This recent post highlighted the SEC’s FCPA enforcement action against Bristol-Myers.
This post continues the analysis by highlighting various issues to consider from the enforcement action.
False and Misleading SEC Release
The SEC routinely brings enforcement actions against companies for false and misleading public statements.
Pardon me for being the stickler, but the first paragraph of the SEC’s press release announcing the Bristol-Myers action is false and misleading. It states:
“The Securities and Exchange Commission today announced that New York-based pharmaceutical company Bristol-Myers Squibb has agreed to settle charges that its joint venture in China made cash payments and provided other benefits to health care providers at state-owned and state-controlled hospitals in exchange for prescription sales.”
The above is false and misleading because the only charges that the SEC brought against Bristol-Myers (BMS) were the following as stated in the SEC’s order:
“BMS, through the actions of certain BMS China employees, violated [the FCPA’s books and records provisions] by falsely recording, as advertising and promotional expenses, cash payments and expenses for gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings provided to foreign officials, such as HCPs at state-owned and state-controlled hospitals as well as employees of state-owned pharmacies in China, to secure prescription sales. BMS also violated [the FCPA’s internal controls provisions] by failing to devise and maintain a system of internal accounting controls relating to payments and benefits provided by sales representatives at BMS China to these foreign officials.”
No Allegations Regarding Germany
As previously stated in Bristol-Myers disclosures, its FCPA scrutiny began in 2006 the following way.
“In October 2006, the SEC informed the Company that it had begun a formal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. The SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved. The Company understands the inquiry concerns potential violations of the Foreign Corrupt Practices Act (FCPA). The Company has been cooperating with the SEC.
In March 2012, the Company received a subpoena from the SEC issued in connection with its investigation under the FCPA, primarily relating to sales and marketing practices in various countries. In particular, the Company is investigating certain sales and marketing practices in China. The Company has been cooperating with the government in its investigation and is in discussions with the SEC regarding a potential settlement agreement that would result in a resolution of the SEC’s investigation. The Company believes it is fully reserved for this matter.”
Given the above disclosure, it is notable that the Bristol-Myers enforcement action concerned conduct only in China. Granted, 2006 is a long time ago but the SEC has not shied away from “old” allegations in other FCPA enforcement actions and, as a practical matter, statute of limitations have little impact in corporate FCPA enforcement actions.
At its core, the Bristol-Myers action focused on various things of value (such as gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings) provided to foreign physicians.
Regardless of the above, set forth below are certain compliance take-aways from the Bristol-Myers action:
- If a company is going to provide FCPA training to its employees (and companies most certainly should), the company needs to make sure the employees are actually taking the training. The SEC’s order dings Bristol-Myers as follows: “[The] BMS sales force in China received limited training and much of it was inaccessible to a large number of sales representatives who worked in remote locations. For example, when BMS rolled out mandatory anti-bribery training in late 2009, 67% of employees in China failed to complete the training by the due date.”
- The use and abuse of employee reimbursement requests. The SEC’s order dings Bristol-Myers as follows. “BMS lacked effective internal controls sufficient to provide reasonable assurances that funds advanced and reimbursed to employees of BMS China were used for appropriate and authorized purposes.”
- Boots on the ground. The SEC’s order dings Bristol-Myers as follows. “The corporate compliance officer responsible for the Asia-Pacific region through 2012 was based in the U.S. and rarely traveled to China. There was no dedicated compliance officer for BMS China until 2008, and no permanent compliance position in China until 2010.”