DOJ and SEC Continue Aggressive FCPA Enforcement Trend; New DOJ Guidance on FCPA Expected Shortly
The Department of Justice and the Securities and Exchange Commission continued the trend of very aggressive FCPA enforcement in the third quarter. On Aug. 7, 2012, the DOJ announced that it had entered into a Deferred Prosecution Agreement with a subsidiary of Pfizer, Inc., that includes payment by the company of a $15 million fine. On the same day, the SEC announced settlements with Pfizer, Inc. and Wyeth LLC, a company that Pfizer acquired in 2009, that require Pfizer and Wyeth to pay a combined total of over $45 million in disgorgement and prejudgment interest. The conduct underlying the DOJ and SEC settlements involved alleged bribes paid by Pfizer employees and agents to officials in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia to obtain regulatory and formulary approvals, sales, and increased prescriptions for the company’s pharmaceutical products. There were also allegations that employees and agents attempted to conceal these activities by falsely describing the payments in books and records as legitimate expenses for promotional activities, marketing, training, travel and entertainment, clinical trials, freight, conferences, and advertising.
Pfizer’s settlement with the Department of Justice is particularly noteworthy because of the insight it provides about the DOJ’s expectations in the context of mergers and acquisitions. Consistent with other FCPA settlements reached by the DOJ in 2012, the Deferred Prosecution Agreement in the Pfizer matter requires beefed up risk-based due diligence on potential M&A targets, prompt FCPA compliance audits after the deals, and immediate extension of FCPA polices to the acquired or merged companies.
Another notable matter is the SEC’s Aug. 16, 2012 settlement with Oracle Corporation. The underlying conduct involved the alleged “parking” of excess funds generated by inflated prices charged to customers by distributors so that those funds could be used to make marketing and development payments to non-existent third-party vendors. This settlement, which includes payment by Oracle of a $2 million penalty, is significant because the SEC did not allege that the company made any actual improper payments, but rather that an Indian subsidiary of Oracle “created the risk that the funds could be used for illicit purposes such as bribery or embezzlement.” The basis of the settlement was thus Oracle’s failure to keep accurate book and records rather than the FCPA’s bribery proscriptions. It is likely that the SEC will continue to aggressively utilize this tool even in cases where actual bribery cannot be shown.
Further guidance from the DOJ on its FCPA enforcement policies is expected very shortly. On Nov. 8, 2011, Lanny Breuer, Chief of DOJ’s Criminal Division, announced that the DOJ would release “detailed new guidance” in 2012. He warned, however, that the DOJ has “no intention whatsoever of supporting reforms whose aim is to weaken the FCPA and make it a less effective tool for fighting foreign bribery.” The DOJ is expected to release its new guidance by the end of 2012. We are monitoring this and will provide an update when the new guidance is available.
In other news, on Oct. 9, 2012, the Serious Fraud Office in the United Kingdom came out with its own guidance concerning enforcement of the U.K. Bribery Act. This guidance clarified the SFO’s enforcement policies with respect to the provision of hospitality and promotional expenditures, facilitation payments, and self-reporting. In the case of self-reporting by companies, the SFO stated “for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a ‘genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice.’ Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts.”