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Scrutiny Updates

scrutiny alert

Remember when a top-ranking DOJ official said in 2017 (see here) that the DOJ’s “intent is for our FCPA investigations to be measured in months, not years”?

Me too. That was pretty funny.

Set forth below are scrutiny updates from companies that have been under FCPA scrutiny for approximately three years.

Pfizer

As highlighted here, Pfizer (a company that resolved a $60 million FCPA enforcement action in 2012 concerning conduct in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia) disclosed additional FCPA scrutiny in mid-2019.

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Pfizer In The News For Two Materially Different Reasons

pfizer

In recent days, Pfizer has been in the news cycle for two materially different reasons.

Indeed, the juxtaposition is striking.

First, Pfizer (a company that resolved an approximate $60 million Foreign Corrupt Practices Act enforcement action in 2012 concerning conduct in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia) has been under renewed FCPA scrutiny since 2019 and recently disclosed as follows:

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Scrutiny Alerts And Updates

scrutiny alert

This post highlights scrutiny alerts and updates regarding Pfizer and Johnson & Johnson – companies that have previously resolved Foreign Corrupt Practices Act enforcement actions.

Pfizer

In 2012, Pfizer (and Wyeth – an entity Pfizer acquired in 2009) resolved FCPA enforcement actions totaling approximately $60 million. (See here).

Pfizer previously disclosed additional FCPA scrutiny in Russia as the company stated: “In June 2019, we received an informal request from the U.S. Department of Justice’s FCPA Unit seeking documents relating to our operations in Russia. In September 2019, we received a similar request from the SEC’s FCPA unit. We are producing records pursuant to these requests.”

Pfizer recently added China as an additional country of scrutiny as the company disclosed:

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Plaintiffs Allege Harm At The Hands Of Terrorist Group Funded In Part By Corrupt Sales Practices Of Various Multinational Companies

Mahdi Army

Various courts have held that the Foreign Corrupt Practices Act does not confer a private right of action. However, as highlighted in “FCPA Ripples” and several other posts on this website, private plaintiffs with increasing frequency are using allegations of corruption to allege other substantive causes of action in what amounts to “offensive use” of the FCPA and related topics.

Recently, American service members and civilians and their families who were killed or wounded while serving in Iraq filed this 203 page civil complaint against AstraZeneca, General Electric, Johnson & Johnson, Pfizer and Roche claiming that the companies’ alleged acts of corruption in Iraq present viable civil claims under the federal Anti-Terrorism Act and for intentional infliction of emotional distress. Specifically, the plaintiffs allege that they or their family members were attacked by a terrorist group (Jaysh al-Mahdi) funded in part by the defendants’ corrupt sales practices.

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A Government Required Transfer Of Shareholder Wealth To FCPA Inc.?

This is the second time I have written about this general issue.  See here for the previous post regarding Johnson & Johnson and its “enhanced compliance obligations.”

The recent Foreign Corrupt Practices Act enforcement action against Pfizer is notable in many respects.  (See here for a prior post detailing certain notable aspects).  It is also notable for the “enhanced compliance requirements” Pfizer is required to adhere to pursuant to the terms of the deferred prosecution agreement.

Below are the pertinent facts alleged by the DOJ and/or SEC relevant to the issues discussed in this post

The substantial bulk of the enforcement action concerns conduct of Pharmacia Corporation (an entity Pfizer acquired in 2003) and Wyeth (an entity Pfizer acquired in 2009).

In the 18 months following its acquisition of Wyeth, Pfizer conducted a due diligence and investigative review of the Wyeth business operations and integrated Pfizer’s internal controls system into the former Wyeth business entities.

The DOJ or SEC do not allege that anyone at Pfizer’s or Wyeth’s corporate headquarters knew of or approved the conduct at issue.

As soon as the problematic conduct came to the attention of Pfizer’s corporate headquarters, it made a timely voluntary disclosure to the enforcement agencies.

Pfizer’s self-investigation was thorough and wide-ranging.  The DOJ stated as follows.  “From 2004 to the present, Pfizer, using external counsel and forensic accountants, internal Legal, Compliance, and Corporate Audit personnel, conducted an extensive, global review of its operations regarding allegations of improper payments to Government officials and government doctors, including in Pfizer HCP markets and those of other Pfizer subsidiaries.”  Likewise, the SEC stated as follows.  “[Since 2004, Pfizer] diligently and thoroughly undertook a global internal investigation of its operations in no less than 19 countries …”.

Pfizer provided significant cooperation to the enforcement agencies in their investigations.

Pfizer undertook early and extensive remedial efforts and has made substantial and continuing improvements to its global anti-corruption compliance policies and procedures.  The DOJ stated as follows.  “[S]tarting immediately in 2004, Pfizer launched extensive remedial actions including:  undertaken a comprehensive review of its compliance program, implementing enhanced anti-corruption compliance policies and procedures on a worldwide basis, developing global systems to support employee compliance with the enhanced procedures, adding FCPA-specific reviews to its internal audits, performing proactive anti-corruption compliance reviews in approximately ten markets annually, and conducting comprehensive anti-corruption training throughout the organization.”  Likewise, the SEC stated as follows.  “Pfizer also undertook a comprehensive review of its operations, enhanced its internal controls and compliance functions, engaged in significant disciplinary measures, and developed and implemented global FCPA compliance procedures, including the development and implementation of innovative proactive procedures, and sophisticated supporting systems.”

Thus, for approximately eight years, Pfizer has been doing the right thing.  When the enforcement agencies themselves use words such as thorough, wide-ranging, extensive, global, worldwide, diligent, comprehensive, proactive, significant, innovative and sophisticated, there can be no reasonable doubt about this.

Yet, just as in the Johnson & Johnson enforcement action, the Pfizer DPA requires the company to adhere to “enhanced compliance obligations.”  These obligations require the company to, among other things, “select at least five markets to receive FCPA proactive reviews a year” and each proactive review shall include, at a minimum, “on-site visits by an FCPA review team,” a “review of a representative sample … of contracts with and payments to individual foreign government officials or health care providers, as well as other high-risk transactions in the market,” and “where appropriate, feasible, and permissible under local law, review of the books and records of a sample of distributors …”.

FCPA compliance policies and procedures are good.  Yet given the allegations against Pfizer (as opposed to entities Pfizer acquired) and given what Pfizer has done over the past eight years, are the “enhanced compliance obligations” truly necessary?

Or is this another example of a company being required by the government (under risk of prosecution for failure to do so) to engage in fishing expeditions (when the company has already gone fishing) just for the sake of going fishing again and thus represent a boundless and unconstrained transfer of shareholder wealth to FCPA Inc.?

Such fishing expeditions are, of course, lucrative for FCPA Inc.  Hence one of the reasons you probably do not see those in the industry raising concerns about the emerging trend of “enhanced compliance obligations.”

Yet such concerns should be raised and have been raised here.

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