Proving that the era of large Foreign Corrupt Practices Act (FCPA) enforcement action is not over, 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., have agreed to pay about $347 million in fines to resolve claims to settle its long standing FCPA enforcement action on Thursday. 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.
The Regulators
According to the DOJ Press Release, US Attorney for New Jersey Craig Carpenito (that name is certainly in the news about now) said, “The agreement we’re announcing today shows that there will be a heavy price paid by companies that violate our laws, whether at home or overseas. Just as importantly, it includes a framework for compliance reforms that should ensure that these companies conduct their business legally moving forward.”
This was punctuated by soon to be departing Assistant Attorney General Brian A. Benczkowski, Justice Department’s Criminal Division, who stated, “Novartis AG’s subsidiaries profited from bribes that induced medical professionals, hospitals, and clinics to prescribe Novartis-branded pharmaceuticals and use Alcon surgical products, and they falsified their books and records to conceal those bribes. The resolutions announced today reflect the paramount importance of effective compliance programs and the department’s commitment to holding companies accountable when they fall short.”
Going more into the weeds, Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit, said in a SEC Press Release, “Poor control environments are fertile soil for malfeasance,” and “As illustrated by Novartis’ misconduct, weaknesses in one part of the business can often serve as a harbinger of larger unaddressed problems.”
The Schemes
- Novartis
Novartis got into trouble in multiple countries, Greece, Vietnam and South Korea. Novartis Greece admitted to bribing Greek physicians, employees of state-owned health care enterprises and public health ministers through a variety of schemes. According to the DOJ Press Release, “Between 2012 and 2015, Novartis Greece conspired with others to violate the FCPA by engaging in a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Greece in order to increase the sale of Novartis-branded pharmaceutical products. Novartis Greece paid for those employees to travel to international medical congresses, including events held in the United States, as a means to bribe these officials in exchange for increasing the number of prescriptions they wrote for Lucentis, a prescription drug that Novartis Greece sold. Novartis Greece employees traveled to the United States facilitated the provision of the improper benefits to publicly employed Greek health care providers.”
The company “also admitted that between 2009 and 2010, Novartis Greece made improper payments to health care providers in connection with an epidemiological study that was intended to increase sales of certain Novartis-branded prescription drugs. The epidemiological study was used as a vehicle to make improper payments to the health care providers in order to increase sales of certain Novartis-branded prescription drugs, and Novartis Greece employees recognized that many participating health care providers believed that they were being paid in exchange for writing prescriptions of Novartis products and not for providing data as part of a clinical study.”
2. Alcon
Alcon Pte, an eye-care unit of Novartis, from 2011 through 2014 “knowingly and willfully conspired with others to cause Novartis AG to maintain false books, records and accounts, as a result of a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Vietnam. The false books and records resulted from a scheme in which Alcon Pte Ltd made corrupt payments through a third-party distributor to employees of state-owned and state-controlled hospitals and clinics in Vietnam in order to increase sales of intraocular lenses. Intraocular lenses are artificial replacement lenses that are implanted in the eye as part of a treatment for a variety of ailments, such as cataracts.” Alcon employees in Vietnam fraudulently funded bribes through a reimbursement scheme with distributors for up to 50% of the cost of the corrupt payments. In turn, these reimbursements were “falsely recorded as, among other things, consulting expenses, marketing expenses, and human resource expenses.”
The SEC said, “Novartis lacked 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.”
Interestingly, the nefarious acts came to light through internal whistleblowers in Greece. Stephen M. Kohn, a founding partner in the qui tam whistleblower law firm of Kohn, Kohn & Colapinto LLC and the US attorney for the whistleblowers, said in a blog post, “The confidential and anonymous Greek whistleblowers who documented these crimes are heroes. They put their reputations and careers at risk to inform law enforcement about widespread bribery schemes in Greek healthcare programs. Even today, their safety is under threat from corrupt officials who stole from the health care system and took bribes.”
Doubly interesting is the now infamous hiring by Novartis of former Trump lawyer Michael Cohen back in 2017. According to MarketWatch, Cohen’s hiring was “an important way for the company to understand the players of the Trump administration.” One now must wonder if it had anything to do with the then ongoing DOJ and SEC investigations. At the very least, it demonstrates the tone of Novartis senior management at the time.
Over the next several blog posts I will be taking a deep dive into this case. I hope you will join me.
Resources
SEC Press Release
SEC Cease and Order
Alcon Pte Ltd DPA
Alcon Pte Ltd Criminal Information
Novartis Hellas S.A.C.I. DPA
Novartis Hellas S.A.C.I. Criminal Information
DOJ Press Release
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