Pharmaceutical FCPA Fraud

The SEC announced Alexion Pharmaceuticals would pay more than $21 million to resolve charges that it violated the books and records and internal accounting controls provisions of the FCPA. Two Alexion subsidiaries made payments to foreign government officials to secure favorable treatment for Alexion’s primary drug, Soliris. The order finds that, from 2010 to 2015, Alexion Turkey paid Turkish government officials to improperly influence them to approve patient prescriptions and provide other favorable regulatory treatment for Soliris. The order similarly finds that from 2011 to 2015, Alexion Russia made improper payments to Russian government health care officials to favorably influence the regulatory treatment of and the budget allocated to Soliris as well as to increase the number of approved Soliris prescriptions.

In June 2020, current and former subsidiaries of pharmaceutical giant Novartis AG agreed to pay $345.9 million in penalties and profits over an alleged bribery scheme at hospitals in Greece and improper recordkeeping in Vietnam and other countries. Novartis Greece will pay a criminal fine of $225 million, according to the Department of Justice. Prosecutors alleged a scheme from 2012 and 2015 that paid for trips to induce employees at state-owned hospitals to prescribe more of the company’s products. In a parallel civil settlement, the company agreed to disgorge $112 million in profits that the Securities and Exchange Commission alleges are tied to poor record keeping that allowed the company to make improper payments to healthcare providers in Greece, Vietnam and South Korea.

In February 2020, U.S.-based pharmaceutical distributor Cardinal Health agreed to pay more than $8 million to resolve charges that it violated the books and records and internal accounting controls provisions of the FCPA. The SEC order stated that Cardinal’s internal accounting controls were not sufficient to detect improper payments made by employees of its former Chinese subsidiary. The order stated that, between 2010 and 2016, Cardinal China retained thousands of employees and managed two large marketing accounts for the benefit of a European dermocosmetic company whose products Cardinal China distributed. The dermocosmetic company directed the day-to-day activities of the Cardinal China employees, who used the marketing account funds to promote the dermocosmetic company’s products. According to the order, employees directed payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions.

In 2016, GlaxoSmithKline plc (“GSK”) agreed to pay $20 million to settle charges that it violated the FCPA when its China-based subsidiaries engaged in pay-to-prescribe schemes to increase sales. An SEC investigation found that the schemes spanned a period of years and involved the transfer of money, gifts, and other things of value to health care professionals (who are considered foreign officials because China’s healthcare system is state owned and controlled). The payments led to millions of dollars in increased sales of GSK pharmaceutical products to China’s state health institutions. The participants included certain complicit sales and marketing managers within GSK’s China based subsidiaries. GSK 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 2018, Paris-based Sanofi agreed to pay more than $25 million to resolve charges related to corrupt payments to win business in Kazakhstan and the Middle East. The schemes involved bribe payments to government procurement officials and healthcare providers in order to be awarded tenders and to increase prescriptions of its products.

Global generic drug manufacturer Teva Pharmaceutical agreed to pay $519 million in 2016 to settle parallel civil and criminal charges that it paid bribes to foreign government officials in Russia, Ukraine, and Mexico. The SEC complaint alleged that Teva made more than $214 million in illicit profits by making the influential payments to increase its market share and obtain regulatory and formulary approvals as well as favorable drug purchase and prescription decisions.

In 2016, U.K.-based biopharmaceutical company AstraZeneca agreed to pay more than $5.5 million to settle FCPA violations resulting from improper payments made by subsidiaries in China and Russia to foreign officials. An SEC investigation found that employees of AstraZeneca’s subsidiary in China made improper payments in the form of cash, gifts and other items to foreign official healthcare providers as incentives to purchase or prescribe AstraZeneca pharmaceuticals, and also made payments in cash to local officials to get reductions or dismissals of proposed financial sanctions against the subsidiary. The investigation found that employees of AstraZeneca’s subsidiary in Russia also made improper payments in connection with pharmaceutical sales. The SEC’s investigation also found that the improper payment schemes occurred over the course of several years, and were orchestrated or condoned by multiple levels of management at AstraZeneca’s China and Russia subsidiaries. The illicit payments by the foreign subsidiaries were not accurately reflected in AstraZeneca’s books and records, the Company failed to devise and maintain a sufficient system of internal accounting controls, and lacked an effective anti-corruption compliance program.

Swiss-based pharmaceutical company Novartis AG agreed to pay $25 million to settle charges that it violated the FCPA when its China-based subsidiaries engaged in pay-to-prescribe schemes to increase sales in 2016. The SEC order stated that from at least 2009 to 2013, certain employees and agents of Novartis subsidiaries conducting business in China engaged in transactions and provided things of value to foreign officials, principally healthcare professionals (“HCPs”). These payments took varied forms and were intended to influence the HCPs and thereby increase sales of Novartis pharmaceutical products. Employees and managers in the involved subsidiaries attempted to conceal the true nature of the transactions through the use of complicit third parties and by improperly recording the relevant transactions on the books and records of the respective subsidiaries, which were consolidated in the financial reports of Novartis. Examples include improperly recording the payments as legitimate expenses for travel and entertainment, conferences, lecture fees, marketing events, educational seminars, and medical studies. Novartis also failed to devise and maintain an effective system of internal accounting controls or an effective anti-corruption compliance program.

SciClone Pharmaceuticals, based in California, agreed to pay $12 million in 2016 to settle SEC charges that it violated the FCPA when international subsidiaries increased sales by making improper payments to health care professionals employed at state health institutions in China. The SEC investigation found that employees of SciClone’s subsidiaries acted as agents of the company when they gave money, gifts, and other things of value to the health care professionals, which led to several million dollars in sales of pharmaceutical products to China’s state health institutions.