Records continue to be set as 2016 Foreign Corrupt Practices Act enforcement enters its final days.
Yesterday, the DOJ and SEC announced (here  and here ) a $519 million enforcement action against Teva Pharmaceutical Industries Ltd. (an Israeli company with American Depository Receipts traded in the U.S.) and a related entity. The settlement amount included a $283 million DOJ component and a related $236 million SEC component.
The action is believed to be the first-ever FCPA enforcement action against an Israeli company and by far the largest-ever FCPA enforcement action against a pharmaceutical company. (The $70 million 2011 enforcement action against Johnson & Johnson is second on that list). You better go ahead and update your top ten list again because the Teva enforcement action is the 4th largest of all-time. (Odebrecht / Braskem held that spot for less than 24 hours and is now bumped to 5th largest FCPA settlement amount of all-time).
In pertinent part, the enforcement action focuses on Copaxone a drug used in the treatment of multiple sclerosis and Teva’s most profitable product during the relevant time period. There is no allegation or suggestion that Copaxone was an inferior product or that it compromised patient health. Nevertheless the enforcement action alleges that Teva Russia and Teva Mexico engaged in various schemes to provide things of value to alleged foreign officials to influence product purchase. In addition, the enforcement action alleges that Teva Ukraine provided various things of value to a Ukrainian Official to induce him to use his official position within the Ukrainian government to improperly influence the registration of Teva pharmaceutical products in Ukraine.
The bulk of the alleged improper conduct focused on Russia and specifically Teva Russia’s relationship with a Russian Company owned, controlled and managed by a Russian Official with influence over the purchase of pharmaceutical products by the Russian government. In this regard, the DOJ specifically alleges that “employees and agents of Teva Russia concealed negative information about Russian Company when Teva was undertaking due diligence, including information about Russian Official’s alleged involvement in corruption related to Russian government drug procurement auctions.”
Because both Teva Russia and Teva are foreign companies, the FCPA’s anti-bribery provisions only apply to the extent, generally speaking, there is a U.S. nexus. In this regard, the DOJ and SEC allege a few e-mails being sent through a server located in the U.S. and a few alleged improper payments passing through intermediary or correspondent bank accounts located in the U.S.
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The remainder of this post goes in-depth into the resolution documents.
The DOJ action involved this criminal information  filed against Teva LLC (“Teva Russia”) resolved through this plea agreement  and a related deferred prosecution agreement  against Teva Pharmaceutical Industries.
Teva Russia is described as a limited liability company incorporated in Russia and a wholly-owned subsidiary of Teva which “operated on behalf, for the benefit, and under the control of Teva” and was “principally responsible for the sale and marketing of Teva pharmaceutical products in Russia.”
The information begins with the following section titled “Background on Teva Pharmaceutical Sales in the Russian Federation” which states:
“The manufacture, registration, distribution, sale and prescription of pharmaceuticals were highly-regulated activities throughout the world. Countries typically established regulatory schemes that required, among other things, the registration of pharmaceuticals. In certain countries, including the Russian Federation, government entities were responsible for selecting which pharmaceuticals would be purchased by government institutions or ministries and for approving which pharmaceuticals would be eligible for government reimbursement.
Copaxone was the brand-name of glatiramer acetate, a drug used in the treatment of multiple sclerosis, and was one of the few non-generic products sold by Teva. A yearly prescription of Copaxone, which patients were required to take as a once-daily injection, cost up to tens of thousands of dollars. During the relevant time period, Copaxone was Teva’s most profitable product.
The Russian Federation had a socialized public healthcare system that provided universal healthcare to Russian citizens, with the cost of medical care and drug treatments shared between the central, regional and local governments. In or around late 2007, the Ministry of Health designated seven illnesses and conditions as rare and expensive to treat and created a program whereby the central government would procure and supply to patients the necessary medications for treating these illnesses and conditions. Among the covered illnesses was multiple sclerosis and treatment by Copaxone. Since in or around 2008, Russian government purchases of Copaxone were primarily made by the Ministry of Health at usually bi-annual auctions.”
According to the information, from 2006 through at least 2012, Teva Russia made “corrupt payments to Russian Official [described as a high-ranking government official in the Russian Federation who held official positions on government committees and who had the ability to influence matters related to the purchase of pharmaceutical products by the Russian government, including purchases made during annual auctions held by the Russian Ministry of Health], intending that Russian Official would use his official position and ability to influence the Russian government to purchase Copaxone through tender offers.”
According to the information, “the payments were made through the high profit margins that Russian Company [described as a distributor, manufacturer, and re-packager of pharmaceutical products in the Russian Federation that was owned, controlled and managed by Russian Official and whose controlling shares were held in the name of Russian Official’s spouse who was not involved in Russian Company’s business operations] earned as Teva’s repackager and distributor of Copaxone for sales to the Russian Ministry of Health pursuant to the central government’s drug purchase program.”
According to the information, a Teva Russia executive and/or a Teva executive were aware of Russia Official’s “influence in the industry” as well as that a Russian Company executive “was under investigation in Russia for corruption and that Teva’s risk insurance provider had decided to stop insuring transactions with Russian Company.”
