Life Science Compliance Update

September 22, 2017

To Disclose or Not to Disclose… That is the Question: The DOJ’s FCPA Pilot Program – Insights from Year One and Beyond

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It has been over one-year since the US Department of Justice has launched its pilot program aimed to incentivize companies to self-report potential Foreign Corrupt Practices Act violations. Since its launch on April 5, 2016, the Justice Department resolved nine investigations. However, the question still remains – “Is the carrot bigger than the stick?” This article examines settlement trends before and during the Pilot Program to answer the question of whether or not it is sensible to self-disclose.

Last month, Sandra Moser, the acting chief of the DOJ’s Fraud Section made it clear that the DOJ would be increasing its enforcement efforts of healthcare related companies. Although life science companies have not been immune to Foreign Corrupt Practices Act (“FCPA”) investigations in the past, Moser stated that the DOJ viewed the healthcare industry as ‘one that faces serious compliance and corruption challenges not only in high risk markets overseas but right here at home as well.’ Simply put, life science companies will be under the FCPA microscope more than ever.

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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.”

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