During a well-publicized speech last fall, U.S. Assistant Attorney General Lanny Breuer warned the pharmaceutical industry that its dealings with foreign governments would attract increased scrutiny from the Department of Justice. That warning proved timely, as more than a dozen major drug and device manufacturers are now mired in an ever-broadening probe into alleged illegal payments to foreign health officials. That such scrutiny has descended on the industry amid its burgeoning expansion into emerging markets only heightens the already substantial risk of criminal liability.
The FCPA has become a favorite tool of prosecutors
The basis for such liability is the 1977 Foreign Corrupt Practices Act ("FCPA"), a federal law that generally prohibits gifts, or offers to give, anything of value to a foreign official with the intent of gaining an improper business advantage. The prohibition applies to both domestic entities and individuals, and does not require the offender to have acted affirmatively – "willful ignorance" of offending conduct is enough to violate the FCPA. Thus, a corporate executive in the United States may incur personal, criminal liability for disregarding an overseas salesperson's bribery of a foreign official. Consequences can be severe. Corporate violators may suffer fines, penalties and disgorgement totaling tens of millions of dollars, while individuals often face prison sentences. In fact, in 2008 a corporation paid fines and penalties exceeding $1.6 billion, while the longest prison sentence ever in an FCPA case – 87 months for a Virginia man – was handed down this past April.
The Obama administration, believing that such corruption feeds terrorism and illegal trafficking, has unapologetically sought to combat international business corruption by utilizing the FCPA. In fact, more FCPA cases have been prosecuted in the past four years than in the previous thirty. The number of FCPA investigations, too, has skyrocketed; while there were less than ten investigations pending in 2000, today there are more than 130.
Why the pharmaceutical industry is at particular risk
In contrast to the United States' largely privatized health care system, many health care systems abroad are government owned or operated. In such countries, physicians, employees and other health care providers can be deemed "foreign officials" for purposes of the FCPA. The Department of Justice suspects that the frequent communication between such individuals and drug makers' international representatives – whether at the "approval, manufacture, import, export, pricing, sale [or] marketing" stage of production – may run afoul of the FCPA. AAG Breuer explained, "The depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process."
For instance, consultancy agreements between pharmaceutical companies and physicians, although commonplace in the United States, can have grave FCPA implications in a country having socialized health care. So, too, could payments made to doctors supervising overseas clinical trials. Major media outlets, including The New York Times and The Financial Times, have recently identified ongoing investigations involving such conduct.
Preventive measures that may mitigate FCPA exposure
AAG Breuer's clarion call to the pharmaceutical industry was not without useful guidance, however. He identified several measures that could mitigate a company's exposure to FCPA liability. Chief among them was the implementation of a robust and effective FCPA compliance policy that is "faithfully enforced." Implementing such a policy requires a thorough review of the company's existing operating practices, procedures and global footprint. Another important prophylactic measure, itself a byproduct of an effective compliance policy, is a company's voluntary disclosure of known FCPA violations. Such cooperation with federal authorities can go a long way towards successfully navigating the company through the treacherous waters of an FCPA investigation.
These sorts of measures should be made in consultation with outside counsel who are seasoned in FCPA compliance and enforcement matters. Parker Poe's team of litigators have substantial experience not only implementing FCPA compliance policies for clients operating around the globe, but also interfacing with federal authorities to facilitate a successful resolution to an FCPA investigation.
For more information, please contact Richard S. Glaser or Eric H. Cottrell.