This week, the SEC announced a $25 million FCPA enforcement action against Swiss pharmaceutical company Novartis.
Items of value improperly provided to Chinese foreign healthcare professionals by indirect Chinese subsidiaries of Novartis included, among other things, an excursion to Niagara Falls and cover to a strip club.
This may seem like business as usual for FCPA enforcement actions, since the SEC and DOJ have been on a roll this year, but there are a few important things to consider:
FCPA doesn’t just apply to US companies
Though Novartis is a Swiss company, it has shares traded on the New York Stock exchange, leaving it open to FCPA scrutiny and enforcement and it is important to remember FCPA violations can apply to companies that are not locate don U.S. soil.
Relevant staff need to be trained, including third party vendors
Additionally, the action was based on the conduct of a few employee at indirect Chinese subsidiaries, which highlights the need to train all employees within the corporate hierarchy as well as vendors engaged by indirect subsidiaries.
The SEC noted:
Despite the widespread use of third-party travel and event planning vendors in China, Novartis did not have sufficient internal accounting controls or anticorruption compliance measures in connection with the use of these vendors. Among other things, Novartis failed to conduct sufficient training of its sales staff and managers to prevent and detect inappropriate payments made to and/or through these vendors, failed to conduct proper due diligence in connection with these vendors and failed to ensure sufficient and appropriate support for the selling and marketing expenses submitted by these vendors.
“Foreign Official” enforcement theory may apply to healthcare professionals
This is the 22nd enforcement action against healthcare related companies based on the enforcement theory that employees of certain foreign health care systems are "foreign officials."
Since many healthcare systems in foreign countries are government-run, medical professionals are government employees - hence, the reason they fall under the umbrella of foreign officials.
See this previous blog post to learn more about why the interpretation of “foreign official” matters in the context of FCPA enforcement theory.
“Anything of value” may be interpreted broadly
The various things of value allegedly provided to the Chinese "foreign officials" included an excursion to Niagara Falls, spa and sauna treatments, and cover to a strip club.
Per the SEC:
Between 2009 and 2011, certain employees of Novartis’ subsidiary, Sandoz China, improperly provided things of value to [healthcare professionals] in China in connection with pharmaceutical sales and involved certain complicit managers. The things of value took varied forms, and included gifts, travel, improper sightseeing or vacations, entertainment, and favors for families of HCPs. These things of value were improperly recorded on the general ledger as legitimate employee expenses, sponsorships, conferences, medical studies, and marketing costs.
It goes to show that even relatively small items can be deemed illegal bribery as the scope of “anything of value” is interpreted broadly.
It’s important to pay close attention to the relatively small details in the Novartis action because they can have major implications.
In this case, a large Swiss company got nailed with a $25 million enforcement action for failing to make sure every corner of its organization was properly trained and compliant.
You can learn from Novartis’ mistakes by training all third party vendors and relevant sales and marketing staff so everyone is clear about what may put your organization at risk for FCPA violations.
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