The Securities and Exchange Commission has issued an order under which a global pharmaceutical company will pay more than $5.5 million to settle charges that it and its wholly-owned subsidiaries in Russia and China violated the internal controls and recordkeeping provisions of the Foreign Corrupt Practices Act. This amount includes $4.325 million in disgorgement of profits from the conduct at issue, $822,000 in prejudgment interest and a $375,000 civil penalty.
The SEC alleged that through at least 2010 the company failed to devise and maintain a sufficient system of internal accounting controls relating to the interactions of its China and Russia subsidiaries with government officials, the vast majority of whom were healthcare providers at state-owned and state-controlled entities in China and Russia. According to the SEC, sales and marketing staff, along with multiple levels of management at the subsidiaries, designed and authorized several schemes to make improper payments of gifts, conference support, travel, cash, and other benefits to health care providers to reward or influence their purchases of the company’s pharmaceuticals. In addition, the SEC said, employees in the China subsidiary made cash payments to local officials to reduce or avoid fines levied against that subsidiary. The company was charged with falsely recording all of these improper payments as bona fide business expenses in its consolidated financial statements.
According to the SEC, the company did not self-report its violations but did provide significant cooperation during the SEC’s investigation, including disclosing facts that the Commission would not have been able to readily and independently discover. The company had already begun independently remediating deficiencies in its compliance program prior to the investigation, the SEC adds, and incorporated information developed during the investigation to further enhance its controls and compliance program. For example, the company has developed a centralized compliance program, revamped its internal controls and procedures, and placed key compliance personnel in high-risk local markets. Other improvements include enhancements to policies governing interactions with health care providers and government officials, enhanced anticorruption training and audits, and measures concerning the employees involved, including targeted training, reassignment to lower-risk areas of responsibility, voluntary separations, and dismissals.