This week I am reviewing the Foreign Corrupt Practices Act (FCPA) enforcement action involving the Swiss pharmaceutical company Novartis AG, its Greek subsidiary Novartis Hellas S.A.C.I. (Novartis Greece) and Alcon Pte Ltd., a unit of eye-care company Alcon Inc., which agreed to pay some $347 million in fines to resolve claims. Novartis Greece and Alcon Pte, a former subsidiary of Novartis AG and current subsidiary of Alcon Inc., agreed to pay $233 million in criminal penalties to resolve the Department of Justice (DOJ) investigation into FCPA violations. Novartis AG has also agreed to pay $112 million to the US Securities and Exchange Commission (SEC) in a related matter. Today I want to consider the bribery schemes.
The schemes used by Novartis in Greece had several important aspects that every compliance professional should study so they can review their own compliance regime to see if there are similar weaknesses. Moreover, while the schemes themselves were almost basic, they once again demonstrate the capacity for companies to completely lose their ethical way and also the lengths which a business unit can go to attempt to hide its illegal actions. One scheme shows how a legitimate program, which might have passed compliance muster, morphed into something very different. Finally, the Novartis bribery schemes show the almost unbelievable capacity for business folks to put completely inane communications into emails detailing the bribery schemes.
A. The Investment Scheme
The Investment Scheme was the company’s moniker to pay employees of government owned healthcare providers (HCPs) to attend international medical congresses. These congresses were organized by various medical associations in the US and Europe, and typically took place over several days in a US or European destination city. The cost for persons to attend these congresses was listed at between $6,000 to $8,700 per attendee.
According to the Novartis Hellas Information, the company kept “internal documentation noting that HCPs with the highest potential and highest propensity to prescribe Lucentis would receive “investments,” such as sponsorships to attend international congresses, while HCPs with lower potential and less propensity to prescribe Lucentis would receive no such “investments.”” Indeed, in written minutes from the Novartis Hellas Brand Team which led this effort, the Information noted a section “entitled “Increase Pressure in [sic] HCPs” reflected NOVARTIS HELLAS’s intent to use specific international congress sponsorships to corruptly influence Greek State HCPs. In particular, the Minutes stated that Greek State HCPs “must understand that their participation in [specific congresses in the United States and Europe] will be cancelled if sales performance is not improved significantly.”” That is about a clear quid pro quo as you can ever see in the world of FCPA enforcement.
B. Key Opinion Leaders
Clearly presaging the Fyre Festival, Novartis Hellas targeted influencers in the Greek HCP world by courting what the company called “Key Opinion Leaders” or KOLs. No doubt channeling their inner Donald Trump they sought to obtain “loyalty” that is more HCPs writing more prescriptions of their product Lucentis by paying bribes directly to these KOLs. Once again there was a clear quid pro quo as Novartis Hellas would lower their investments in KOLs if their loyalty dipped by not making more and additional prescriptions of Lucentis.
Novartis Hellas compounded this illegal action by then hiding the loyalty payments by falsely recording them in the company’s books and records as ““legitimate advertising and promotion expenses”… These false records were consolidated into Novartis AG’s financial records and used to support Novartis AG’s financial reporting to the SEC. As such, NOVARTIS HELLAS, through its employees and agents, knowingly and willfully conspired and agreed with others to cause the corrupt payments to be falsely recorded as legitimate expenses in Novartis AG’s books, records, and accounts.”
C. Clinical Trial Study – The EXACTLY Scheme
This bribery scheme appears to have begun as a legitimate clinical study. It involved “Phase IV studies and epidemiological studies, both of which were research studies intended to answer scientific questions related to medical conditions treated by Novartis-branded prescription drugs. In this role, and depending on the study, NOVARTIS HELLAS selected Greek public and private HCPs to gather patient data for the studies.” Moreover, “the Phase IV studies and epidemiological studies were designed to inform medical and clinical decisions, not to increase sales.” However, Novartis Hellas morphed the program into a straight bribe paying exercise.
The basis of the study had to be changed to meet certain Greek data privacy issues. In doing so, Novartis Hellas simply went through a pro-forma exercise to have paperwork filed for the study but the data was either cut and pasted between forms or simply filled in incorrectly so as to render it useless as the basis of a clinical study. No doubt recognizing the irony in this name, Novartis Hellas called it the “EXACTLY Program”.
To even heighten all this a document entitled ‘The EXACTLY Debrief’ contained the following statements, “the doctor believes that he/she participates in a study [EXACTLY] and gets paid for what he prescribes in reality and not for what he/she writes in the study”; “the doctors believe that the study was conducted in order to get paid for what they write, right?”; “this is a type of benefit provided to the doctors. They know that they will get paid, this is what happens in reality” and, finally, “To be honest, the studies were conducted in a similar way in the past as well; they were conducted as marketing projects. That’s within quotation marks. Between us.”
A. The Consultancy Program
The Alcon scheme was more straight forward and was called the “Consultancy Scheme”. Here a distributor was engaged to make bribery payments to HCPs in Vietnam. The Alcon Information stated, “Under the guise of the consultancy program, the Distributor Company made corrupt payments to HCPs, including Vietnam State HCPs, in connection with sales of Alcon Division IOLs by the Distributor Company. The Distributor Company made the payments directly to HCPs, including to Vietnam State HCPs.”
It began with Alcon “providing money to the Distributor Company, disguised as consultancy payments and in the form of credit notes, that the Distributor Company used to make corrupt payments to HCPs”. At its peak, there were 200 Vietnam HCPs being paid bribes by the Distributor designated by Alcon. The scheme was facilitated internally through the following steps, “(a) Distributor Company employees would regularly send emails to an Alcon Vietnam Representative Offices employee requesting a credit note for a certain amount related to the consultancy program; (b) the Alcon Vietnam Representative Offices employee reviewed and forwarded the requests to regional management, including Alcon Pte Ltd Executive 2; and (c) once approved by regional management, credit notes were issued to the Distributor Company with the stated reason for the credit note as “consultancy fees.”
Please join me tomorrow when I consider the internal controls violations and what this means for your compliance program.
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© Thomas R. Fox, 2020