FCPA Investigations of Pharmaceutical Industry Abound

healthcare fcpa complicanceThis article originally appeared on Professor Koehler’s FCPA Professor website (www.fcpaprofessor.com) and is reprinted with his permission.

As have been widely reported (including in The New York Times), an FCPA sweep of the pharmaceutical/medical device industry is currently underway. Merck, Medtronic, Zimmer and several other companies are reportedly under investigation.

For instance, last week Eli Lilly disclosed that it is “in advanced discussions with the SEC to resolve their investigation” that began in August 2003 as to “compliance by Polish subsidiaries of certain pharmaceutical companies, including Lilly, with the [FCPA].”

AstraZeneca disclosed last week as follows.

“As previously disclosed, AstraZeneca has received inquiries from the US Department of Justice and the Securities and Exchange Commission in connection with an investigation into Foreign Corrupt Practices Act issues in the pharmaceutical industry across several countries. AstraZeneca is cooperating with these inquiries and is investigating, among other things, sales practices, internal controls, certain distributors, and interactions with healthcare providers, institutions, and other government officials. AstraZeneca is investigating inappropriate conduct in certain countries, including China.”

Johnson & Johnson, previously included in the group of companies under investigation, resolved an FCPA enforcement action last month.

Many have suggested that J&J’s voluntarily disclosed conduct served as the point of entry for the industry wide sweep based on this sentence from the J&J deferred prosecution agreement: “J&J has cooperated and agreed to continue to cooperate with the Department in the Department’s investigations of other companies and individuals in connection with business practices overseas in various markets.”

Thus, the J&J enforcement action in many ways provides a glimpse into potential future FCPA enforcement actions involving the pharmaceutical/medical device industry.

Two issues likely to be found in such future FCPA enforcement actions are discussed below.

42 USC 1320a-7(a)

The J&J deferred prosecution agreement states – for why the DOJ agreed to resolve the case the way it did – as follows.”Were the Department to initiate a prosecution of J&J or one of its operating companies and obtain a conviction, instead of entering into this Agreement to defer prosecution, J&J could be subject to exclusion from participating in federal health care programs pursuant to 42 U.S.C. 1320a-7(a).” (See here for those provisions.)

This component of the J&J enforcement is nothing new – as many companies such as Siemens, BAE and others – have escaped the most serious consequences of the alleged criminal conduct because of “who” the companies were (i.e. the products sold and to whom).

This feature of FCPA enforcement is controversial (for additional reading, see my Q&A exchange with former Senator Arlen Specter and the recent article titled “FCPA Sanctions: To Big to Debar”).

In recent months, the DOJ has pledged allegiance to the OECD Convention on Bribery to defend certain of its sentencing and “foreign official” enforcement positions (see here for instance).

Does the OECD Convention say anything about enforcement agencies looking at the unique aspects of an alleged violator and then crafting a resolution to fit that alleged violator?

Yes it does.

Article 5 of the OECD Convention, under the heading “Enforcement,” states that investigation and prosecution of bribery offenses “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

Health Care Providers as “Foreign Officials”

As noted in the prior J&J post the principal FCPA enforcement theory at issue in the pharmaceutical/medical device industry sweep would seem to be the notion that [insert country] had a national healthcare system wherein most [insert country] hospitals are publicly owned and operated and thus health care providers who work at publicly-owned hospitals are government employees providing health care services in their official capacities. According to the DOJ, the individuals are therefore “foreign officials” “as that term is defined in the FCPA.”

Against this backdrop, it is interesting to observe that in the United States approximately 20% of hospitals are owned by state or local governments (see here). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here).

Are we calling 20+% of U.S. health-care providers U.S. officials? If not, why not and why the difference?

Something to keep in mind as additional pharmaceutical/medical device FCPA enforcement actions burst onto the scene.