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Just When You Think You’ve Seen It All – Along Comes The Nordion (Canada) Inc. Enforcement Action

There have been several Foreign Corrupt Practices Act enforcement actions in the past 30 days or so.

But, just when you think you’ve seen it all in FCPA enforcement-land, along comes the Nordion (Canada) Inc. enforcement action announced yesterday [1] by the SEC.

The basic findings, as set forth in this administrative order [2], were as follows.

Approximately 16 years ago, Mikhail Gourevitch (a dual Canadian and Israeli citizen who was fired years ago by Nordion) represented to the company that “his purported childhood friend from Russia” could help the company’s business in Russia.

Gourevitch and this eventual agent “conspired to use a portion of the funds Nordion paid the Agent to bribe Russian government officials to obtain approval for TheraSphere” a liver cancer therapy.

Gourevitch also received kickbacks from the Agent and otherwise “hid the scheme from Nordion” through, among other things, misrepresentations to his employer. In the words of the SEC, through his conduct Gourevitch “secretly enrich[ed] himself” and received “at least $100,000 for his role in the arrangement which was not disclosed to Nordion.”

In August 2014, Nordion was acquired by Nordion (Canada) Inc., a privately held company. The SEC’s order finds that Nordion (not the actual Respondent in the action Nordion (Canada) Inc.) violated the FCPA’s books and records and internal controls provisions and Nordion (Canada) Inc. agreed, without admitting or denying the SEC’s findings, agreed to pay $375,000.

In summary fashion, the order states:

“From at least 2004 through 2011, Nordion, Inc. (“Nordion”), a global health science company, violated the books and records and internal accounting controls provisions of the FCPA in connection with payments made to a third party agent to obtain Russian government approval to distribute TheraSphere, Nordion’s liver cancer treatment, in Russia. Nordion failed to record those payments in a manner that accurately and fairly reflected the transactions in its books and records. Nordion also failed to devise and maintain adequate internal accounting controls to provide sufficient reassurances that Nordion funds were used as authorized, that third-party agents were appropriately vetted, and that Nordion adequately trained its employees to conduct business in countries with significant corruption risks.”

The enforcement action focuses on the conduct of Mikhail Gourevitch, a dual Canadian and Israeli citizen, described as follows:

“Gourevitch was formerly employed by Nordion as an engineer. During the relevant time period, Gourevitch resided in Canada. Gourevitch currently resides in Israel. From approximately 2004 through October 2011, Gourevitch facilitated, helped negotiate and monitored consulting contracts between Nordion and a Russian third-party agent to license, register, and distribute TheraSphere, a Nordion liver cancer therapy, in Russia.”

In pertinent part, the order states:

“Gourevitch, an engineer employed by Nordion during the relevant time period, represented to Nordion that his purported childhood friend from Russia, who was now a Russian businessman, knew how to navigate the business landscape in Russia and might be able to help Nordion obtain contracts for cobalt-60 supply in Russia.

Based solely on Gourevitch’s recommendation, in or around the summer of 2000, a department manager at Nordion informally authorized Gourevitch’s friend and one of his companies (referred to hereinafter, along with another one of those companies, as “Agent”) to meet with Russian officials on behalf of Nordion in an effort to procure cobalt-60 supply contracts.

Nordion had little or no experience using third-party agents in Russia prior to Gourevitch’s suggestion. Historically, Nordion obtained cobalt-60 directly from the Canadian government and sold its products directly to health care institutions. It also had little experience operating in jurisdictions with a high-risk of corruption. Nordion provided little, if any, anticorruption compliance training to its employees about how to conduct business in countries wellknown for corruption.

The Agent had no experience in the nuclear power industry, nuclear medicine or medical isotopes. However, in or around March 2002, Nordion executed the first written consulting agreement which retained the services of the Agent to obtain medical isotopes from a Russian government instrumentality. As of that time, Nordion had performed virtually no due diligence on the Agent.

After the Agent was able to help Nordion obtain medical isotopes from Russia, Nordion expanded its relationship with the Agent. In or around 2004, Nordion procured the services of the other Agent to help Nordion obtain government approval for a liver cancer treatment, TheraSphere.

Nordion entered into a contract with that Agent to register, license, and distribute its liver cancer treatment, TheraSphere, in Russia. Gourevitch again played a principal role in the relationship between Nordion and the Agent.

Gourevitch and the Agent conspired to use a portion of the funds Nordion paid the Agent to bribe Russian government officials to obtain approval for TheraSphere. The Agent also paid Gourevitch some of the money it received.

Email communications (primarily in Russian) between Gourevitch and the Agent documented their contemplated bribe scheme. For example, the Agent emailed cost estimates to Gourevitch for each step of the process required to register and license Therasphere in Russia. These cost estimates noted the payment of “unofficial costs” or bribes to Russian government officials. “Official” government fees were listed and then additional agent fees were added to “manage” the approval process or to “ensure the favorable acceptance of TheraSphere” by the Russian government. However, Gourevitch revised the cost estimates before any other Nordion employee reviewed it to increase the budget estimates to hide the costs of the bribes and remove any reference to “unofficial costs” or bribes. In an email, Gourevitch told the Agent, “Nordion does not want to see the bribes in your cost estimate and justification.”

