Life Science Compliance Update

December 09, 2015

2015 Whistleblower Update

The annual report released by the SEC Office of the Whistleblower for the 2015 fiscal year showed an increase in Foreign Corrupt Practices Act (FCPA) whistleblower tips in FY15, but fewer tips overall from abroad.

The number of tips submitted annually concerning FCPA violations has increased every year since the first full year of data, 2012. In total, the SEC has received tips for over 500 individual cases of possible FCPA violations, totaling 14,116 whistleblower tips, since the inception of the program in 2011. In FY15, tips came in from every state, Washington, D.C., and 61 foreign countries.

Since the beginning of the whistleblower program, awards have been made to twenty-two individuals in connection with sixteen covered actions, as well as in connection with several related actions. There is no requirement that an individual be a current or former employee to be eligible for an award; however, almost half of all award recipients were current or former employees of the company in which they reported information of wrongdoing.

Of the award recipients who were current or former employees, approximately 80% said they raised their concerns internally to their supervisors or compliance personnel, or understaff that their supervisor or relevant compliance personnel knew of the violations, before reporting their information of wrongdoing to the Commission.

China and India have been on top of the leaderboard of countries for whistleblowers each year. Brazil has been able to remain outside the list of Top Five "whistleblower countries," but the whistleblower count has doubled as a result of intense investigations into corruption since the allegations of bribery at Petrobras. Tips received from Russia, who is facing Western sanctions over their Crimea actions, actually declined in FY 2015.

The volume of tips remained relatively steady throughout the year, with the highest number of whistleblower tips received during March, August, September, and October. It is possible that the program received a boost from the Alstom settlement with the DOJ in December and the incentive of the largest award to date under the whistleblower program, a $30 million reward from the SEC, to an international whistleblower in September.

The most common complaint categories reported by whistleblowers included Corporate Disclosures and Financials (17.5%), Offering Fraud (15.6%), and Manipulation (12.3%). The type of securities violations reported by whistleblowers has remained generally consistent over the last four years. Since the inception of the program, those three categories have consistently ranked as the three highest allegation types reported by whistleblowers.

While each state had at least one whistleblower submission, the highest number of whistleblower tips came from some of the largest and most populous states – California (646), New York (261), Texas (220), Florida (220), and New Jersey (146).

Although the total tip submission count increased to almost 4,000 in FY15 and the SEC places a high value on protecting whistleblowers from retaliation, the SEC experienced a decrease in the number of international whistleblowers willing to provide tips. Foreign complaints primarily came from the United Kingdom (72), Canada (49), China (43), India (33), and Australia (29).

With the rate of whistleblowers continuing to increase, a vibrant compliance program is essential. Compliance officers must be aware of what is happening within their company and be receptive to issues employees raise. An ounce of prevention is worth a pound of cure.

March 04, 2015

SEC Provides Insight Into The Foreign Corrupt Practices Act and Life Science Companies


At yesterday's session of CBI's Pharmaceutical Compliance Conference in Washington, DC, Andrew Ceresney, Director of Enforcement at the Securities and Exchange Commission, provided compliance officers with an eye-opening look at the many ways SEC seeks out violations of the Foreign Corrupt Practices Act. He focused on three types of potential interactions that pharma reps in foreign countries have with healthcare professionals that most often raise FCPA concerns. These are “pay-to-prescribe” cases, bribes to get drug products on a formulary or approved list, and bribes “disguised as charitable contributions.” Ceresney also went through accounting and disclosure issues that companies should watch out for in order to avoid the wrath of the SEC.  

The life science industry is vulnerable to bribery allegations overseas because pharma reps have “regular contact with doctors, pharmacists, and administrators from public hospitals in foreign countries,” Ceresney states. “These people often are classified as foreign officials for purposes of the FCPA, and they often decide what products public hospitals or pharmacies will purchase.”

