6.
[11] Id. at 10.
[12] Id. at 6.
[13] Id. at 7.
[14] Sanofi Charged With FCPA Violations (Sept. 4, 2018), available at https://www.sec.gov/news/press-release/2018-174.
[15] See FCPA, Disclosure, and Internal Controls Issues Arising in the Pharmaceutical Industry (March 3, 2015), available at https://www.sec.gov/news/speech/2015-spch030315ajc.html.
[16] See Sandra Moser’s remarks at the ACI’s 8th Global Forum on Anti-Corruption in High Risk Markets (August 14, 2017), available at https://globalinvestigationsreview.com/article/jac/1145629/sandra-mosers-remarks-at-the-acis-8th-global-forum-on-anti-corruption-in-high-risk-markets.
[17] See Teva Pharmaceutical Paying $519 Million to Settle FCPA Charges (Dec. 22, 2016), available at https://www.sec.gov/news/pressrelease/2016-277.html.
[18] See Adam Jourdan and Ben Hirschler, China hands Drugmaker GSK Record $489 Million Fine for Paying Bribes, Reuters, available at https://www.reuters.com/article/us-gsk-china/china-hands-drugmaker-gsk-record-489-million-fine-for-paying-bribes-idUSKBN0HE0TC20140919; Keith Bradsher and Chris Buckley, China Fines GlaxoSmithKline Nearly $500 Million in Bribery Case, New York Times, available at https://www.nytimes.com/2014/09/20/business/international/gsk-china-fines.html.
[19] See Nowell D. Bamberger, Grace Kurland and Brian Giunta, China’s New Anti-Corruption Authority And Related Developments (April 4, 2018), available at https://www.clearyenforcementwatch.com/2018/04/chinas-new-anti-corruption-authority-related-developments/#_ftnref2.
[20] In a recent speech, Deputy Assistant Attorney General Matthew S. Miner highlighted the importance of robust compliance programs in high-risk industries and markets. See DOJ Press Release, Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets, https://www.justice.gov/opa/pr/deputy-assistant-attorney-general-matthew-s-miner-remarks-american-conference-institute-9th. For further discussion see Jennifer Kennedy Park, Jonathan S. Kolodner & Martine B. Forneret, DOJ Remarks Provide Guidance on Addressing FCPA Risk in M&A Transactions (July 30, 2018), available at https://www.clearyenforcementwatch.com/2018/07/doj-remarks-provide-guidance-addressing-fcpa-risk-ma-transactions/.