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$20 Million Penalty to Settle FCPA Violations

Wednesday, October 05, 2016
Sandler, Travis & Rosenberg Trade Report

A global provider of pharmaceutical and consumer health care products has agreed to pay $20 million to settle charges that it violated the internal controls and books and records provisions of the Foreign Corrupt Practices Act when its China-based subsidiaries engaged in pay-to-prescribe schemes to increase sales. The company also agreed to provide status reports to the Securities and Exchange Commission for the next two years on its remediation and implementation of anti-corruption compliance measures.

According to an SEC order, the schemes spanned at least three years and involved the transfer of money, gifts, and other things of value to health care professionals, which led to millions of dollars in increased sales of the company’s pharmaceutical products to China’s state health institutions. The improper practices were “pervasive among … sales and marketing representatives and were condoned by regional and district managers,” the order states, and while “local internal audit and compliance reviews identified … deficiencies” they were “treated as isolated instances rather than signs of a larger problem.”  

 The SEC asserts that throughout the period at issue the company failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect and prevent these schemes. In addition, the SEC states, these deficiencies led to instances of similar improper conduct in connection with sales in other countries in which the company operates.

However, the SEC notes that the settlement amount reflects the remedial efforts promptly undertaken by the company, including eliminating most payments to doctors, altering the compensation structure for its sales force to eliminate incentive pay based on the number of prescriptions generated, enhancing its global risk assessment process, strengthening its monitoring and risk assessment tools, and increasing its global compliance organization. The company also enhanced its third-party oversight program, including increasing the number and scope of third-party audits, and increased training and education of employees on anti-bribery issues.

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