While still aggressively prosecuting alleged foreign bribery in the petrochemical, defense and telecommunications sectors, the US government has announced a new front in its anticorruption campaign, this time targeting the pharmaceutical industry.  In recent weeks, Assistant Attorney General for the Criminal Division of the Department of Justice (DOJ) Lanny Breuer spoke to two different groups regarding the Justice Department’s increased emphasis on pursuing violations of the Foreign Corrupt Practices Act (FCPA) in the pharmaceutical industry.  When a top government law enforcement official publicly singles out an entire industry as a focus for investigatory attention, members of that industry from the largest multinationals to smaller companies engaged in foreign business are well-advised to take heed and examine their own compliance systems, as well as potential exposure to FCPA enforcement actions. 

In general, the anti-bribery provisions of the FCPA prohibit corrupt payments to any foreign official to gain or maintain business or influence any official act.  Violators are subject to significant criminal and civil sanctions, including prison terms and fines for individuals involved and massive financial penalties for business entities.  Breuer emphasized in a speech to an FCPA compliance forum that going forward “prosecution of individuals is a cornerstone of our enforcement strategy.”  Just recently, the former chairman of KBR/Halliburton was sentenced to a seven-year prison term and former Congressman William Jefferson’s recent conviction and 13-year prison sentence related to a conspiracy to violate the FCPA, among other charges.  Under the Federal Sentencing Guidelines and DOJ’s prosecutorial zero tolerance policy in this area, jail time for individuals convicted of FCPA violations is almost a certainty.

With respect to the pharmaceutical industry, Breuer pointed out in another speech to an industry group that for U.S. pharmaceutical companies operating in foreign countries, “it is entirely possible that nearly every aspect of the approval, manufacture, import, export, pricing, sale, and marketing of a drug product in a foreign country will involve a ‘foreign official’ within the meaning of the FCPA.”  Because health care systems in foreign countries are more likely to be government-run or closely affiliated with the government, the provision of virtually anything of value to a doctor, nurse, scientist, or administrator raises FCPA compliance issues that must be analyzed carefully to assess their legality under the FCPA as well as host country law.  Therefore, pharmaceutical companies and their employees need to be aware of the broad scope of the FCPA in their industry beyond the usual example of the outright bribery of a foreign government official.  Gifts, business entertainment, lavish meals, travel, and the hiring of local agents are particular risk areas.

The DOJ and its sister agencies have significant and growing enforcement resources at their disposal in prosecuting FCPA cases.  The DOJ has brought 58 FCPA cases since 2005, more than the total number of prosecutions between the FCPA’s enactment in 1977 and 2005.  At the time of this writing, 120 active investigations are underway, according to Breuer.  The DOJ’s Criminal Division contains a group of prosecutors dedicated to FCPA investigations, and the Federal Bureau of Investigation has its own squad of FCPA-focused agents working from Washington.  Furthermore, the DOJ is increasing its efforts at cross-agency cooperation, working with the Internal Revenue Service and the Securities and Exchange Commission on investigations and prosecutions.  Finally, the DOJ’s health care fraud unit is also engaged in identifying and investigating corrupt practices in the domestic industry and has used those skills to identify similar practices internationally.  Through efforts such as these, the US government has vastly expanded its ability to identify violators proactively and not simply wait for whistleblowers or voluntary disclosures.  In his speech to the FCPA compliance forum, Breuer emphasized this point, stating that the majority of cases come from government-initiated investigations.

Corporations seeking to maximize their FCPA compliance efforts and minimize the risk of prosecution and penalties would be well advised to consider the following basic steps. First, implementing a robust internal FCPA compliance program with a strong emphasis on practical training is a necessity for any business operating in foreign countries.  Such programs not only help educate employees regarding the risks to their employers and to them personally of failure to comply with the FCPA’s requirements, but also highlight the different aspects of FCPA compliance.  For example, companies must undertake proper investigation, education, and monitoring of agents and intermediaries; establish clear guidelines on the appropriate hospitalities that may be provided in different countries and scenarios; and institute effective internal procedures so company employees can report potential issues to management long before they become substantial liabilities to the corporation.

Second, any company discovering a possible FCPA violation should investigate the matter, adopt remedial measures to bring the company into compliance, and consider the pros and cons of making a voluntary disclosure to the government.  Although this is obviously a difficult issue, the DOJ has emphasized that voluntary cooperation will result in meaningful credit for that cooperation.   

For further information regarding these issues, please contact the following Arent Fox practitioners, the Arent Fox attorney who regularly handles your legal affairs, or a member of Arent Fox’s FCPA Task Force.

Michael L. Burton
burton.michael@arentfox.com
202.857.6083

Jeffrey R. Lord
lord.jeff@arentfox.com
202.857.6038