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At the annual “SEC Speaks” conference on February 19, 2016 in Washington, DC, the head of the SEC’s FCPA Unit, Kara Brockmeyer, warned pharmaceutical companies that their industry will be under renewed scrutiny in 2016.  She said the SEC “is going back to the pharma industry after a break for a period of years.”  Brockmeyer also highlighted increased international cooperation that will make government enforcement easier going forward. While no industry is immune to corruption, the pharma industry has been the focus of both the SEC and DOJ for several years now.  As the SEC’s enforcement chief, Andrew Cerezny, explained in his remarks at CBI’s Pharmaceutical Compliance Conference in March 2015, a number of factors make it a high-risk industry for FCPA violations.  In particular, Cerezny noted the fact that pharmaceutical representatives have regular contact with doctors, pharmacists, and administrators from public hospitals abroad who are considered “foreign officials” for purposes of the FCPA.  So, kickbacks and improper favors to doctors, pharmacists, hospital administrators, and the like all fall under the of the FCPA. Several recent high-profile FCPA settlements have involved pharmaceutical companies.  Most recently, the SEC settled with SciClone Pharmaceuticals for $12.8 million in early February. In the SEC’s action against SciClone, civil charges included alleged violations of the FCPA’s anti-bribery, internal controls and books & records provisions.  The SEC alleged that employees of SciClone’s Chinese subsidiaries provided money, gifts and other things of value to healthcare professionals in state-owned hospitals in an effort to increase sales.  According to the settlement documents, Chinese healthcare professionals received weekend trips and family vacations, expensive gifts and meals, foreign language classes and various entertainment, including invitations to attend an annual beer festival consisting of golf and drinking activities.  The related expenses were recorded in SciClone’s books as legitimate business expenses, such as scholarships, travel and entertainment, conferences, honoraria, and promotional expenses.  As part of the settlement, the SEC imposed post-settlement reporting obligations on SciClone for three years. In October 2015, Bristol-Meyers Squibb settled an FCPA action with the SEC involving BMS’s majority-owned joint venture in China for $14.7 million.  BMS was charged with books and records and internal controls violations.  According to the SEC’s allegations, BMS “failed to design and maintain effective internal controls relating to interactions with health care providers.”  Allegedly, certain sales representatives of the joint venture generated funds to provide corrupt inducements in order to secure sales.  These inducements took the form of cash and gifts including jewelry, meals, travel, entertainment and sponsorship for attending conferences.  BMS agreed to post-settlement reporting to the SEC for a two-year period on its remediation and implementation of anti-corruption compliance measures. While the DOJ has apparently declined to prosecute SciClone and BMS, the DOJ has recently prosecuted other pharmaceutical companies for kickbacks to obtain contracts with foreign ministries, payments to physicians in government-owned hospitals, paying unjustified fees and providing excessive hospitalities to influence government-run health system physicians to prescribe their products, as well as other FCPA violations.  DOJ officials have previously indicated that the pharma industry would be the object of DOJ’s increased focus.  They also noted that they will prosecute new cases based on evidence they developed in other cases, so more enforcement can be expected by both the SEC and DOJ.   These recent pharma industry cases may have provided the Government with information and leads they can pursue regarding other pharmaceutical companies. What Pharmaceutical Companies Should Do to Avoid Becoming a Target Given this renewed regulatory focus, pharmaceutical companies should take the opportunity to ensure their anti-corruption policies are as strong as possible.  A strong compliance program should include the following steps:

  • Design effective internal controls designed to identify potential violations.
  • Maintain and regularly update policies governing interactions with healthcare professionals.  These policies should cover gifts and hospitality, as well as procedures regarding healthcare conferences, clinical trials, and marketing to healthcare professionals.
  • Periodically train employees on such policies and test their knowledge and ability to identify red flags.
  • Conduct periodic risk assessments and audits to verify compliance, and promptly remediate identified gaps and weaknesses. Make sure to include areas that have been targeted in recent pharma-related enforcement actions, such as joint ventures and relationships with state-owned hospitals and universities.
  • Maintain and publicize communication channels to report potential violations.
  • Promptly investigate all reported violations and take remedial steps including adjustments to policies and controls based on investigative findings.
  • Conduct due diligence on third parties such as distributors, consultants and travel agencies.
  • Include compliance clauses as well as audit and termination provisions in all third party contracts, including contracts with healthcare professionals retained as speakers or other representatives of the company.
  • Stay abreast of FCPA cases involving other pharmaceutical companies and benchmark compliance efforts against peers.
  • Take special care to consider anti-corruption exposure during the M&A process.  Any merger or acquisition should include a careful pre- and post-transition review for anti-corruption liability and a plan for updating and standardizing anti-corruption policies across the corporate platforms.

Efforts taken to ensure your company has a strong anti-corruption program now can save time, money, and regulatory exposure later.


Brian Whisler is a member of Baker McKenzie’s Compliance and Investigations, Dispute Resolution and Global Pharmaceuticals Practice Groups. Prior to joining the Firm, Mr. Whisler served as the criminal chief assistant United States attorney in the Eastern District of Virginia, where he managed the criminal trial practice of the Richmond office which handled cases ranging from white collar crime, violent crime, public corruption and terrorism. Mr. Whisler focused his own trial practice on white collar prosecutions including health care fraud, securities fraud, money laundering, and tax fraud. He also served as an assistant United States attorney for the Western District of North Carolina where he focused on white collar prosecutions and served as chief of appeals and health care fraud coordinator.


Trevor McFadden is a partner in Baker & McKenzie’s North America Compliance & Investigations Practice Group in Washington, DC, where he focuses on corporate compliance and internal investigations. His experience includes a distinguished career with the US Department of Justice. As an assistant United States attorney in DC, he prosecuted numerous criminal cases. Previously, he was counsel to the Deputy Attorney General, where he advised on white collar and violent crime matters. Mr. McFadden also served as a law clerk for Judge Steven Colloton of the US Eighth Circuit Court of Appeals and was on the Editorial Board of the Virginia Law Review.

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