Pay-to-Prescribe cases: “Some of our cases involve simple cash payments to doctors and other medical officials,” notes Ceresney. However he also brought up numerous examples of “more innovative schemes created for the purposes of rewarding prescribing physicians.” He mentioned the SEC’s case against Pfizer in 2012 in which employees in China rewarded “high-prescribing doctors” in the Chinese government with entertainment functions. He stated that the company also created various “point programs” where doctors could accumulate points based on Pfizer prescriptions, and redeem there for medical books, tea sets, cell phones, and reading glasses. In Croatia, Pfizer reps also rewarded doctors for agreeing to use Pfizer products.  

Bribes for Formulary placement: Ceresney stated that SEC brought a case against Eli Lilly where the company’s Poland subsidiary paid $39,000 to a small foundation started by the head of a regional government health authority. That official placed Eli Lilly’s drugs on the government reimbursement list in exchange. Eli Lilly ended up paying $29 million to settle.  

Bribes Disguised as Charitable Contributions: “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,’” advised Ceresney.  In addition to the Eli Lilly case above, the SEC settled with Stryker for $13.2 million after a Greek subsidiary allegedly made a donation of $200,000 to a public university to fund a “pet project” of a doctor in exchange for business. SEC also brought charges against Schering-Plough for a $76,000 donation paid by the company’s Polish subsidiary to a charitable foundation headed by the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by hospitals.  

“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,” stated Ceresney, who believes that companies have improved their FCPA compliance in recent years. “The best companies have adopted strong FCPA compliance programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance.”

Ceresney encouraged attendees to check out the SEC-DOJs joint “Resource Guide to the U.S. Foreign Corrupt Practices Act.” He noted that many pharmaceutical operate in “high risk countries prone to corruption.” This resource provides a thorough outline of the FCPA’s anti-bribery and accounting provisions to mitigate the risk. Ceresney stressed that compliance programs must focus on third party and distributor due diligence. Using distributors “creates the risk that the distributor will use their margin or spread to create a slush fund of cash that will be used to pay bribes to foreign officials,” he stated. “Because of this added layer of cash flow, companies frequently improperly account for bribes as legitimate expenses.” To properly control for this, companies must ensure that payments to third-parties are legitimate business expenses and “thoroughly vet third-party agents.” 


Like many government speakers and panels at compliance conferences, Ceresney put a plug in for self-reporting. “Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations,” he stated. The SEC is also “focused on making sure that people understand” the benefits associated with self-disclosure. “The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.”  

For example, earlier this year the agency entered into a deferred prosecution agreement with an engineering and construction firm that self-reported misconduct related to bribing foreign officials. Often the agency will levy reduced penalties on companies that cooperate. “Our joint SEC-DOJ FCPA settlement with Bio-Rad Laboratories for $55 million reflected a substantial reduction in penalties due to the company’s considerable cooperation in our investigation,” he noted. There, Bio-Rad “provided translations of numerous key documents, produced witnesses from foreign jurisdictions, and undertook extensive remedial actions.”  View our look at that case here.

“I will add,” Ceresney warned, “when we find the violations on our own, and the company chose not to self-report, the consequences are worse and the opportunity to earn significant credit for cooperation often has been lost.” He believes the potential of a whistleblower suit only adds to the uncertainty and risk when a company fails to self-report. It’s a “huge gamble,” he noted. 

Accounting and Disclosures in Financial Reports

"We at the SEC view accurate financial reporting as going right to the heart of investor protection in our capital markets," states Ceresney. "Investors deserve accurate financial and related information about companies so that they can make appropriate investing decisions." He noted that the number of enforcement actions brought by the SEC increased by over 40 percent in 2014 compared to 2013. Ceresney spoke to the importance of internal control, which have been "prominently featured" in recent SEC cases. He offered companies some guidance on this topic, stating that problems often arise when internal controls are not tailored to the particular business or aren't updated as the business grows. He also advised senior leadership to ask "tough questions" about financial reporting and not turn a blind eye to potential problems. 

