Healthcare Companies Continue to Face FCPA Liability Overseas.

Both Teva and Flowserve have announced potential exposure under the Foreign Corrupt Practices Act (FCPA) in securities filings over the past month due to business practices outside of the United States.

Teva announced that its investigation into potential FCPA violations has discovered conduct that “likely” violated the law. The corporate investigation started in 2012 following an inquiry by the Securities & Exchange Commission and Department of Justice. The company is investigating practices in Latin America, Eastern Europe and Russia.

Teva is an international pharmaceutical company headquartered in Israel. However, in addition to U.S. based companies, the law also applies to issuers on a U.S. stock exchange. Teva trades on the New York Stock Exchange under the stock symbol “TEVA”.

Unlike Teva, Flowserve indicated that it does not believe that the matter will materially impact its business. Flowserve self-reported a potential violation of the FCPA to the DOJ and the SEC following discovery of a violation of its code of conduct by an employee. The company terminated the individual and is conducting an internal investigation.

Flowserve previously settled charges in 2008 brought by the DOJ and the SEC that employees at a subsidiary paid kickbacks to the Iraqi government to obtain contracts related to the United Nations Oil for Food program. The company paid just over $10 million in penalties to resolve the cases. Flowserve is covered by the FCPA both as a U.S. issuer (it trades on the NYSE under the symbol “FLS”) and an American corporation. It is headquartered in a suburb of Dallas, Texas.

Teva and Flowserve are not the only companies to face potential liability. GlaxoSmithKline is investigating allegations of wrongdoing in several countries around the world, including China, Iraq and Poland. GSK already paid China nearly $500 million to settle charges of corruption in that country.

In Iraq, GSK allegedly hired 16 government-employed medical professionals as sales reps. In Poland, the company allegedly used money allocated for medical training to instead bribe doctors. In China, the sales team allegedly provided expensive gifts and cash to influential doctors. It also used a travel agent to send some on vacations while calling them conferences.

News reports have indicated that the allegations in China, Iraq and Poland have all resulted from international whistleblowers. Individuals in all three countries have reportedly provided information to the press regarding the matters the company is investigating.

Pharmaceutical and medical device manufacturers face potential exposure because physicians at state-owned facilities are considered foreign officials under the FCPA. Pfizer, Johnson & Johnson, and Eli Lilly have all paid fines over the past few years to resolve investigations.

FCPA investigations can take a long time, so there is no reason to expect a resolution or settlement involving either GSK, Teva or Flowserve anytime soon. Eli Lilly, for example, disclosed a potential violation of the law in 2003. Following its settlement with the SEC in 2012, the DOJ continued to investigate Eli Lilly. Eli Lilly only recently announced that the Justice Department closed its investigation into the matter.

Here are the links to the securities filings by Teva and Flowserve. The relevant sections can be found by searching for “Foreign Corrupt”.  For additional information, please contact one of our FCPA whistleblower attorneys.

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