I have written extensively about the Novartis International AG (Novartis) Foreign Corrupt Practices Act (FCPA) settlement, which was announced in late June. However, the enforcement action paled next to the Stipulation and Order of Settlement and Dismissal (Stipulation), dated July 1, 2020, entered against Novartis Pharmaceuticals Corporation for its bribery and corruption in the US. The first settlement pertains to the company’s alleged illegal use of three foundations as conduits to pay the copayments of Medicare patients taking Novartis’s drugs Gilenya and Afinitor. The second settlement resolves claims arising from the company’s alleged payments of kickbacks to doctors. The Settlement Agreement (Settlement Agreement) was entered into in the US District Court for the Southern District of New York.

These cases had much for every compliance practitioner to consider, including the specific illegal conduct of Novartis, the deficiencies in their compliance program, compliance function and Chief Compliance Officer (CCO); the role of the whistleblower, corrupt culture and lessons learned. Over the next few blog posts, I will be considering the Novartis US settlements and Corporate Integrity Agreement (CIA). Today I want to consider the compliance program failures.

Rarely in a major multi-national does one see such an under-staffed, continually overwhelmed and seemingly impotent compliance function. It appeared Novartis US had no intention of having anything close to an effective compliance program. Their approach is a sobering reminder of the cost of a company wholly disregarding its obligations to have a compliance program. Indeed, the lack of a functioning compliance discipline at Novartis US might even seem to rise to a rare Caremark violation by the Board. According to the Stipulation, Novartis only created a compliance department in 1999 and for its initial two years the company’s compliance program “consisted of one employee.”

Thereafter, although Novartis hired additional compliance personnel in later years, it did not employ sufficient staff to investigate potential Anti-Kickback (AKS) violations. As a result, there was a large backlog of potential AKS violations that needed to be investigated. Because of this backlog and the resulting passage of time, in many cases Novartis did not investigate potential misconduct at all. Yet whatever the meagre size of the compliance department, it did not have “the personnel and resources to adequately monitor that the tens of thousands of speaker and roundtable events that Novartis organized throughout the country each year complied with the AKS.”

This was as basic as it gets. The compliance function was under-resourced to do the most basic job that could have been assigned to it. There was nothing in the Stipulation or Settlement reflecting on the quality of the compliance department but it was clear that the compliance department was provided nowhere near enough resources to process the requests which came into it. Even when it came to testing, the corporate compliance policy requirements around its physician speaker program, the company “did not conduct a comprehensive field audit of speaker events until 2008, after approximately 90 percent of the events at issue in this case had already occurred. Novartis supervisors and compliance staff attended only a small number of the hundreds of thousands of speaker and roundtable events that Novartis arranged during the Relevant Period.” Moreover, the audits were likely no more than perfunctory examinations as “sales representatives would typically receive advance notice if their programs were going to be audited.”

Yet just how invested was the Novartis US compliance function in actually doing compliance or was it more focused on simply looking the other way? Consider the following from the Stipulation: “Novartis’s compliance training materials suggested that emails advocating illegal kickbacks were improper in part because they “reflect[] ignorance of the import of written communications, and put[] the Company at risk.” Novartis’s Chief Compliance Officer also stated in training presentations: “If you don’t have to write it, don’t. Consider using the phone.””

Let us unpack this quote for a few moments. Here the CCO was admitting there were emails advocating Illegal kickbacks. In legal parlance that is called actual knowledge. So, the CCO had actual knowledge of illegal conduct and their only advice was to not put it in writing. This was in compliance training; not in training on how to engage in illegal kickbacks to help drive our corrupt business model.

Just as in the FCPA world, Novartis US is a recidivist for corruption in the US. In 2010, it was put under a Corporate Integrity Agreement (the 2010 CIA). It required the expert to conduct a “Year One Compliance Program Effectiveness Review” a year after the 2010 CIA went into effect. The Stipulation stated, “As part of the review, the expert concluded that Novartis had only “partially” met its compliance goals in certain areas. For example, the expert concluded that compliance monitoring had still largely remained “the responsibility of the business [team],” rather than those working in the compliance department, and that Novartis had not “defined” how that monitoring was to occur or how the business team’s findings would be reported to compliance officials. The expert found that there were no written policies or procedures addressing how to conduct investigations of allegations of speaker program abuses and that the reporting of investigative results had not been standardized. The expert also found that Novartis did not consistently undertake “appropriate disciplinary action” for compliance violations in non-termination cases.”

If you ask the people who have money to spend (to make sales) to monitor themselves for their own spending, where they are evaluated and even compensated on the amount they spend; the results will always be the same. That group will NEVER find that they did anything wrong. That encapsulates the entire Novartis US approach to compliance. Incentivize the business folks to engage in violations of the AKS, then have those same business folks monitor themselves and, finally, have your compliance function, who knows illegal conduct is going on, tell employees “don’t put any evidence of your illegal conduct in emails.”

It would seem that the Novartis US had their own motto, “What, me worry?”

Tomorrow, I will consider the 2020 Corporate Integrity Agreement.

Resources

Stipulation and Order of Settlement and Dismissal

Settlement Agreement

Corporate Integrity Agreement

DOJ Press Release

[View source.]