The FCPA forbids US companies from bribing foreign government officials (see here). A Lilly subsidiary in Russia used offshore “marketing agreements” to pay more than $7 millions to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information, according to an SEC statement.
These offshore entities rarely provided any services and sometimes were used to funnel money to government officials in order to obtain business. Transactions with offshore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little due diligence was conducted. Moreover, the SEC alleges Lilly became aware of possible FCPA violations, but did not curtail the use of marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third-party entities associated with government officials. Lilly agreed to pay more than $29 million to settle the SEC’s charges.
Meanwhile, in China, amployees at the Lilly falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians. And in Brazil, the Lilly subsidiary allowed a distributor to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug to state government institutions. And in Poland, the Lilly subsidiary made eight improper payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government health authorities in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.
Lilly (LLY) did not admit or deny the allegations, but consented to a final judgment permanently enjoining the company from violating the anti-bribery provisions of the FCPA. Lilly also agreed to retain an independent consultant to review and make recommendations about its foreign corruption policies and procedures, among other things.
"Lilly requires our employees to act with integrity with all external parties and in accordance with all applicable laws and regulations," Anne Nobles, Lilly's chief ethics and compliance officer and senior vp of enterprise risk management, says in a statement. "Since ours is a business based on trust, we strive to conduct ourselves in an ethical way that is beyond reproach. We have cooperated with the US government throughout this investigation and have strengthened our internal controls and compliance program globally, including significant investment in our global anti-corruption program."
The settlement comes amid growing interest by the feds in foreign bribes. Last August, Pfizer (PFE) paid $60 million to settle allegations (back story). And Teva Pharmaceuticals (TEVA) disclosed it received a subpoena (read here) and Bristol-Myers Squibb (BMY) received one several months ago (see this).
Last year, Johnson & Johnson (JNJ) was fined $70 million for bribing public doctors in several European countries – and paying kickbacks to Iraq – to illegally obtain business. Specifically, various J&J units paid bribes to public doctors in Greece who chose J&J surgical implants; public doctors and hospital administrators in Poland who awarded contracts to J&J, and public doctors in Romania to prescribe J&J meds (back story).
bribe pic thx to donhankins on flickr