Lastly, Ceresney spoke to the issue of appropriate disclosures made by companies on their SEC Form 8-K, the document used to alert shareholders of any material developments. "One significant type of key event that we see causing problems with disclosure in your industry is disclosures on your dealings with the FDA," he advised. "FDA dealings and approvals are the lifeblood of your business and are so important to investment decisions." SEC recently charged a medical tech company and its management with making "material misstatements and omissions in [the company's] public filings about the timing of the company's Food and Drug Administration application." 

"The message from these cases is that you need to be completely accurate in recounting your dealings with the FDA," Ceresney added. "So much turns on those interactions and not being straight with investors will have significant consequences."

Ceresney provided an important point in conclusion: "Companies often discover FCPA violations when investigating accounting problems or when implementing internal controls, particularly expense controls, so I believe that your efforts in each of these areas can be seen as mutually reinforcing – if you put in place internal controls designed to prevent and detect FCPA violations, you can end up preventing accounting and disclosure violations, and vice versa." View the full text of Ceresney's presentation here

SEC's address highlighted the FCPA's broad reach. As companies continue to tap into global markets, they must place a priority on monitoring their international marketing for potential bribery issues. We will continue to follow SEC's activity in this space. 


November 10, 2014

Bio-Rad Labs Resolves FCPA Investigation with SEC and DOJ For $55 Million; Government Gives Credit for “Self-Disclosure, Cooperation, and Remedial Efforts”


Bio-Rad Labs recently agreed to pay a $14.35 million dollar penalty to resolve DOJ allegations that its subsidiaries made improper payments to Russian, Vietnamese, and Thai officials to win contracts in violation of the Foreign Corrupt Practices Act. DOJ alleged that the company falsified its books and records and failed to have adequate internal controls in connection with its sales operations. The settlement also included disgorgement of $40.7 million related to the parallel SEC investigation. 

Notably, the DOJ said the criminal sanctions were not more severe because Bio-Rad voluntarily disclosed the misconduct and fully cooperated in its probe, including by making employees available for interviews, producing documents from overseas, and strengthening its compliance program. 

Background on the Foreign Corrupt Practices Act 

The FCPA prohibits directly or indirectly making, promising, or authorizing the making of a “corrupt payment” to a “public official.” To violate the Act, these corrupt payment must be made in order to “obtain or retain business.” However, the breadth of the law is expansive because payments to third parties (e.g., agents) made with knowledge that funds would be used to make a corrupt payment violate the FCPA.

FCPA also requires public companies (“issuers”) to maintain accurate books and records, and to implement accounting and financial controls. Importantly, there is no materiality requirement under the FCPA--there is strict liability for violations. This means that all transactions must be accurately recorded in the books and records of the subsidiaries, or the parent company can face liability.

Bio-Rad Case

Bio-Rad's foreign subsidiaries allegedly implicated the company on violations of both of the above provisions of the FCPA. 

The SEC alleges that from 2005 to 2010, foreign subsidiaries of Bio-Rad made unlawful payments in Thailand and Vietnam to obtain or retain business.


The SEC noted that regarding Thailand, Bio-Rad did "very little due diligence" in acquiring Diamed Thailand as part of its acquisition of Diamed AG (Switzerland) in October 2007. "Prior to the October 2007 acquisition, Diamed Thailand had an established bribery scheme, whereby Diamed Thailand used a Thai agent to sell diagnostic products to government customers," the SEC states. "The agent received an inflated 13% commission, of which it retained 4%, and paid 9% to Thai government officials in exchange for profitable business contracts." This scheme allegedly kept up after the acquisition. 


The allegations in Vietnam centered on the fact that sales reps made cash payments to officials at government-owned hospitals and laboratories in exchange for their agreement to buy Bio-Rad’s products. They allegedly made these payments at the direction of the country manager. 


During the same period, "Bio-Rad’s subsidiary paid certain Russian third parties, disregarding the high probability that at least some of the money would be used to make unlawful payments to government officials in Russia."  

