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DOJ to Scrutinize Pharmaceutical Industry Conduct for FCPA Violations
November 30, 2009
The U.S. Justice Department has put the pharmaceutical industry squarely on notice that its overseas business dealings will be scrutinized through the high-powered lens of a prosecutorial microscope. According to Justice Department statements, government prosecutors will be looking for violations of the Foreign Corrupt Practices Act (FCPA) within the pharmaceutical industry. And if they find them, they can be counted on to indict companies and senior executives who cut corners or authorize pay-offs to foreign officials in exchange for business. As one official put it, the Justice Department will be "intensely focused on rooting out foreign bribery in [the] industry."
In an address this month to the annual Pharmaceutical Regulatory and Compliance Congress, Assistant Attorney General Lanny Breuer observed that, unlike their American counterparts, foreign health systems are more often owned, regulated or financed by a government agency. As a result of anticipated interaction with foreign officials, and perceived keen competition, AAG Breuer predicted that U.S. companies will be at increased risk for submitting to the temptation of paying to play. Beyond legal forecasting, Breuer launched a potent salvo at would-be FCPA violators in the industry: prosecutors will press for "real deterren[ce]" in appropriate cases by prosecuting not only corporations but also senior executives – and then will move to have the individuals sent to prison.
Under the FCPA's anti-bribery provision, which was enacted in 1977, it is a felony for U.S. companies and individuals, among others, corruptly to give or promise anything of value to a foreign official (or so authorize) with the intent of inducing the official to assist the company to obtain or retain business. A separate provision requires that "issuer" companies record all business transactions in a reasonably detailed and accurate manner and implement adequate accounting controls to safeguard against financial or accounting misconduct.
Pharmaceutical companies with foreign operations should pay particular attention to the FCPA's definition of "foreign official," which goes beyond health ministers, customs officials and what the layperson would ordinarily expect the term to mean. Under the statute's expansive definition, a "foreign official" could include employees and managers of a state-owned or controlled hospital or health care system, including doctors, lab technicians, administrators, procurement officers, pharmacists and other health professionals. Thus, according to the Justice Department, under certain circumstances, it could be possible for each station along the drug production channel – "approval, manufacture, import, export, pricing, sale and marketing" – to involve a "foreign official." And with each station there is an attendant risk of an FCPA issue.
Moreover, under the FCPA an affirmative act is not a prerequisite for FCPA liability. "Knowing" conduct is not limited to actual awareness, but covers "conscious avoidance" of circumstances in which a particular result is understood to be substantially certain to occur. Nor does the existence of a written FCPA policy confer a pass in an FCPA prosecution. A failure to pursue rigorous due diligence and follow up with probing questions could, however, invite a grand jury investigation – or worse.
That the Justice Department has reaffirmed and enhanced its commitment to pursuing FCPA cases aggressively cannot be denied. (It also markedly has ramped up its resources, coordinating strategies for and criminal enforcement of health care fraud statutes, including anti-kickback violations, false statements and fraud in a multitude of varieties.) In the last four years, 57 FCPA cases reportedly have been prosecuted – more than the total number of prosecutions dating back 28 years, when the FCPA became law. The Justice Department and SEC recently have claimed convictions and reeled in enormous criminal fines and other penalties in several aggressive prosecutions and other enforcement actions. Right now, there are reported to be 120 FCPA investigations at the Justice Department.
The Justice Department does, however, offer some constructive ways for U.S. companies to help safeguard against the potentially grim consequences of an FCPA violation. AAG Breuer offered a couple of prophylactic recommendations for pharmaceutical companies. One is for companies to implement a robust and effective FCPA compliance policy that is "faithfully enforced." To help ensure an adequate compliance program, a thorough review of existing policies and procedures should first take place, including an assessment of their effectiveness in light of the nature of the company's businesses and where they are operating.
Having an effective and tested compliance program in place is perhaps the best way that a U.S. company can protect its interests against the wayward actions of a rogue manager or employee at home or abroad. Performing due diligence of joint ventures and agent, sub-contractor and distributor engagements is an important component of an effective compliance program. But mere paper policies that are not implemented, enforced, monitored or audited can quickly backfire, however. AAG Breuer's additional suggestion that companies voluntarily self-report following their discovery of a violation, as part of overall cooperation with the government, merits serious attention. A company's decision to self-report voluntarily should, of course, be carefully considered based on all the facts and circumstances and following full consultation with counsel.