Well, to begin with, large businesses have the ability to pay huge fines, employ thousands and the government tends to not want them to fail. A recent case involving Teva would have been very different if it were a small or medium sized business.
Deferred prosecution agreements (DPA), for example, are almost impossible to obtain with small to medium size health care businesses. When clients note that large businesses do these same practices, they must remember that being so large gives them benefits as well. In a recent case, Teva obtained a DPA showing that being a large publicly owned company has its benefits. A DPA usually requires a strict compliance program and reporting to the government but it allows the entity to avoid criminal plea which would shut down a business engaged in healthcare in the United States.
On December 22, 2016, Teva Pharmaceutical Industries Ltd. (Teva), the world’s largest manufacturer of generic pharmaceutical products, and its wholly-owned Russian subsidiary, Teva LLC (Teva Russia), agreed to resolve criminal charges and to pay a criminal penalty of more than $283 million in connection with allegations involving the bribery of government officials in Russia, Ukraine and Mexico in violation of the Foreign Corrupt Practices Act (FCPA) in order to promote its drug products.
We often have clients at early stages who offer to pay back any billings at issue. Those overtures are rejected since local offices for small or medium sized businesses want the criminal conviction and usually want to pursue the owners or executives and not the entity.
In this case, the government alleged that Teva
and its subsidiaries paid millions of dollars in bribes to government officials
in various countries, and intentionally failed to implement a system of
internal controls that would prevent bribery. According
to the companies’ admissions, Teva executives and Teva Russia employees paid
bribes to a high-ranking Russian government official intending to influence the
official to use his authority to increase sales of Teva’s multiple sclerosis
drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry
of Health. The arrangement occurred at the same time that the
Russian government was seeking to reduce the amount spent on costly foreign
pharmaceutical products, such as Copaxone.
Between 2010 and at least
2012, pursuant to an agreement with a repackaging and distribution company
owned by the Russian government official, Teva earned more than $200 million in
profits on Copaxone sales to the Russian government. Moreover, the
Russian official earned approximately $65 million in corrupt profits through
inflated profit margins granted to the official’s
company.
Teva
also admitted to paying bribes to a senior government official within the
Ukrainian Ministry of Health to influence the Ukrainian government’s approval
of Teva drug registrations, which were necessary for the company to market and
sell its products in the country.
Between 2001 and 2011, Teva admitted it engaged the
official as the company’s “registration consultant,” paid him a monthly fee and
provided him with travel and other things of value totaling approximately
$200,000. In exchange, the official used his official position and
influence within the Ukrainian government to influence the registration in
Ukraine of Teva pharmaceutical products, including Copaxone and insulins.
In
addition, Teva admitted that it failed to implement an adequate system of
internal accounting controls and failed to enforce the controls it had in place
at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to
doctors employed by the Mexican government. Teva admitted that its
Mexican subsidiary had been bribing these doctors to prescribe Copaxone since
at least 2005. Teva executives in Israel responsible for the development
of the company’s anti-corruption compliance program in 2009 had been aware of
the bribes paid to government doctors in Mexico.
Nevertheless, Teva
executives approved policies and procedures that they knew were not sufficient
to meet the risks posed by Teva’s business and were not adequate to prevent or
detect payments to foreign officials. Teva also admitted that its
executives put in place managers to oversee the compliance function who were
unable or unwilling to enforce the anti-corruption policies that had been put
in place.
Teva
entered into a DPA in connection with a
criminal information, filed on December 22, 2016 in the Southern District of Florida, charging
the company with one count of conspiracy to violate the anti-bribery provisions
of the FCPA and one count of failing to implement adequate internal
controls. Pursuant to its agreement with the department, Teva will pay a
total criminal penalty of $283,177,348. Teva also agreed to continue to
cooperate with the department’s investigation, enhance its compliance program,
implement rigorous internal controls and retain an independent corporate
compliance monitor for a term of three years.
However, there was another plea agreement which Teva
Russia signed in which it has agreed to plead guilty to a
one-count criminal information, also filed in the Southern District of
Florida, charging the company with conspiring to violate the anti-bribery
provisions of the FCPA. The plea agreement is subject to court
approval. The case was assigned to U.S. District Judge Kathleen M.
Williams of the Southern District of Florida and Teva Russia's initial court
appearance has been scheduled for January 12, 2017.
In
related proceedings, the U.S. Securities and Exchange Commission (SEC) filed a
cease and desist order against Teva, whereby the company agreed to pay
approximately $236 million in disgorgement to the SEC, including prejudgment
interest. Thus, the combined total amount of U.S. criminal and regulatory
penalties to be paid by Teva is nearly $520 million. These are huge fines which make it beneficial for the government to allow Teva to continue in business.
Teva received a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of its substantial cooperation and remediation. The company, however, did not receive full cooperation credit because of issues that resulted in delays to the early stages of the Fraud Section’s investigation, including vastly overbroad assertions of attorney-client privilege and not producing documents on a timely basis in response to certain Fraud Section document requests. Because many of the company’s compliance enhancements were more recent, and therefore have not been tested, the DPA imposes an independent compliance monitor for a term of three years.
Sad to say, these DPA arrangements are not available to most entities. However, self-reporting and compliance plans can help prevent a case from going criminal in the first place.
Posted by Tracy Green, Esq.
Phone: 213-233-2260
Email: tgreen@greenassoc.com
Green and Associates, Attorneys at Law
