Consistent with public statements by enforcement officials, recent SEC filings indicate that the pharmaceutical industry is now under greater scrutiny for potential violations of the Foreign Corrupt Practices Act ("FCPA").
In a filing on February 27, 2009, Eli Lilly reported that the SEC and Department of Justice have asked the company to "voluntarily provide" additional information regarding company operations of Lilly affiliates "in a number of . . . countries." These requests follow SEC subpoenas that Lilly previously received regarding an investigation of FCPA compliance by Polish subsidiaries of pharmaceutical companies.
Lilly reported that it is cooperating with the government's investigation.
AstraZeneca and Bristol-Myers Squibb Company also apparently are under investigation:
- In an SEC filing on March 17, 2009, AstraZeneca reported that it received a letter from the SEC in October 2006 requesting documents regarding its business activities in Croatia, Russia, and Slovakia, particularly documents concerning any payments to doctors or government officials. The SEC also sought information about AstraZeneca's internal accounting controls. AstraZeneca's filing indicated that the
investigation is still under way.
- In a filing on February 20, 2009, Bristol-Myers Squibb reported that it is cooperating with the SEC and German authorities in an investigation involving potential violations of the FCPA and German law. The investigation pertains at least in part to the company's German subsidiaries and its employees and agents.
Given these developments and the likelihood of continuing government review of the pharmaceutical industry, U.S. pharmaceutical companies operating overseas – particularly in China and other countries with state-owned health care systems – are well advised to reexamine their existing FCPA compliance programs and internal
control procedures, and to promptly implement any necessary remedial measures. As discussed in our previous client advisory
on this subject, companies should take the following actions:
- Conduct risk assessments based on the incidence of corruption in the countries in which they operate and the nature of interaction with foreign government officials by employees, agents, consultants, and distributors. Company operations in high-risk countries where the health-care system is government-owned or operated
should receive particular scrutiny, as health-care professionals there may be deemed "foreign officials" for FCPA purposes.
- Translate the company code of conduct into the languages of each country where the company operates, and ensure that the translation is disseminated to officers, employees, consultants, and agents there.
- Require company employees overseas – as well as foreign consultants, agents, and distributors – to receive interactive, Internet-based training in their native language, accompanied, where possible, by in-person training by company lawyers or ethics officials.
- Ensure that there is rigorous vetting of foreign agents, distributors, or consultants, including in-person interviews by in-house compliance lawyers and background checks with the U.S. embassy or consulate. Expenditures by third-party intermediaries should be subject to more frequent audits, particularly in high-risk countries.
Compensation systems for agents and consultants that create potential incentives for corrupt payments to foreign officials, such as success fees, should be prohibited.
- Require prior approval for anything that is, or could be construed as, a payment to a foreign official – particularly gifts and entertainment expenses – in order to assess their reasonableness and connection to a bona fide business purpose, and ensure that such payments, if made, are fully and accurately documented in the company's
books and records. Although permitted under the FCPA, "facilitating" payments to foreign officials to expedite "routine governmental functions" – such as payments to obtain permits or license to do business in a foreign country, or to process visas and work orders – should be prohibited as best practices to avoid even the appearance
- Assess the adequacy of confidential reporting mechanisms, such as a "hotline" or special website, for individuals to report allegations of corruption, and act upon credible allegations of wrongdoing in a timely manner.
- Undertake prompt internal investigations when necessary to gather relevant facts and qualify for the benefits accruing from a voluntary disclosure to the government, when such a disclosure is in the company's interests.