Health care companies doing business abroad must comply with the Foreign Corrupt Practices Act (FCPA), one of the most widely enforced anti-corruption laws. In short, the FCPA prohibits payments or offers to pay anything of value to a foreign official in order to secure an improper advantage. The U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) are enforcing the FCPA – against companies of all sizes from multi-national companies to startups with minimal connections abroad – more aggressively than ever. As such, robust compliance programs are critical to minimizing potential exposure to the FCPA.
The FCPA makes it illegal for domestic companies and individuals to make payments to foreign officials to obtain improper business advantages. By “improper business advantages,” meaning paying a bribe for new business, paying a bribe to retain current business, or paying a bribe to obtain an approval or authorization from a foreign regulatory authority (e.g. permit or registration). In addition to the anti-bribery prohibition, the FCPA contains a separate component addressing corporate books and records requirements, commonly known as the accounting provisions.
At its core, the FCPA broadly applies to “domestic concerns” (i.e. U.S. citizens, nationals, and companies) with principal places of business in the United States or companies organized under U.S. state laws. The FCPA also applies to “issuers” (i.e. companies with securities registered on U.S. stock exchanges). Finally, the FCPA applies to foreign individuals and companies with a jurisdictional connection to the United States. It is important to note that the FCPA can be enforced for any violation that occurs anywhere in the world. Third-party agents are also prohibited by the FCPA from carrying out or seeking the same objective. Specifically, agents are liable if making payments to any person knowing that the funds will be offered or paid to a foreign official.
For health care companies, common FCPA violations include bribes to obtain drug approvals, bribes to obtain government contracts, and bribes to prescribe a companies’ product or drug. Here are several examples of recent enforcement actions:
Pfizer (2012) – Pfizer, through a subsidiary, made payments to obtain regulatory approvals and for the purchase of Pfizer products then false recorded the payments as travel, entertainment, clinical trials, and professional service expenses.
Mead Johnson (2015) – Mead, through a subsidiary, made payments to government-employed health care professionals at state owned facilities in China to recommend its nutritional products and did not accurately reflect the payments in its records.
Teva Pharmaceutical (2016) – Teva, an Israeli company with depository receipts traded in the U.S., made payments through subsidiaries to (i) bribe Russian government officials to influence the use of its multiple sclerosis drug, (ii) bribe Ukrainian government officials to obtain regulatory approvals, and (iii) bribe physicians employed by the Mexican government.
Fresenius Medical Care AG (2019) – Fresenius, a German-based provider of products and services for individuals with chronic kidney failure engaged in misconduct in Saudi Arabia, Morocco, Angola, Turkey, Spain, China, Serbia, Bosnia, Mexico, and eight countries in the West African region by making improper payments through a variety of schemes, including using sham consulting contracts, falsifying documents, and funneling bribes through a system of third party intermediaries.
Government corruption poses a significant risk for companies doing business internationally, especially in developing countries. Thus, health care companies doing business abroad should be concerned with their compliance efforts and be able to recognize red flags when presented. In order to minimize the risks, companies must establish a clear understanding of the practices prohibited by the FCPA. With this knowledge and commitment to ethical practices, an organization can implement an effective compliance program to avoid potential FCPA exposure.
If you have any questions regarding the FCPA, please do not hesitate to contact attorney Matthew M. Fischer (matt@fischerlawpa.com). Matthew specializes in health law related issues and is a former Assistant General Counsel at the FBI and Senior Attorney Advisor at the U.S. Department of Health and Human Services.