Bristol Myers Squibb settled an enforcement action brought by the Securities & Exchange Commission into allegations that BMS violated aspects of the Foreign Corrupt Practices Act (FCPA) for $14 million.
The SEC alleged that the pharmaceutical manufacturer’s majority owned joint venture paid cash and other benefits to Chinese medical professionals in exchange for prescription drug sales. BMS was charged by the SEC with violations of the record keeping and internal controls provisions of the FCPA. The SEC did not bring charges against BMS for violating the bribery provisions of the FCPA.
Specifically, BMS recorded as advertising and promotional expenses cash payments and expenses for gifts, speaker fees, conference sponsorships and meetings provided to health-care practitioners at state-owned and state-controlled hospitals as well as employees of state-owned pharmacies made to secure prescription sales in China. BMS false recorded these transactions as legitimate business expenses in its books and records.
The SEC also cited the company for failing to respond effectively to red flags within the BMS China unit. Several employees reportedly wrote emails to the head of BMS China in late 2010 and early 2011 indicating that there was no other way to meet their sales targets other than to violate the bribe doctors. BMS China did not investigate.
BMS also did not have sufficient compliance initiatives in place or timely correct internal control deficiencies.. For example, there was no permanent compliance position in China until 2010 and the corporate compliance officer responsible for the Asia-Pacific region through 2012 rarely traveled to China. Issues with internal controls at BMS China were also identified in audits of BMS China between 2009 and 2013 and these problems were reported to BMS but went uncorrected.
China has been the source of numerous allegations of violations of the FCPA for companies listed on the U.S. stock exchanges. In one of the largest settlements in the past year, Avon Products agreed to pay $135 million to resolve the SEC’s investigation into its Chinese bribery. The last time that I looked, there were more than 80 corporations under investigation or self-disclosed violations of the law relating to their operations in China.
Multi-national companies selling pharmaceuticals and medical products in China have been particularly susceptible to violating the law. Mead Johnson and Bruker have both resolved charges with the SEC in the past year regarding improper payments concerning health care professionals. There is also a high profile investigation into GSK regarding behavior that already resulted in a record fine by the Chinese Government of $489 million in 2014.
One SEC official has already said that there is fertile ground within the SEC whistleblower program for FCPA whistleblowers. The SEC program pays 10 to 30 percent of monetary sanctions in qualifying enforcement actions to eligible whistleblowers providing key information. Given the large number of international whistleblowers (approximately 10% or more of tips every year), and the large enforcement actions that may result from violations of the law, it seems likely that there will be quite a few awards made by the SEC in this area in the future.