August 10, 2012

SEC Continues its Crusade Against Foreign Bribery

By Gordon Schnell

The reinvigorated efforts of the Securities and Exchange Commission (SEC) to fight foreign bribery continue to pay off.  This week, the SEC announced that the drug giant, Pfizer, has agreed to pay $60 million to settle criminal and civil charges that its subsidiaries bribed foreign officials in Europe and Asia in order to win business there.  Under the Foreign Corrupt Practices Act (FCPA), it is illegal for U.S. companies to make payments to foreign officials for the purpose of securing business or otherwise influencing their official government actions.  For publicly traded companies, making such foreign payments or bribes also violates the U.S. securities laws for failing to keep proper accounting records and controls.

In the SEC’s press release announcing the settlement, the agency stated that since at least 2001, employees of Pfizer’s subsidiaries bribed officials — including doctors and other government healthcare professionals — in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia and Serbia with cash payments, free travel and gifts.  They did so to improperly influence these foreign governments’ regulatory approvals and purchasing decisions and to clear customs.   According to Kara Brockmeyer, Chief of the SEC’s FCPA Enforcement Unit, “bribery [was] so entwined in their sales culture that they offered points and bonus programs to improperly reward foreign officials who proved to be their best customers.”

The SEC’s action against Pfizer (and its recently acquired Wyeth subsidiary) is just the latest example of the government’s new get-tough attitude against foreign bribery, particularly in the drug industry.   In late 2009, the head of the Justice Department’s Criminal Division warned drugmakers that the government was increasing its efforts to root out foreign bribery in the industry.  This pronouncement was followed in 2010 by the SEC’s creation of a specialized unit devoted exclusively to FCPA enforcement.  Since then, there has been a string of enforcement activity against pharmaceutical companies. 

Last year, for example, Johnson & Johnson was fined $70 million over charges of bribing government doctors in Greece, Romania and Poland to win contracts there and paying kickbacks to Iraq to get business under the United Nations Oil for Food Program.  Click here for the SEC press release.  In addition, numerous large pharmaceutical companies have reported being investigated or questioned by the government on possible FCPA violations including Teva, Baxter, Eli Lilly, GlaxoSmithKline, Merck, Bristol-Meyers Squibb and AstraZeneca.  Notably, a Reuters examination of the securities filings of the world’s top ten drug companies revealed that at least eight of them have warned of potential costs related to charges of corruption in overseas markets.  Click here for the Reuters article. 

With the recent implementation of the whistleblower provisions of the Dodd-Frank Wall Street Reform Act, this stepped-up enforcement is likely to get even stronger.  These provisions afford whistleblowers reporting evidence of securities or commodities fraud with up to 30 percent of any government recovery.  The SEC Whistleblower Office recently reported a flood of whistleblower tips coming in under these new provisions.  See Business Is Booming at the SEC Whistleblower OfficeOnce the SEC begins to dole out rewards from the hundreds of millions of dollars it has set aside for whistleblowers, it will no doubt lead to an even greater onslaught of whistleblower activity.  Given all of the attention the government is paying to foreign bribery these days, whistleblowers will almost certainly be on the lookout for this type of securities fraud.

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