A U.S. pharmaceutical company and its wholly-owned Russian subsidiary have agreed to pay nearly $520 million in penalties for violating the Foreign Corrupt Practices Act in an effort to win business in Russia, Ukraine, and Mexico. This amount includes a $283 million criminal penalty to be paid to the Department of Justice as well as $236 million in disgorgement and interest to be paid to the Securities and Exchange Commission. The total amount represents the largest penalty ever imposed against a pharmaceutical company for violations of the FCPA.
According to a DOJ press release, executives from the U.S. company and their employees in Russia paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of certain multiple sclerosis drugs in annual drug purchase auctions held by the Russian Ministry of Health. The corrupt arrangement occurred at the same time that the Russian government was seeking to reduce the amount spent on costly foreign pharmaceutical products. Between 2010 and at least 2012, pursuant to an agreement with a repackaging and distribution company owned by the Russian government official, the company earned more than $200 million in profits on sales of the drug in question to the Russian government. Moreover, the Russian official earned approximately $65 million in corrupt profits through inflated profit margins granted to the official’s company.
The company also admitted to paying bribes to a senior government official within the Ukrainian Ministry of Health to influence the Ukrainian government’s approval of certain drug registrations that were necessary for the company to market and sell its products in the country. Between 2001 and 2011, the company engaged the official as its “registration consultant,” paid him a monthly fee, and provided him with travel and other things of value totaling approximately $200,000. In exchange, the official used his official position and influence within the Ukrainian government to influence the registration in Ukraine of certain pharmaceutical products.
In addition, the company admitted that it failed to implement an adequate system of internal accounting controls and failed to enforce the controls it had in place at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to doctors employed by the Mexican government. The company admitted that its Mexican subsidiary had been bribing these doctors to prescribe one of its drugs since at least 2005. Company executives in Israel responsible for the development of the company’s anticorruption compliance program in 2009 had been aware of the bribes paid to government doctors in Mexico.
Company executives approved policies and procedures that they knew were not sufficient to meet the risks posed by the company’s business and were not adequate to prevent or detect payments to foreign officials. The company also admitted that its executives put in place managers to oversee the compliance function who were unable or unwilling to enforce the anticorruption policies that had been put in place.
The company has entered into a deferred prosecution agreement with the DOJ under which it will pay the criminal penalty, continue to cooperate in the investigation, enhance its compliance program, implement rigorous internal controls, and retain an independent corporate compliance monitor for a term of three years. Meanwhile, the company’s Russian subsidiary has signed a plea agreement in which it has agreed to plead guilty to a one-count criminal information charging the company with conspiring to violate the anti-bribery provisions of the FCPA.