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$14 Million Penalty Against Pharmaceutical Company to Settle FCPA Charges

Wednesday, October 07, 2015
Sandler, Travis & Rosenberg Trade Report

A New York-based pharmaceutical company has agreed to pay more than $14 million to settle Securities and Exchange Commission charges that it violated the Foreign Corrupt Practices Act. This total includes $11.4 million in profits that will be returned, $500,000 in prejudgment interest and a $2.75 million civil penalty. The company also agreed to report to the SEC for two years on the status of its remediation and implementation of FCPA and anti-corruption compliance measures.

An SEC press release states that between 2009 and 2014 the company’s majority-owned joint venture in China sought to secure and increase prescription sales by providing health care providers at state-owned and state-controlled hospitals in China with cash, jewelry and other gifts, meals, travel, entertainment, and sponsorships for conferences and meetings. The JV inaccurately recorded this spending as legitimate business expenses in its books and records, which were then consolidated into the books and records of the parent company.

According to SEC officials, the company failed to institute an effective internal controls system and to respond promptly to indications of significant compliance gaps at its Chinese JV. Specifically, the SEC found that the company (a) failed to respond effectively to red flags indicating violative conduct, (b) did not investigate claims by terminated employees that faked invoices, receipts and purchase orders were widely used to fund improper payments, and (c) was slow to remediate gaps in internal controls and monitor potential inappropriate payments that were identified repeatedly in annual internal audits of the JV between 2009 and 2013.

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