Revised DOJ and SEC FCPA Guide / Novartis AG and Subsidiaries to Pay $345.9 Million to Resolve FCPA Violations
By Richard Montes De Oca* and Claudia Herbello**
Revised DOJ and SEC FCPA Guide
On July 3rd, 2020, the Department of Justice (“DOJ”) and the Securities Exchange Commission (“SEC”) released a second Foreign Corrupt Practices Act (“FCPA”) Resource Guide. This update is the first since the FCPA Resource Guide was published in 2012. The purpose of the new guide is to provide updates which reflect the last eight years of new cases, new law, and new policies. It is an excellent source of information for chief compliance officers and in-house counsel because it codifies all policy changes and enforcement actions as well as the FCPA Corporate Enforcement Policy, the Selection of Monitors in Criminal Division Matters, the Anti-Piling on Policy, and the Criminal Division’s Evaluation of Corporate Compliance Programs guidance.
Under the Evaluation of Corporate Compliance Programs section, the guidance provides updates and significantly more details concerning confidential reporting and investigations, periodic testing and review, pre- and post-acquisition due diligence in mergers and acquisitions, and investigation and remediation expectations. The guidance is meant to give more clarity on what the DOJ and SEC expect from corporate compliance programs and what they mainly focus on when determining if a particular program is effective or not. Part of the new language states that “the truest measure of an effective compliance program is how it responds to misconduct. Accordingly, for a compliance program to be truly effective, it should have a well-functioning and appropriately funded mechanism for the timely and thorough investigations of any allegations or suspicions of misconduct by the company, its employees, or agents.”
Both the DOJ and SEC also emphasize the importance of whether the compliance program is being applied earnestly and in good faith and whether it is adequately resourced and empowered to function effectively. Another area of importance is evaluating the programs adequacy and effectiveness at the time of the misconduct and at the time of the resolution when deciding what action the company will or will not take. This update is of great value because it is one of the few areas where both the DOJ and SEC are in alignment and therefore a company that complies with this point will receive credit from both agencies.
Lastly, the guidance also discusses successor liability in mergers and acquisitions and the importance of pre-acquisition due diligence. The revised guide states that in instances where “robust pre-acquisition due diligence may not be possible,” the agencies “will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts/” In certain cases where the acquiring company voluntarily discloses misconduct, the company may be eligible for a declination even in aggravating circumstances.
The DOJ and SEC FCPA Resouce Guide is available here.
Novartis AG and Subsidiaries to Pay $345.9 Million to Resolve FCPA Violations
On June 25, 2020, global pharmaceutical and healthcare company Novartis AG agreed to pay The Securities Exchange Commission (“SEC”) over $112 Million to settle charged that it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”). The company and local subsidiaries are accused of using paid trip to international medical congresses in the U.S. and Europe costing around $6,000 each between 2012 and 2016 as a way to induce employees at state-owned hospitals in South-Korea, Greece, and Vietnam to prescribe their products including the company’s macular degeneration drug, Lucentis.
Apart from the $112 Million, the company also agreed to pay disgorgement of $92.3 Million and $20.5 Million in prejudgment interest. The company was also accused of lacking sufficient internal accounting controls within its former Alcon business in China from 2013 to 2015, which used forged contracts as part of local financing arrangements that generated large losses and resulted in Novartis and Alcon writing off more than $50 Million in bad debt. Apart from the payments, the company must also spend the next three years reporting back to the SEC and Department of Justice once a year on the progress of their compliance programs and internal controls. In addition, subsidiaries of Novartis and Alcon also entered into deferred prosecution agreements with the U.S. Department of Justice and have agreed to pay more than $233 Million in criminal fines.
South Korea also took action against the company and levied a fine of $50.3 Million as well as temporary ban on sales of some of its products and criminal charges against the company and an employee. In response to the charges and fines, Shannon Thyme Klinger, the company’s general counsel, stated that the company is pleased to have resolved all its outstanding FCPA investigations and move forward. The Justice department commented that both fines imposed by the U.S. reflect reductions because of cooperation by Novartis and Alcon.
With increasingly aggressive enforcement efforts and record-setting fines, MDO Partners encourages companies to establish or update strong Anti-Corruption Compliance Programs that align with the revised DOJ and SEC FCPA Resource Guide to mitigate the risk of FCPA violations.
*Richard Montes De Oca is the Vice-Treasurer of The Florida Bar International Law Section and Managing Partner at MDO Partners, a boutique law firm that focuses on Corporate, International, and Real Estate law, as well as Global Compliance and Business Ethics.
**Claudia Herbello serves as one of MDO Partners’ Associate Counsel. Herbello is a corporate law attorney with experience in Corporate Governance, Mergers and Acquisitions Transactions, Corporate Formation, as well as Global Compliance and Business Ethics.