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Tuesday
Mar032015

How do pharmas pay bribes? The SEC counts the ways

In a speech Tuesday at CBI's Annual Pharmaceutical Compliance Congress in Washington D.C., the head of the SEC's enforcement division, Andrew Ceresney, left, talked about the most common ways pharmas violate the FCPA.

Here's what he said:

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There have been three types of misconduct that we have seen arise most often in our pharma FCPA cases. One is “Pay-to-Prescribe”; another is bribes to get drugs on the approved list or formulary; and the third is bribes disguised as charitable contributions. Let me discuss each of these in turn.

In “Pay-to-Prescribe” cases, we see public official doctors and public hospitals being paid bribes in exchange for prescribing certain medication, or other products such as medical devices. Some of our cases involve simple cash payments to doctors and other medical officials. But we have also seen some more innovative schemes created for the purposes of rewarding prescribing physicians. For example, in our 2012 action against Pfizer, subsidiaries in different countries found a variety of illicit ways to compensate doctors. 

In China, employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions. Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote. The points were redeemed for gifts ranging from medical books to cell phones, tea sets, and reading glasses.

In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions. Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products. Each of these schemes violated the FCPA by routing money to foreign officials in exchange for business.

Let me turn to a second form of bribery, which is aimed at getting products on a formulary. Of course, getting your company’s drugs on formularies is important to success in this industry. But the FCPA requires that you do this without paying bribes, and we have taken action where companies have crossed that line.  We brought a case against Eli Lilly that included such violations. There, the company’s subsidiary in Poland made payments totaling $39,000 to a small foundation started by the head of a regional government health authority. That official, in exchange, placed Lilly drugs on the government reimbursement list. That action involved a variety of other FCPA violations and Eli Lilly paid $29 million to settle the matter.

The Eli Lilly case brings me to my third point, which concerns bribes disguised as charitable contributions. As you might know, the FCPA prohibits giving “anything of value” to a foreign official to induce an official action to obtain or retain business, and we take an expansive view of the phrase “anything of value.” The phrase clearly captures more than just cash bribes, and Eli Lilly is not the only matter where we have brought an action arising out of charitable contributions.

For example, in Stryker, we charged a medical technology company after subsidiaries in five different countries paid bribes in order to obtain or retain business. Stryker’s subsidiary in Greece made a purported donation of nearly $200,000 to a public university to fund a laboratory that was the pet project of a public hospital doctor. In return, the doctor agreed to provide business to Stryker. Stryker agreed to pay $13.2 million to settle these and other charges.

Similarly, in Schering-Plough, we brought charges against the company arising out of $76,000 paid by its Polish subsidiary to a charitable foundation. The head of that foundation was also the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by other entities, such as hospitals. In settling our action, Schering-Plough consented to paying a $500,000 penalty.  

The lesson is that bribes come in many shapes and sizes, and those made under the guise of charitable giving are of particular risk in the pharmaceutical industry. So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA -- whether it is cash, gifts, travel, entertainment, or charitable contributions. We will continue to pursue a broad interpretation of the FCPA that addresses bribery in all forms.

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Ceresney spent the rest of his time talking about compliance, self reporting, and disclosure.

His full remarks from March 3, 2015 are here.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

Reader Comments (2)

The head of the SEC enforcement division in this speech has touched on an important topic that is not discussed in FCPA circles. That is how accountants and legal experts are driving FCPA violations with innovative accounting and legal tricks and methods. Multinational companies seek these experts advice for their creative and innovative skills on how to go around the FCPA and continue paying bribes.. Until this part of the FCPA violation is address violations will continue.
March 3, 2015 | Unregistered CommenterJ Farrow
I read Mr. Ceresney's speech and comments and I can't help but think that the SEC and DOJ assume issuers are companies that go out into the world with the intent of breaking all the rules, paying bribes, and being corrupt. Yet, the examples that are listed in his speech don't show how bad US issuers are. Rather, they all point to local employees in far-distant countries who operate culturally under different assumptions and who didn't seem to have received the memo that US companies don't tolerate bribery and corrupt practices. I think it's time for the SEC and DOJ to move from blaming issuers (which is convenient and requires little effort) to getting issuers to be active and willing participants in the global fight against corruption. I outline how this can be done in an article I wrote for the International In-House Counsel Journal: http://www.iicj.net/library/detail.asp?key=811
March 4, 2015 | Unregistered CommenterPeter Manda
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