The same day that the 2020 Resource Guide was released the Securities and Exchange Commission (SEC) announced it had settled a Foreign Corrupt Practices Act (FCPA) enforcement action involving Alexion Pharmaceuticals Inc. (Alexion) who agreed to pay more than $21 million to resolve charges that it violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC Press Release, the case was resolved via a Cease and Desist Order (Order) where Alexion “agreed to cease and desist from committing violations of the books and records and internal accounting controls provisions of the FCPA and pay $14,210,194 in disgorgement, $3,766,337 in prejudgment interest, and a $3.5 million penalty.” Today I begin a two-part blog post series looking at this enforcement action. In today’s post I will consider the bribery schemes. Tomorrow I will look at the use of data analytics to prevent these types of corruption schemes from even getting off the ground.
As with most recent FCPA enforcement actions announced by the SEC, this matter had some very interesting and useful information for the compliance practitioner. The company engaged in bribery as a standard business practice in a wide variety of countries and through several wholly owned subsidiaries, including Alexion Ilaç Ticaret Limited Sirketi (“Alexion Turkey”) incorporated in 2010; Alexion Pharma OOO (“Alexion Russia”) incorporated in 2012; Alexion Pharma Brazil (“Alexion Brazil”) incorporated in 2009 and Alexion Pharma Colombia SAS (“Alexion Colombia”) incorporated in 2009. Alexion Colombia’s books and records were consolidated into Alexion’s financial statements.
According to the Order, Alexion engaged in bribery and corruption by making payments to foreign officials in order to influence them to provide favorable regulatory treatment for Alexion’s primary drug, Soliris, and to approve Soliris prescriptions for individual patients. In addition, from 2011 to 2015, Alexion Russia made payments to foreign officials in order to influence the allocation of regional healthcare budgets for Soliris, increase the number of approved Soliris prescriptions and favorably influence the regulatory treatment of Soliris. The payments were made in a variety of ways, including through the use of a third-party consultant, honoraria, and grants. Alexion Brazil and Alexion Colombia failed to maintain accurate books and records regarding third-party payments.
The Bribery Schemes
Alexion Turkey had a sales program called the Named Sales Program (NSP). The NSP was required to have each patient’s application reviewed and approved by healthcare providers (“HCPs”) appointed to serve on commissions in Turkey’s Ministry of Health, separate set of approvals to pay for the prescription, and recurring approvals thereafter to continue the patient on Soliris therapy. Alexion Turkey illegally paid HCPs employed at state-owned healthcare institutions for services, including research and educational events to get through this process.
This led Alexion Turkey to hire a consultant to facilitate the payment of bribes. It was accomplished by paying the consultant fees and alleged expense reimbursements. The consultant used this money as a slush fund to make bribe payments in the form of cash, meals, or gifts to HCPs to secure favorable treatment for Soliris. Certain Alexion Turkey employees recorded these payments inaccurately in the books and records. In one of the most improbable scenarios recently seen in a FCPA enforcement action, one “Alexion Turkey manager directed that the description of the Consultant’s claimed expenses should be written in pencil. The use of pencil would allow the description of the expenses to be easily changed or concealed.” HCPs were paid over $100,000 and Alexion Turkey made some $7.5 million in ill-gotten gains as a result.
In Russia, Soliris was also sold through the NPS process and reimbursed through regional healthcare reimbursements. To obtain approval for these reimbursements, various regions were required allocate funds to Soliris from regional healthcare budgets. Alexion Russia paid HCPs employed at state-owned healthcare institutions for services, including research, consulting on specific topics, and hosting educational events and activities. These payments were fraudulent and inaccurately recording in the entity’s books and records.
Moreover, certain state-employed HCPs also served in official roles at the regional and federal levels of the Russian government healthcare system. These HCPs provided expert opinions regarding the allocation of regional healthcare budgets and the regulatory treatment of Soliris. Alexion Russia made over $1 million in payments to these HCPs, which included funds paid to influence the HCPs to take positions favorable to Alexion Russia in connection with regional budget allocations, to increase the number of approved Soliris prescriptions, and to favorably influence the regulatory treatment of Soliris. These payments were recorded inaccurately in their books and records as honoraria, educational expenses, business meeting expenses, and scientific research. In Russia there was over $1.3 million in bribes paid and the resulting ill-gotten gain by the company was over $7.5 million.
Finally, there were bribery schemes involving Alexion Brazil and Alexion Colombia. They created or directed third parties to create inaccurate financial records concerning payments to third parties, including patient advocacy organizations (“PAOs”). In one instance, Alexion Brazil caused a PAO to pay for the manager’s personal expenses for alcohol and personal travel. To fund this bribe, they had the corrupt manager submit a fictitious invoice, which was then reimbursed by Alexion Brazil. As the quid pro quo, the corrupt manager and an employee in Alexion Brazil submitted grant requests to Alexion’s global grant review committee that misstated how the requested funds would be allocated to the different activities covered in the grant request.
In Alexion Colombia, a senior manager “directed a PAO to submit an invoice that falsely described that the funds would be used for “legal support” services. This inaccurate invoice allowed Alexion Colombia to approve the payment locally instead of obtaining approval for the payment through the global grant process, as required by Alexion’s policies.” Both Alexion Brazil and Alexion Colombia failed to maintain accurate books and records of its financial transactions involving payments to third parties. The Order went on to state, “Notably, both subsidiaries failed to regularly maintain certain documents underlying a substantial number of financial transactions. Finally, when they were caught, Alexion allowed Alexion Brazil to destroy relevant documents demonstrating the fraud.”
Tomorrow I will consider how data analytics could have been used to both detect and prevent these bribery schemes and provide some lessons to be garnered by the compliance professional.