Top Five Enforcement Actions in 2020
By Thomas Fox ,The Compliance Evangelist, Author
I wanted to explore some of the Foreign Corrupt Practices Act (FCPA) enforcement actions from 2020. Obviously, there are still many lessons to be learned from these enforcement actions.
1. Cardinal Health – High Risk Business Relationships
Cardinal Health Inc. (Cardinal), settled its FCPA matter with the SEC in April. According to the SEC Press Release, Anita B. Bandy, Associate Director in the SEC’s Division of Enforcement, said
“Cardinal’s foreign subsidiary hired thousands of employees and maintained financial accounts on behalf of a supplier without implementing anti-bribery controls surrounding these high-risk business practices. The FCPA is designed to prohibit such conduct, which undermined the integrity of Cardinal’s books and records and heightened the risk that improper payments would go undetected.”
As Per the SEC Cease and Desist Order Cardinal agreed to pay $5.4 million in disgorgement, $916,887 in prejudgment interest, and a civil penalty of $2.5 million.
As you might expect from the first exclusive SEC resolution of a FCPA enforcement action in the new decade, this matter has some interesting factors and significant lessons to be garnered by the compliance professional. The key was high risk business relationships. Many compliance practitioners have not thought through the specific risks of different types of business ventures such the one in this matter. The Cardinal FCPA enforcement action demonstrated the need to recognize the different types of business relationships, greater consideration of the risk parameters and perhaps put a better risk management strategy in place.
2. Novartis – Foreign and Domestic Corruption
There were two actions involving the Swiss pharmaceutical giant Novartis. Combined they cost the company over $1billion in fines and penalties.
The first one was announced on June 25 and was an enforcement action for Novartis’ violations of FCPA, outside the US, involving 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.
To resolve this matter, the Novartis AG, Novartis Greece and Alcon Pte Ltd. agreed to pay about $347 million in fines to resolve claims to settle its long standing FCPA enforcement.
The second matter was for bribery and corruption inside the US and involved violations of the False Claims Act (FCA) and violations of the Anti-Kickback law.
The DOJ entered a Stipulation and Order against Novartis Pharmaceuticals Corporation for its bribery and corruption in the US. There were two settlements for US domestic corruption. The first settlement pertained 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 resolved claims arising from the company’s alleged payments of kickbacks to doctors.
As bad as Novartis’ conduct was outside of the US, I can only say it was much worse inside the US. In addition to long running corruption schemes, the company either corrupted or worked with corrupt 503(c) companies to manipulate charitable co-payments for patients using certain Novartis drugs.
The total fine and penalty paid for illegal conduct inside the US was over double that paid by Novartis for its conduct outside the US. Novartis settled domestic FCA and Anti-Kickback violations for $729 million and settled FCPA violations for foreign bribery for $337 million. This case drove home the message that compliance is not simply for operations outside the US.
3. J&F – Corruption in M&A
Next was the criminal FCPA action involving J&F Investimentos SA (J&F), a Brazil-based investment company that owns and controls companies involved in multiple industries, including the meat and agriculture industry.
According to the DOJ Press Release, J&F “agreed to pay a criminal monetary penalty of $256,497,026 to resolve the department’s investigation into violations of the Foreign Corrupt Practices Act (FCPA).” The final penalty was reduced by one-half as J&F received credit for payments it has made and continues to make to Brazil authorities to settle an earlier enforcement action.
The SEC violations related that US entity Pilgrim’s Pride and J&F finding that they caused Pilgrim’s Pride’s violations of the books and records and internal accounting controls provisions of the FCPA and agreed to cease-and-desist orders.
Further, JBS SA agreed to pay approximately $27 million in disgorgement individual civil penalties of $550,000. The parties must also comply with a three-year undertaking to self-report on the status of certain remedial measures.
The bottom line from this enforcement action is that the bad guys are always coming up with new and creative ways to engage in bribery and corruption. It used to be that all a compliance professional had to do was invoke Watergate maxim to follow the money.
However now the bad guys are going outside the company to put together a pot of money to make a corrupt payment. J&F corruptly obtained national bank funding to purchase a company and then used that purchased entity’s own monies to make the bribe payments.
4. Recidivist Eni – Internal Controls and Books and Records
Eni S.p.A (Eni) joined the two-time FCPA ranks when it agreed to a Cease and Desist Order with the SEC for violations of the Accounting Provisions of the FCPA, both in books and records and internal controls. The allegations centered around one of their subsidiaries, Saipem S.p.A. (Saipem), which at the time Eni held a 43% interest in, who entered into four sham contracts with an intermediary to assist in obtaining contracts awarded by Algeria’s state-owned oil company, Sonatrach.
Eni joined a select group of recidivist companies who have violated the FCPA multiple times. It was one of the four companies involved in the joint venture TSJK, which paid bribes in Nigeria for the now infamous Boney Island project. The Order noted, “In July 2010, in settlement of an action brought by the SEC, Eni and its then wholly-owned subsidiary, Snamprogetti Netherlands, B.V. (“Snamprogetti”), consented to a judgment entered by the U.S. District Court for the Southern District of Texas that permanently enjoined Eni from violating the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and permanently enjoined Snamprogetti from violating the anti-bribery, books and records, and internal accounting control provisions of the FCPA.” Eni obviously did not fulfill its obligations under the Boney Island FCPA enforcement action.
5. Alexion Pharmaceuticals – Need for Data Analytics
Our final enforcement action involved the SEC 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 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.”
One bribery scheme involved the fraudulent payment of expenses could have been detected by testing the expenses charged back by the consultant against other similarly situated consultants. Such benchmarking is straight forward with a comparison of the fees and expenses charged back to the company for reimbursement.
A second bribery scheme involved corrupt payments to expert opinions relied upon by decision-makers regarding the allocation of regional healthcare budgets and the regulatory treatment of Soliris.
Yet, once again, a very straight-forward approach could be used. Simply correlate the dates of payments, entertainment or any other thing of value provided to these officials and the dates of their actions back which promoted Alexion products. You could even start with a chart listing dates of benefits provided to the corrupt HCP(s) and then date of benefit back to Alexion, regardless of what that corrupt act was for the company.
A third bribery scheme involved fraudulent payments to third-parties who passed along the money as bribes.
Any international corporation worth its salt should run data on its foreign business unit expenses. Even if corrupt payments are hidden in such apparently legitimate expenses, the power of data analytics is to identify anomalies for further investigation. This means that if legitimate expenses increase significantly as the payment is used to fund bribery, a robust but even high-level data analytics approach would uncover the “patterns in raked leaves” and allow a deeper dive investigation.