Gourevitch and the Agent hid the scheme from Nordion by communicating in Russian, preparing multiple drafts of documents to conceal the true use of funds, and misrepresenting how the Agent would use the funds it received from Nordion. However, Nordion failed to conduct adequate due diligence on the Agent or follow its own internal controls procedures in place at the time. For example, Nordion paid the Agent’s invoices even though they lacked detail and directed Nordion to make payment to offshore bank accounts for entities that were unknown to Nordion and appeared to be unrelated to the Agent.

From 2005 through 2011, Nordion paid the Agent approximately USD $235,043 for consulting work in Russia to obtain government approval for TheraSphere. Ultimately, Nordion was unable to distribute TheraSphere in Russia and, as a result, did not earn any profits on the sale of the product in Russia.

Gourevitch and the Agent communicated via email about the amount of money the Agent would pay to Gourevitch, which was not disclosed to Nordion.

Nordion’s applicable internal accounting controls were deficient. Nordion failed to detect or prevent Agent expenditures which the Agent delineated as both official fees and unofficial fees required to obtain Russian government approval to distribute TheraSphere. Nordion also lacked sufficient internal accounting controls to ensure it made payments to entities with which it had contractual arrangements.

Nordion did not have adequate policies and procedures in place to detect corruption risks and provided little, if any, anti-corruption compliance training to its employees during the relevant time about how to detect corruption and how to conduct business in a highrisk jurisdiction.

Nordion mischaracterized fees paid to its Agent as legitimate business expenses when some or all of the fees may have been used to make corrupt payments to Russian government officials and to pay kickbacks to Gourevitch.

Nordion failed to devise and maintain sufficient accounting controls to detect and prevent the making of potential improper payments to foreign officials.”

Based on the above, the SEC found that Nordion (not the actual Respondent in the action Nordion (Canada) Inc.) violated the FCPA’s books and records and internal controls provisions.

Under the heading, “Discovery, Internal Investigation and Self Report,” the order states:

“When Nordion discovered evidence which suggested that payments may have been made to a Russian government official, Nordion self-reported to authorities in both Canada and the U.S., fully cooperated with parallel investigations, and implemented extensive remedial measures.

Nordion hired both outside counsel and forensic auditors to examine and revise its policies, procedures and internal controls and conduct an independent investigation to determine the scope of potential compliance issues related to Nordion’s business in Russia.

As the internal investigation progressed, Nordion shared the results of the investigation with Commission staff and undertook significant remedial measures, including: hiring a new Director for Corporate Compliance and staffing additional compliance personnel; including a compliance-based assessment as a component of its annual employee performance reviews; and providing anti-corruption, internal accounting controls and finance trainings to Board members, management, and employees throughout the Company. Nordion terminated all contracts with the Agent and enacted a strict protocol governing the use of and payment to thirdparty agents and implemented policies and procedures to conduct third-party risk assessments. The company also requires all agents to enter contracts that include FCPA warranties and representations and to adopt its anti-corruption policies.”

Under the heading “Commission Consideration of Nordion’s and Respondent’s Remedial Efforts,” the order states:

“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Nordion and Respondent, Nordion’s self-reporting, and their cooperation afforded the Commission staff. Nordion self-reported the conduct to authorities in both the U.S. and Canada, conducted a thorough internal review, identified the illegal conduct, voluntarily produced witnesses from Canada for interviews in the U.S. and translated documents, and implemented substantial remedial measures to prevent future violations.”

The SEC’s order further states: “Respondent acknowledges that the Commission is not imposing a civil penalty in excess of $375,000 based upon its and Nordion’s cooperation in a Commission investigation and related enforcement action.”

Based on the exact same conduct as highlighted above, the SEC also found in this administrative order [3] that Gourevitch violated the FCPA’s anti-bribery, books and records, and internal controls provisions. According to the SEC:

“Gourevitch knowingly provided false documentation to Nordion and circumvented what internal controls existed at the company to conceal his scheme with the third-party agent to bribe Russian government officials and receive kickbacks from the agent. As a result of the false documentation provided by Gourevitch, Nordion failed to record the payments to the third-party agent in a manner that accurately and fairly reflected the transactions in its books and records.”

[…]

[Gourevitch violated the FCPA’s anti-bribery provisions] by authorizing, offering, or making corrupt payments to Russian government officials to obtain government approval to distribute TheraSphere, Nordion’s liver cancer treatment, in Russia. Gourevitch authorized the Agent to make corrupt payments to Russian government officials in violation of the FCPA. Gourevitch used the mails and other means and instrumentalities of interstate commerce in the bribery scheme by communicating about the scheme using U.S. based email accounts, meeting with the Agent on numerous occasions in the U.S. in furtherance of the scheme, and routing funds used to pay bribes and kickbacks through U.S. correspondent bank accounts.”

Without admitting or denying the SEC’s findings, Gourevitch agreed to pay disgorgement of $100,000, prejudgment interest of $12,950, and a $66,000 civil penalty.

Robert Tarun and Peter Tomczak (Baker & McKenzie) represented Nordion.

John Pappalardo and Eric Hayes (Greenberg Traurig) represented Gourevitch.