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Friday
Mar042016

Nordion and former employee settle FCPA charges for Russia bribes 

Image courtesy of NordionMedical isotope provider Nordion (Canada) Inc. and a former employee settled SEC charges Thursday of violating the Foreign Corrupt Practices Act by bribing Russian government officials. The former employee was also charged with taking kickbacks.

The SEC said Mikhail Gourevitch arranged bribes to Russian officials through a third-party agent for approval to sell a Nordion liver cancer treatment called TheraSphere.

Gourevitch agreed to settle the FCPA charges by paying $100,000 in disgorgement, $12,950 in prejudgment interest, and a $66,000 penalty.

Gourevitch is a dual citizen of Canada and Israel. He lived in Canada when he worked for Nordion as an engineer. He now lives in Israel.

Nordion Thursday agreed to pay a $375,000 penalty to settle charges that it lacked internal accounting controls and basic FCPA due diligence.

The SEC resolved the enforcement actions through internal administrative orders and didn't go to court. Nordion and Gourevitch consented to the orders without admitting or denying the findings.

The administrative orders charged that Nordion violated the books-and-records and internal accounting controls provisions of the FCPA and Gourevitch violated the antibribery, books-and-records, and false records provisions.

The SEC corporate enforcement action named Ottawa, Canada-based Nordion (Canada) Inc.. The privately-held company is the successor to Nordion, Inc., which traded on the New York Stock Exchange under the symbol NDZ from 2004 to 2011 when the bribery in Russia occurred.

In August 2014, during the SEC's investigation, Nordion Inc. went private when it was acquired by Nordion (Canada) Inc. for $727 million.

The company provides medical isotopes and sterilization technologies used by drug and biotech companies, medical-device makers, hospitals and clinics, and research labs. It has customers in about 60 countries.

Around 2000, Gourevitch was working as an engineer for Nordion in Canada. He told the company about a "childhood friend" in Russia who could help it buy cobalt-60. Nordion needed a cobalt-60 supply to process its medical isotopes.

"The agent had no experience in the nuclear power industry, nuclear medicine, or medical isotopes," the SEC said.

But in March 2002, Nordion signed a written consulting agreement with the agent to obtain cobalt-60 from a Russian government agency. 

"As of that time, Nordion had performed virtually no due diligence on the agent," the SEC said.

After the agent secured cobalt-60 supply contracts, Nordion asked him in 2004 to help win Russian government approval to distribute a liver cancer treatment, TheraSphere.

Gourevitch ran the relationship with the agent. The SEC said Gourevitch knew the agent intended to use some of the consulting money to bribe Russian government officials.

The agent also kicked back to Gourevitch some of the money from Nordion.

The SEC said,

Email communications (primarily in Russian) between Gourevitch and the agent documented the bribe scheme. For example, the agent emailed cost estimates to Gourevitch for each step of the process required to register and license Therasphere in Russia. These cost estimates noted the payment of “unofficial costs” or bribes to Russian government officials. 

In one email Gourevitch told the agent, “Nordion does not want to see the bribes in your cost estimate and justification.”

Gourevitch hid the bribes and kickbacks by communicating with the agent in Russian, preparing multiple drafts of documents, and lying about how the agent would use the money from Nordion, the SEC said.

"Nordion did not do due diligence on the agent or follow its own internal controls procedures in place at the time," the SEC said. 

Nordion paid the agent’s invoices "even though they lacked detail and directed Nordion to make payment to offshore bank accounts for entities that were unknown to Nordion and appeared to be unrelated to the agent."

From 2005 through 2011, Nordion paid the Agent about $235,000 related to approvals for TheraSphere.

"Ultimately, Nordion was unable to distribute TheraSphere in Russia and, as a result, did not earn any profits on the sale of the product in Russia," the SEC said.

The agent secretly paid Gourevitch at least $100,000 in kickbacks, the SEC said.

After Nordion found evidence of Gourevitch's scheme, it self-reported to the SEC, cooperated with the investigation, and "took immediate steps to remedy the problems," including firing Gourevitch.

The SEC said it "considered the company’s significant cooperation, self-reporting and remedial acts when determining a settlement."

Nordion first disclosed the investigation to the public in an SEC filing in September 2012.

The SEC said Thursday it had help in the case from the DOJ's Fraud Section, the FBI, the Royal Canadian Mounted Police, the Financial and Capital Market Commission of Latvia, the Finantsinspektsioon Financial Supervision Authority of Estonia, the Cyprus Securities and Exchange Commission, the British Virgin Islands Financial Services Commission, the Liechtenstein Federal Market Authority, and the Financial Supervisory Authority of Finland.

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Securities Exchange Act of 1934 Release No. 77288 and Administrative Proceeding File No. 3-17152 (both dated March 3, 2016) In the Matter of Mikhail Gourevitch are here (pdf).

Securities Exchange Act of 1934 Release No. 77290 and Administrative Proceeding File No. 3-17153 (both dated March 3, 2016) In the Matter of Nordion (Canada) Inc. are here (pdf).

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