I am back from a two-week summer study program at Oxford, run by Michigan State University through its Odyssey to Oxford program. It was a great experience. My class was on The Tudors in film and print so not only did I re-watch some decent movies but was able to re-read the sweep of Tudor history, from Henry VII to Elizabeth I. If you have any interest in studying at Oxford or learning more about British culture or history, this program is for you.
One of the sad notes from the past fortnight was the passing of Gene Wilder. He was one of the great comic actors of the late 20th century. Whether it was the doctor who fell in love with an (underage) sheep, the definitive Willy Wonka, Dr. Frankenstein (pronounced FraunkEnSteen), his movie pairings with Richard Pryor, or his hilarious comedy routines with his (now deceased) wife Gilda Radner; they were all top shelf. So I hope when he gets to the great theater in the sky he will be able to say “Put the candle back” to a packed house and roaring audience.
Of note in the Foreign Corrupt Practices Act (FCPA) world, was the AstraZeneca (AZN) enforcement action brought by the Securities and Exchange Commission (SEC). The case had several interesting factors and, more significantly for the C hief Compliance Officer (CCO) and compliance practitioner, a continuation of several lessons to be learned from enforcement actions over the past several months. While the conduct at issue occurred between 2005-2010 and has been seen in other anti-corruption enforcement actions, it remains useful to review the facts presented so that compliance professionals can test their compliance regime.
The company came to FCPA grief for its actions in its Chinese and Russian subsidiaries. In China, the subsidiary (AZ China) made numerous improper payments to health care providers (HCPs) “in the form of cash, gifts and other items … incentives to purchase or prescribe AZN pharmaceuticals.” Sales and marketing team members, including managers within various business units at AZ China, designed and implemented the improper payment schemes. The HCPs who received the improper incentives worked for various government entities in several regions throughout China. Interestingly, the “AZ China sales staff and their managers maintained written charts and schedules that recorded the amount of forecasted or actual payments of maintenance fees, gifts, entertainment and other expenses that AZ China would make per month or year”.
We also saw the re-emergence of our old Chinese corruption vehicle, the travel agency, which was featured so prominently in the GlaxoSmithKline (GSK) Chinese corruption case. These corrupt travel agencies would submit falsified or inflated invoices which in turn could be used to generate monies from the corporate home office to pay bribes. There were also speaker fees paid for speeches never made, travel bookings reimbursed for travel which never occurred; both of which were purloined through insufficient documentation and failures of internal controls.
In AZ’s Russia subsidiary, (AZ Russia) the “employees provided improper incentives to government-employed HCPs in connection with sales of AZN pharmaceutical products. As was done by AZ China employees, AZ Russia employees created and maintained charts tracking the names of HCPs, the regions in which they practiced, their level of influence in making purchasing decisions for the respective entities where they worked and the manner in which they could be motivated to purchase AZN products through gifts, conference support and other means.”
Further instructiveness comes from the result achieved by AZN. For violations of both prongs of the Accounting Provisions of the FCPA: (1) Books and Records and (2) Internal Controls; the company sustained a civil penalty which was relatively low at $375,000; profit disgorgement of $4,325,000, which represents profits gained as a result of the conduct described in the order, and prejudgment interest of $822,000, for a total of approximately $5.5MM. There was no external monitor required, all of this with no self-disclosure by AZN.
AZN engaged in extensive cooperation during the investigation and significant remediation. For its cooperation during the investigation, the company “immediately took a cooperative posture and ensured that it consistently provided complete information in a timely manner. AZN voluntarily and timely disclosed information obtained during its own internal investigation, provided translations of key documents, and disclosed facts that the Commission would not have been able to readily and independently discover. AZN also kept the staff regularly informed of its ongoing remedial efforts throughout the course of the investigation.”
For the CCO or compliance practitioner, the actions engaged in to remediate its compliance program marked the measure of its result. The Order noted the company:
- Incorporated information developed in the course of the Commission’s investigation to further enhance its controls and compliance program;
- Made significant increases to both capital and human resources available to compliance at the corporate level and in the local markets;
- Developed a centralized compliance program;
- Revamped its internal controls and procedures;
- Placed key compliance personnel in high-risk markets;
- Enhanced anticorruption training and company audits of its compliance program; and
- Provided targeted training and discipline to company employee involved.
Additional compliance program improvements included:
- enhancements to AZN’s policies governing interactions with HCPs and government officials,
- gifts, travel and entertainment,
- third party engagements,
- meetings, congresses, and contributions.
This FCPA enforcement action continues the clear path laid out by the SEC from June, 2016 forward. There will be civil enforcement of the FCPA where the company has not met the standards of the Accounting Provisions. However, even without self-disclosure, a company can receive a relatively low civil penalty if it cooperates during the investigation and engages in extensive remediation of its compliance program. Much like Gene Wilder spinning in the door which led to the secret passageway to his great-grandfather’s laboratory in Young Frankenstein a company can successfully emerge from facts which give rise to a FCPA violation. The problem is if a company wants to go to court and fight the charges it will most probably continue the same conduct which led to the original issue and will not have received credits going forward for its penalty, hence giving it greater liability. Such an attitude would certainly keep a company spinning.
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© Thomas R. Fox, 2016