Life Science Compliance Update

April 24, 2017

TEVA - Using Legitimate Distributor Payments to Conceal Bribes

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On December 22, 2016, the Securities and Exchange Commission (SEC) announced that Teva Pharmaceutical Industries Limited had agreed to pay more than $519 million to settle parallel civil and criminal charges that it violated the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials in Russia, Ukraine, and Mexico. The interesting aspect of this settlement is as the government alleges, the bribes were concealed in the form of legitimate payments to distributors.

It has been a long time coming. The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) have been investigating the Israeli drug giant, Teva Pharmaceutical Industries Limited (“Teva”) for alleged Foreign Corrupt Practices Act (“FCPA”) violations since 2012. Four years later and right before Obama left office, the SEC finally announced a settlement with Teva.

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February 02, 2017

Zimmer Biomet Pays $30 Million to Resolve New FCPA Charges

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Medical device maker Zimmer Biomet Holdings, Inc., agreed to pay $30.5 million to resolve Department of Justice (DOJ) and Securities and Exchange Commission (SEC) investigations into the company’s “repeat” violations of the Foreign Corrupt Practices Act (FCPA). The $30.5 million is split between a criminal fine of $17.46 million and an SEC penalty of $13 million (consisting of $6.5 million in disgorgement and interest and a $6.5 million penalty).

Biomet entered into a deferred prosecution agreement (DPA) with the DOJ, requiring them to retain an independent compliance monitor for three years, and settled the claims with the SEC through an internal administrative order, halting the need to go to court.

Previous Charges

Biomet first faced FCPA charges from both the DOJ and SEC in March 2012, paying nearly $23 million to settle that enforcement action. At that time, Biomet entered into a DPA with the DOJ and also retained an independent compliance monitor for three years. In 2013, Biomet learned about more potential anti-bribery violations in Brazil and Mexico and notified the monitor.

Even after the 2012 DPA, according to the DOJ, Biomet “knowingly and willfully continued to use a third party distributor in Brazil known to have paid bribes to government officials on Biomet’s behalf.” In Mexico, Biomet failed to implement an adequate system of internal accounting controls at a subsidiary, “despite employees and executives having been made aware of red flags suggesting that bribes were being paid.”

The 2012 enforcement action involved Biomet’s bribery of government officials in Argentina, Brazil, and China. The three-year DPA from 2012 was extended by the DOJ for another year after Biomet reported to the monitor the suspected bribery in Brazil and Mexico. At the end of that year, according to the DOJ, “the independent monitor was unable to certify that the company’s compliance program satisfied the requirements of the 2012 DPA.” In 2015, Zimmer bought Biomet in 2015 for about $14 billion, and the combined company trades on the Stock Exchange under ZBH.

Repeat Violations

In June 2016, the DOJ said that Biomet had breached the 2012 DPA “based on conduct in Brazil and Mexico.” Once the DOJ told Zimmer Biomet it was in breach of the 2012 DPA, the company “fully cooperated” and provided information about individuals involved in the misconduct. This agreement imposes another three-year DPA on Zimmer Biomet with an independent compliance monitor.

Assistant Attorney General Leslie R. Caldwell said, “In appropriate circumstances the department will resolve serious criminal conduct through alternative means, but there will be consequences for those companies that refuse to take these agreements seriously.”

A statement from the company said the money to be paid was previously recorded in financial statements. Chad Phipps, senior vice president, general counsel, and secretary at Zimmer Biomet, said that the company is pleased to have resolved “legacy Biomet FCPA compliance matters.” Phipps also said, “Zimmer Biomet is committed to upholding the highest ethical and legal standards in our business practices across the globe, and we look forward to continuing to integrate the legacy Biomet business operations into our robust corporate compliance program.”

January 20, 2017

The Trump Administration: One Predictive Perspective

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We recently had the pleasure of speaking with Michaeline Daboul, President and CEO of MediSpend, about the upcoming administration and what she portends for the future of compliance and enforcement. Ms. Daboul introduced the first open source SaaS compliance solution to the life sciences industry and has been introducing disruptive technologies in the pharmaceutical industry for drug development, genomics research, and compliance since 1985.

