Focus on Health Care Firms in FCPA Investigations

We are seeing a lot of interest from health care clients regarding the Foreign Corrupt Practices Act (FCPA). I usually stay away from this topic because so many others cover it in detail. However, we want to point out that in 2012, the SEC brought five enforcement actions and the DOJ initiated four prosecutions against pharmaceutical and medical device companies. What can you learn from these cases? The cases reveal preventable compliance failures in an industry that knows its employees and agents will have contact with foreign government officials.

United States v. Smith & Nephew

A British medical device company’s Greek distributor used slush funds to bribe Greek government surgeons and was reimbursed for “marketing services.” When Smith & Nephew did question the distributor’s excessive reimbursements, the distributor explained exactly what it was doing. Smith & Nephew ignored this red flag and kept paying. The failure to stop what any good compliance program would have cost the company $22 million dollars, plus legal fees, investigation costs and damage to its reputation.

United States v. Biomet

Biomet’s distributors paid kickbacks to surgeons in Argentina and Brazil to use its devices, calling the payments “commissions” and “consulting fees.” Executives and internal auditors failed to stop the payments for eight years after they discovered them.

Payments described no more specifically than “commissions” or “consulting fees” require follow-up by trained accounting staff before they are approved. Also, Biomet’s executives who knew about bribery, but failed to stop it, lacked the commitment to compliance — the “tone from the top” — that government gives companies a lot of credit for when mistakes do happen.

United States v. Pfizer

Pfizer used a points system to give prizes to government doctors in China for prescribing Pfizer products. High-prescribing doctors were invited to participate in recreational activities and this was all an accepted part of the business models of subsidiaries all over the world.

Nonetheless, Pfizer paid only $60 million to the government to resolve charges of tens of millions of dollars in systematic bribery, whereas Siemens paid $800 million for its systemic, worldwide bribery. This shows that compliance checks, followed by voluntary disclosures and full cooperation with authorities can limit a company’s exposure.

Change Your Compliance Best Practices

  • As your opportunities abroad grow, so must your anticorruption compliance. Your compliance must be more specific to your business issues.
  • You can no longer limit training to the FCPA.
  • In my opinion, the UK Bribery Act is the new standard. Even Russia has standards following the UK Act.
  • You also must train locally. China is different from Brazil and France.