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Friday Roundup

Roundup

Selective SEC release, scrutiny alert, from the docket, for the reading stack, for your viewing pleasure, and a survey. It’s all here in the Friday roundup.

Selective SEC Release

Since it was filed in December 2011, this site has closely followed the SEC’s long-standing Foreign Corrupt Practices Act enforcement action against former Magyar Telekom executives Elek Straub (former Chairman and CEO); Andras Balogh (former Director of Central Strategic Organization); and Tamas Morvai (former Director of Business Development and Acquisitions) with various FCPA and related offenses. (See here for the prior post).

The complaint alleged, in connection with a bribery scheme in Macedonia and Montenegro, that the individuals violated or aided and abetted violations of the FCPA’s anti-bribery, books and records, and internal controls provisions; knowingly circumvented internal controls and falsified books and records; and made false statements to the company’s auditor.

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Friday Roundup

Roundup

As we say not as we do, scrutiny alerts and updates, and further RIP to the “Arthur Andersen effect.” It’s all here in 200th edition of the Friday roundup.

As We Say, Not As We Do

This previous post highlighted the April Fools’ Day 2015 SEC enforcement action against KBR for its non-existent, theoretical muzzling of individuals in certain employment agreements. According to the SEC, this violated SEC Rule 21F-17, which provides in relevant part: (a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

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Days After Resolving A $25 Million FCPA Enforcement Action, Novartis Again The Subject Of FCPA Scrutiny

repeat

Last week Novartis agreed to pay $25 million to resolve an SEC Foreign Corrupt Practices Act enforcement action concerning alleged conduct in China. (See here and here for prior posts).

According to this Reuters report:

“An anonymous whistleblower has accused Swiss drugmaker Novartis of paying bribes in Turkey through a consulting firm to secure business advantages worth an estimated $85 million, according to a Feb. 17 email seen by Reuters.

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Issues To Consider From The Novartis Enforcement Action

Issues

This prior post went in-depth into the recent $25 million Foreign Corrupt Practices Act enforcement action against Novartis.

This post continues the analysis by highlighting various issues to consider.

Origin and Timeline

Below is how Novartis has described the origin of its FCPA scrutiny in public filings.

“After reports of Chinese government investigations of competitors for alleged improper use of certain China-based travel agencies to reward healthcare providers, Novartis commenced an internal investigation in 2013 concerning its local affiliates’ relationships with China-based travel agencies (and other vendors). Novartis is communicating with the US Securities and Exchange Commission (SEC) about this internal investigation.”

Chinese Travel Companies

As highlighted in this recent guest post, several FCPA enforcement actions have been based on alleged improper travel involving alleged Chinese officials. Often times, this travel is facilitated through Chinese travel agencies – a well-known corruption risk.

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Novartis Coughs Up $25 Million To Resolve FCPA Enforcement Action Based On Conduct Of Indirect Chinese Subsidiaries

Novartis

What happens when a Swiss corporation, with over 120,000 employees, has two indirect Chinese subsidiaries and a few employees of those subsidiaries, who concealed their conduct from the parent corporation, allegedly provided various things of value (such as an excursion to Niagara falls, spa and sauna sessions, and cover charges to a strip club) to various Chinese healthcare professionals?

Why of course, $25 million to the U.S. treasury because the Swiss corporation has shares traded on the New York Stock Exchange.

Yesterday, the SEC announced this Foreign Corrupt Practices Act enforcement action against Novartis.

By my count, it is the 22nd FCPA enforcement against a healthcare related company (i.e. pharma, medical device, etc.) premised on the enforcement theory (regardless of whether the action was resolved “merely” through books and records and internal controls issues) that employees of certain foreign health care systems are “foreign officials” under the FCPA and thus occupy a status similar to Presidents and Prime Ministers and other bona fide government officials.

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