Bio-Rad Russia’s largest contracts with the Russian government were national contracts awarded by the Russian Ministry of Health for the sale of HIV testing equipment and blood bank equipment. The clinical diagnostic products sold to the Russian government were manufactured by Bio-Rad SNC, which in many instances also sold them directly to the Russian government due to certain complexities with Russian regulations and tax laws. 

"Bio-Rad SNC, a Bio-Rad subsidiary located in France, retained and paid intermediary companies commissions of 15-30 percent purportedly in exchange for various services in connection with certain governmental sales in Russia," the DOJ states. The intermediary companies, however, did not perform these services. Several high-level managers at Bio-Rad, responsible for overseeing Bio-Rad’s business in Russia, reviewed and approved the commission payments to the intermediary companies despite knowing that the intermediary companies were not performing such services."


In violation of Bio-Rad’s policies, Bio-Rad’s foreign subsidiaries did not record the payments in their own books in a manner that would accurately or fairly reflect the transactions. Instead they booked them as commissions, advertising, and training fees. These subsidiaries’ books were consolidated into the parent company’s books and records. During the relevant period, Bio-Rad also failed to devise and maintain adequate internal accounting controls.

The SEC stated that Bio-Rad "lacked sufficient internal controls to prevent or detect approximately $7.5 million in bribes that were paid during a five-year period and improperly recorded in books and records as legitimate expenses like commissions, advertising, and training fees." Bio-Rad made $35 million in profits through the bribes, the SEC said. 

“Public companies that cook their books and hide improper payments foster corruption,” stated DOJ Assistant Attorney General Leslie Caldwell, who heads the criminal division, in a press release.  “The department also gives credit to companies, like Bio-Rad, who self-disclose, cooperate and remediate their violations of the FCPA.”

Self-Disclosure and Cooperation

The DOJ stated that they entered into a non-prosecution agreement with the company “due, in large part, to Bio-Rad’s self-disclosure of the misconduct and full cooperation with the department’s investigation.” That cooperation included:

  • Voluntarily making U.S. and foreign employees available for interviews
  • Voluntarily producing “tens of thousands of documents” from overseas
  • Summarizing the findings of its internal investigation

DOJ states that in addition, Bio-Rad engaged in significant remedial actions, including:

  • Enhancing its anti-corruption policies globally
  • Improving its internal controls and compliance functions
  • Developing and implementing additional due diligence and contracting procedures for intermediaries
  • Conducting extensive anti-corruption training throughout the organization.

There has been a lot of talk recently at conferences about self-disclosure. The US attorney speakers always promote the fact that companies are better off if they disclose issues to the government.

A recent Wall Street Journal article, Why Companies Might Opt to Self-Report Potential Bribery Issues, approaches the topic in a more nuanced way, noting that companies face a tough choice: “Run to the government and hope for a break, or try to fix the problem in-house in hopes of avoiding a costly settlement.”

The article notes:

“A lot of companies are self-reporting. And a lot of companies are not self-reporting,” said F. Joseph Warin, chairman of the Washington litigation department at Gibson Dunn & Crutcher LLP. Companies devote “an enormous effort” analyzing whether to self-report, he said.

Evaluating whether the government will find out about the potential bribery is one of the biggest factors in whether to self-report, lawyers say. For instance, if there is a whistleblower intent on reporting the issue to the government, it may spur a company to report it on its own to get credit, said Todd Harrison, a partner at McDermott Will & Emery LLP.

Companies also consider the scope of any potential bribery issues. If the potential issues weren’t systemic and were limited to a few lower-level employees, reporting them to the government may not be warranted, Mr. Warin said.


As the pharmaceutical and device industry continue to expand internationally, companies face the daunting task of keeping tight compliance controls on all areas of the globe. It will be interesting to follow both FCPA enforcement and the often related topic of self-disclosure. 

View the DOJ statement:

View the SEC order:


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