- FCPA Professor - http://fcpaprofessor.com -

The Origins And Prominence Of A Theory

It is one of the more aggressive and dubious FCPA enforcement theories there is.  It has never been subjected to judicial scrutiny.  It is a relatively new enforcement theory when one considers that the Foreign Corrupt Practices Act was enacted in 1977.    It is an enforcement theory that dominates this new era of enforcement and will likely continue to do so in the near future.

It is the enforcement theory that employees (such as physicians, nurses, mid-wives, lab personnel, etc.) of certain foreign health care systems are “foreign officials” under the FCPA.

This post traces the origins and prominence of this theory,  contains comments from the former DOJ FCPA enforcement attorney who came up with this theory, and highlights a datapoint relevant to the legitimacy and validity of this theory.

Below is a list of DOJ and/or SEC enforcement actions based on the enforcement theory that employees of certain foreign health care systems are “foreign officials” under the FCPA.  (In addition to the below enforcement actions, a minor component of the record-setting 2008 Siemens enforcement action also involved this enforcement theory).  Each enforcement action listed below indicates the company involved, the year of the enforcement action, whether it was a DOJ or SEC enforcement action and the “foreign officials” involved as alleged by the DOJ and/or SEC.

Syncor (2002 – DOJ and SEC Enforcement Action)

Physicians employed by hospitals owned by the legal authorities in Taiwan.

Four doctors at government-owned hospitals in Mexico and doctors employed by hospitals owned by foreign government in Belgium, Luxembourg, and France.

Schering-Plough (2002 – SEC Enforcement Action)

Director of the Silesian Health Fund, one of sixteen regional government health authorities in Poland.

Diagnostic Products Corp. (2005 – DOJ Enforcement Action)

Laboratory personnel and doctors employed by hospitals owned by the Chinese government.

Micrus Corp. (2005 – DOJ Enforcement Action)

Physicians at state-owned hospitals in France, Germany, Turkey and Spain.

Immucor (2007 – SEC Enforcement Action)

Director of a public hospital in Italy

AGA Medical (2008 – DOJ Enforcement Action)

Hospitals owned and operated by the Chinese government.

Johnson & Johnson (2011 – DOJ and SEC Enforcement Action)

Health care providers who worked at publicly-owned hospitals in Greece, Poland, and Romania.

Smith & Nephew (2012 – DOJ and SEC Enforcement Action)

Health care providers who worked at publicly-owned hospitals in Greece.

Biomet (2012 – DOJ and SEC Enforcement Action)

Health care providers who worked at publicly-owned hospitals in Argentina, Brazil, and China.

Orthofix (2012 – DOJ and SEC Enforcement Action)

Individuals associated with Instituto Mexicano del Seguro Social, the Mexican government-owned healthcare and social services institution.

Pfizer (2012 – DOJ and SEC Enforcement Action)

Physicians, pharmacologists and senior government officials, who were employed by foreign governments or instrumentalities of foreign governments, including in Bulgaria, Croatia, Kazakhstan, and Russia.  Doctors employed by Chinese government healthcare institutions, the Czech government, Italian government healthcare institutions, the government of Serbia, the Indonesian government, and healthcare institutions owned or controlled by the Pakistani government.

As the above list demonstrates, this enforcement theory has been the principal basis for 11 core corporate enforcement actions since it was invented in 2002.  This number may not seem large at first blush, but it takes on added meaning when one considers, as noted in this [1] prior post, that approximately 35% of core corporate enforcement actions since 2007 are the direct result of just three events – Iraq Oil for Food, Bonny Island Bribery, and Panalpina related investigations.

As demonstrated by the above list, this enforcement theory dominates FCPA enforcement thus far in 2012 (50% of the 8 core corporate enforcement actions this year have been based on this theory).

As indicated above, the first use of this enforcement theory occurred in the 2002 Syncor enforcement action.  Then, Peter Clark headed the DOJ’s FCPA Unit.  I asked him via e-mail the origins of this theory, whether it was internally debated, etc.

His e-mail response, published with his permission, was as follows.  “There was no debate or dissent – the line prosecutors and I all agreed on the charge. While it may have been the first time a government-employed doctor was described as a government official in charging language, there was nothing novel [in the sense that we were striking out in a direction no one had ever thought of previously] or particularly aggressive about it.”

As indicated above, the most recent use of this enforcement theory was in the Pfizer enforcement action.  In a bit of irony, and as noted in this [2] prior post, Clark (currently at Cadwalader – here [3]) served as Pfizer’s defense counsel.

A useful datapoint in examining the legitimacy and validity of this enforcement theory may be found in analyzing the number of criminal charges filed against individuals based on this theory.

Despite extracting nine corporate settlements based on the theory, the DOJ has never charged an individual in connection with this enforcement theory.  This is meaningful because individuals, as opposed to business organizations, are more likely to contest DOJ charges and put the DOJ to its burden of proof.

In short, despite Clark’s belief to the contrary, the enforcement theory that various employees of certain foreign health care systems are “foreign officials” is one of the more aggressive and dubious enforcement theories there is.  It has never been subjected to judicial scrutiny.  It is a relatively new enforcement theory and it is an enforcement theory that dominates this new era of enforcement.  It is likely that this enforcement theory will continue to dominate in the future as the pharmaceutical / medical devices industry sweeps are still in its infant stages (in terms of actual enforcement actions).

[As noted in this [4] previous post, in the United States approximately 20% of hospitals are owned by state or local governments (see here [5]). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here [6]).  Are we calling 20+% of U.S. health-care providers U.S. officials? If not, why not and why the difference?  Something to keep in mind when considering the origins and prominence of this theory of enforcement].