With so many compliance regulations in different parts of the world, global business leaders need to understand the different laws and industry codes of conduct that they encounter on a regular basis. Compliance solutions that aggregate business data daily allow companies to manage the constant changes in laws, currency and data differences, and multiple language cross-border interactions.

For life science companies, relevant and timely compliance management and monitoring is extremely important. The impending Trump administration will likely influence how seriously companies continue to comply with US laws like the Foreign Corrupt Practices Act (FCPA), Anti-kickback and Securities and Exchange Commission (SEC) laws, not to mention the complications Brexit and changes in Italy add to the mix.

We have seen an era of vigorous FCPA enforcement from roughly 2000 up to the present, with Attorneys General making prosecuting foreign bribery a significant priority and/or devoting substantial resources to the area.

As someone who has been entrenched in the life sciences industry for over thirty years, she has seen her fair share of changes, and the ebbs and flows with each presidential administration and corresponding Congresses. With respect to the upcoming Trump Administration and Republican-led Congress, Ms. Daboul says, “We don’t know what is going to happen, but all signs lead to a more relaxed interpretation of the law. These laws were enacted to control and prevent corruption. Companies need to operate in an ethical manner – and organizing and aggregating the data needed to be in compliance with the many existing laws will go a long way towards preventing non-compliance and corruption.”

While there is no current movement in Congress to change the FCPA, Ms. Daboul believes that President-Elect Trump may try to dismantle the law. She refers back to a 2012 episode of CNBC’s Squawk Box when Mr. Trump referenced the FCPA saying, “It’s a horrible law, and it should be changed.” He believes the FCPA inhibits US businesses from conducting business abroad in places like China, Colombia, and Brazil.

Ms. Daboul is not alone in thinking that Mr. Trump will attempt to dismantle the law. Matthew Stephenson, a professor at Harvard Law School, wrote about his belief that the “era of vigorous FCPA enforcement…is over.” He believes that the FCPA “is likely to be substantially weakened,” though entire repeal is relatively unlikely.

Those who are suspicious of Mr. Trump and his business dealings, believe that enforcement may become more politicized than it has been in the past, with more deliberate targeting of foreign companies and perceived political enemies (especially those that compete with firms close to Mr. Trump and his businesses).

Alexandra Wrage, president and founder of TRACE International, also believes that enforcement will slow during the Trump Administration, noting that “[Mr.] Trump has championed reduced regulation and has derided the FCPA, so it seems likely that fighting corruption will be a considerably lower priority.”

If Mr. Trump indeed ushers in a period of deregulation, Ms. Daboul recommends that companies around the world continue to focus on improving business process workflows, transparency between organizational stakeholders, and doing the right thing by managing end-to-end business activities with proper controls.

Ms. Daboul also made sure to note that in order to do business all over the world, it is imperative to understand how to interact and operate globally – the FCPA is only one law and there are other new and forthcoming laws by which global companies need to abide.

Mr. Trump Nominates Jay Clayton

In early January 2017, Donald Trump nominated Jay Clayton (currently in private practice as a partner at Sullivan & Cromwell) to lead the SEC during his administration. Mr. Clayton presently represents companies in FCPA investigations.

In 2011, prior to the wave of global anti-bribery cooperation, Mr. Clayton authored a 2011 New York City Bar Association paper about the FCPA, addressing the “lasting harm to the competitiveness of U.S. regulated companies” due to the current “anti-bribery regime.” 

Richard Bistrong at the FCPA Blog seems to think that Mr. Clayton may be another Andrew Weissman, who was appointed as Chief of the DOJ Fraud section a year ago. Prior to being appointed to that position, Weissman aggressively advocated limiting the FCPA, which led many to believe that his appointment would result in less FCPA enforcement. However, that did not happen, and instead, led the biggest 365 days in FCPA enforcement history.

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