FCPA Enforcement Focus: Pharmaceutical Companies

Wednesday, June 2, 2010 - 00:00

On November 12, 2009, the pharmaceutical industry was officially put on notice that the Department of Justice's Criminal Division is focusing on that industry for enforcement actions under the Foreign Corrupt Practices Act (FCPA). Assistant Attorney General Lanny A. Breuer began his address at the Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum by referencing the fact that, according to PhRMA's 2009 Membership survey, close to $100 billion of total sales for PhRMA members was generated outside the United States and that the typical U.S. pharmaceutical company selling its products overseas likely interacts with foreign government officials on a consistent basis.1After calling for the industry to behave "lawfully" and resist requests for inappropriate payments, Breuer explained that because of the scope of government involvement in health care industries outside of the United States, U.S. pharmaceutical companies must be cautious when providing anything of value to foreign officials.2As is apparent from recent FCPA enforcement actions, a "foreign official" can include employees of state owned entities and could well apply to employees of state-owned health facilities including doctors and lab technicians.

The Foreign Corrupt Practices Act

In general, the FCPA prohibits U.S. companies, their officers or employees, as well as third-party representatives or persons acting on their behalf, from corruptly giving or offering to give anything of value to any foreign government official for the purpose of influencing such individual in his official capacity or causing such official to influence the foreign government in order to obtain or retain business.

The anti-bribery provisions of the FCPA apply to:

• Any individual who is a citizen or resident of the United States; or

• Any entity that has its principal place of business in the United States, or that is organized under the laws of the United States, or a territory, possession or commonwealth of the United States.

The statute applies to any U.S. firm, officer, director, employee or agent of the firm and any stockholder acting on behalf of the firm, including U.S. employees of foreign companies. Furthermore, a U.S. parent corporation may be liable for a controlled foreign subsidiary's violation if the U.S. parent authorized, participated in, or "knowingly" permitted such corrupt payments.

In addition, the FCPA requires companies registered with the Securities and Exchange Commission under the Securities and Exchange Act of 1934 to keep accurate accounts of the disposition of the firm's assets and the assets of any majority-owned domestic or foreign subsidiary. These companies are required to devise and maintain systems that will provide reasonable assurance that transactions and access to the company's assets are permitted in accordance with management's general or specific authorization.

Potential FCPA Pitfalls For The Pharmaceutical Industry

Because many foreign countries' health industries are government controlled, a U.S. pharmaceutical company entering a foreign market may find itself dealing with a "foreign official" during virtually all aspects of the approval, manufacture, import, pricing and marketing phases. For example, a U.S. pharmaceutical company may face a potential FCPA violation when its sales team wines and dines doctors employed by a state-owned hospital as part of an effort to encourage the doctors to prescribe the company's drugs for patients. Another example could include lobbying a foreign legislature where the U.S. entity provides inducements to sway a vote for or against particular legislation.3The Oil For Food scandal also is useful for identifying ways in which a U.S. company can unwittingly become involved in inappropriate payments.4Under the Oil for Food program, the government of Iraq was allowed to choose its vendors. When it started importing humanitarian goods, including medicine, it sought to pass on in-land transportation costs to the vendors (rather than to seek reimbursement from its escrow account maintained by the United Nations). As the program developed, the government of Iraq required vendors, including pharmaceutical companies, to make "transportation" payments to Iraqi-controlled bank accounts or to Iraqi-controlled front companies. Ultimately, the fees imposed far exceeded the actual in-land transportation costs. Numerous pharmaceutical companies found themselves embroiled in the scandal.

Risk Mitigation

In order to mitigate risk of a potential FCPA violation, U.S. companies in general (and pharmaceutical companies in particular) should ensure that their FCPA compliance programs:

• Are appropriately tailored for their particular business model;

• Are documented in an ethics manual available to all employees;

• Are reinforced through regular training to all relevant employees;

• Provide for a clear chain of command for FCPA compliance questions; and

• Provide for anonymous procedures for alerting the company of potential FCPA issues.

Recent FCPA Trends

The focus on the pharmaceutical industry is symptomatic of an increase in FCPA enforcement actions across the board. Cases over the last three years have increased significantly, and it appears they will continue to do so into the foreseeable future. Some reports indicate that the Department of Justice is pursuing over 120 investigations.

The focus on the pharmaceutical industry because of its global reach also typifies the trend in globalizing anti-corruption investigations. The most notable of these cases was the December 2008 Siemens settlement where that company agreed to pay US$800 million in fines to U.S. authorities and an additional US$287 million to the Office of the Prosecutor General in Munich, Germany.5As part of the global settlement, Siemens admitted to extensive FCPA violations running from March 21, 2001 through 2007. According to the indictments, Siemens employees used a variety of tools - including falsified accounting records, foreign intermediaries and hidden bank accounts - to bribe government officials in numerous countries, thus securing billions of dollars in contracts in over eight countries. In total, Siemens admitted to paying US$1.36 billion in illicit payments during the period in question.

Another notable FCPA enforcement trend is the focus on prosecuting individuals for their roles in FCPA violations. For example, on November 13, 2009, former Congressman William J. Jefferson was sentenced to 13 years in prison for bribery and conspiracy to violate the FCPA.6On November 12, another former corporate consultant for a subsidiary of a Houston-based company pleaded guilty to paying bribes to Nigerian government officials, officials employed by government-owned companies, and members of a Nigerian political party.7In addition, on November 13, Charles Paul Edward Jumet pleaded guilty to conspiring to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation in violation of the FCPA and making a false statement.8

Ultimately, a pharmaceutical company engaged in business outside of the United States is well-advised to revisit its FCPA compliance program to ensure that the program is appropriately risk based. In addition, the company should ensure that its relevant employees are aware of, and complying with, its FCPA policies and procedures.

Wiley Rein's FCPA team regularly counsels a wide variety of clients across multiple industries on conducting business globally in an era of heightened FCPA enforcement. Our attorneys' work on FCPA issues not only encompasses issues directly associated with compliance programs, but also entails risk assessment, conducting internal investigations related to potential violations, transaction counseling (when working with state-owned entities or other high-risk enterprises) and advising buyers and sellers regarding FCPA due diligence in mergers and acquisitions.9 1See Assistant Attorney General Lanny A. Breuer, Keynote Address at the Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (November 12, 2009) available at http://www.justice.gov/criminal/pr/speeches/2009/11/11-12-09breuer-pharmaspeech.pdf.

2 Id.

3See Press Release, Senate of the Philippines, Roxas Demands Meds Law Lobby Records from Pfizer (July 20, 2009) available at http://www.senate.gov.ph/press_release/2009/0720_roxas1.asp.

4See Independent Inquiry Committee into the Oil For Food Programme , Report on Programme Manipulation, Chapter One (October 27, 2005). Available at http://www.iic-offp.org/documents /Final%20Report%2027Oct05/IIC%20Final%20Report%20-%20Chapter%20One.pdf.

5See Press Release, Department of Justice, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (December 15, 2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html.

6See Press Release, Federal Bureau of Investigation, Washington Field Office, Former Congressman William J. Jefferson Sentenced to 13 Years in Prison for Bribery and Other Charges (November 13, 2009) available at http://washingtondc.fbi.gov/dojpressrel/pressrel09/wfo111309b.htm.

7See Press Release, Department of Justice, Former Willbros International Consultant Pleads Guilty to $6 Million Foreign Bribery Scheme (November 12, 2009), available athttp://www.justice.gov/opa/pr/ 2009/November/09-crm-1220.html.In his plea, Novak admitted that from approximately late-2003 to March 2005, he conspired with others to make a series of corrupt payments totaling more than $6 million to various Nigerian government officials and officials from a Nigerian political party to assist Willbros in obtaining and retaining the Eastern Gas Gathering System (EGGS) Project, which was valued at approximately $387 million. The EGGS project was a natural gas pipeline system in the Niger Delta designed to relieve existing pipeline capacity constraints.

8See Press Release, Department of Justice, Virginia Resident Pleads Guilty to Bribing Panamanian Officials for Maritime Contract (November 13, 2009) available at http://www.justice.gov/opa/pr/ 2009/November/09-crm-1229.html.

9For a description of our FCPA practice, see http://www.wileyrein.com/practices.cfm?sp=overview&id=104&pid=26#rm1.

Cari N. Stinebower is an attorney in the International Trade Practice at Wiley Rein LLP. She counsels clients on compliance with U.S. economic sanctions, the Bank Secrecy Act, the Foreign Corrupt Practices Act (FCPA) and export controls. She has worked with clients to develop compliance programs, conduct anti-money laundering and Office of Foreign Assets Control (OFAC) risk assessments, conduct internal investigations and respond to government investigations. Ms. Stinebower often works with multinational corporations to navigate the complex web of U.S. sanctions and export controls that can implicate virtually any U.S. dollar-denominated transaction. Prior to her work at Wiley Rein, she served as counsel for the U.S. Department of the Treasury's OFAC. She can be reached at (202) 719-7456.

Please email the author at cstinebower@wileyrein.com with questions about this article.