Nevertheless, the information alleges, the Teva executive and Teva Russia executive and others “agreed that Teva would grant Russian company the right to distribute Copaxone in Russia, intending that Russian Official would use his official position and ability to influence to increase sales of Copaxone to the Russian government.” Elsewhere the information alleges that “Teva hoped that Russian Official would use his political network and official influence to benefit Teva to support maintaining or increasing the amount of Copaxone sold to the Russian government.”
The information next focuses on internal deliberations concerning the relationship with the Russian Company. According to the information, a Teva Russia executive forwarded the Russian Company’s request to receive a larger discount on sales to a Russian government customer, but according to the information, a Teva Russia manager opposed giving Russia Company “any additional concessions,” but the Teva Russia executive said that the request was “the cost of building a relationship with the Russian Official.”
According to the information, a Teva Russia manager e-mailed Teva executives in Israel with additional information supporting Teva Russia’s request to work with the Russian Company and specifically states that the “e-mail noted that Russian Company was headed by Russian Official, listed Russian Official’s official positions on various government committees, and explained that ‘the plan’ was to use Russian Official’s contacts, including at the Ministry of Health, to maintain Copaxone’s share of the market, including by minimizing the risk that a generic version of Copaxone would be approved by the Russian government, thereby reducing Teva’s market share.”
According to the information, “Teva Russia’s Legal Director initiated the internal process to formally enter the agreement with Russian company [and that] consistent with Teva’s anti-corruption policy as it related to third-party agreements, the Legal Director submitted a completed questionnaire about the Russian Company agreement to Teva for review and approval.” The information then alleges:
“The e-mail and supporting information stated that Russian Official’s wife was the owner of the company but did not include that Russian Official ran the business. The e-mail also omitted facts know to Teva Russia Executive and other Teva Russia employees, including details about the corruption investigation by Russian authorities against the Russian Company executive and information from Russian news media reports on Russian Official’s alleged involvement in corruption related to Russian government drug procurement auctions going back to 2006.”
The information then alleges:
“A Teva Finance Department manager with responsibility for approving compliance-related requests for the EMIA region directed a Finance employee to forward the compliance questionnaire concerning the Russian Company agreement to the Regional Compliance Officer and to Teva Russia’s CFO for, among other things, due diligence to be conducted. […] In response to an inquiry about the status of due diligence on Russian Company, a senior EMIA executive sent an e-mail to another high-ranking EMIA executive explaining that Teva Russia Executive would be leading due diligence. […] At the time, Teva Russia Executive had been pushing for the agreement between Teva Russia and Russian Company.”
The information then alleges various Russian government tenders to the Russian Company.
According to the information:
“Teva terminated its repacking and distribution relationship with Russian Official and Russian Company in the middle of 2013 as a result of Russian Company’s refusal to follow Teva’s due diligence procedures.
During the time that Russian Company was Teva’s repackager and distributor for Copaxone, Teva earned profits of approximately $204,167,303 on sales made by Russian Company to the Russian government.”
According to the information, “Teva Russia … paid or caused to be paid more than $65 million in profits to Russian Company in connection with sales of Copaxone to the Russian government, intending that some or all of the monies be given to Russian Official and others.”
Based on the above allegations, the information charges Teva LLC with conspiracy to violate the FCPA’s anti-bribery provisions.
The plea agreement lists the following factors among others.
Teva Pharmaceutical Industries Ltd. (the “Company”) did not timely voluntarily self-disclose the FCPA violations to the Fraud Section, and as a result the Company and the Defendant were not eligible for a more significant discount on the fine amount or the form of resolution;
The Defendant received credit for cooperation with the Fraud Section’s investigation provided by the Defendant and the Company, including voluntarily making U.S. and foreign employees available for interviews; at the request of the government in certain limited circumstances, deferring personnel actions in order to allow U.S. and foreign employees to be available for interviews, and deferring witness interviews to de-conflict with the Fraud Section’s investigation; collecting, analyzing, translating and organizing voluminous evidence from multiple jurisdictions; providing updates to the Fraud Section as to the conduct and results of the Company’s internal investigation; providing all non-privileged facts relating to individual involvement in the conduct described in the Statement of Facts and conduct disclosed to the Fraud Section prior to the Agreement; and disclosing to the Fraud Section conduct in Russia and Ukraine of which the Fraud Section was previously unaware. The Defendant did not receive full credit because of issues that resulted in delays to the early stages of the investigation, including vastly overbroad assertions of attorney-client privilege and not producing documents on a timely basis in response to certain Fraud Section document requests;
The Company and the Defendant engaged in remediation measures, including: (1) causing at least 15 employees who were involved in the misconduct described in the Statement of the Facts to be removed from the Company, because their employment was terminated, they resigned after being asked to leave, or they voluntarily left once the Company’s internal investigation began; (2) enhancing the Company’s compliance function by implementing a number of policies and procedures designed to prevent prohibited conduct, including the establishment of a system to monitor transactions with members of the health care community; (3) adopting an improved anti-corruption training program; (4) adopting a standalone third-party due diligence program and terminating business relationships with certain third parties; (5) enhancing the independence of the Company’s control functions and establishing an office charged with addressing reports of misconduct; and (6) establishing a dedicated Global Compliance Audit group and strengthening the Company’s internal audit and investigations teams;
The Defendant and the Company have committed to continuing to enhance their compliance program and internal controls, including ensuring that they satisfy the minimum elements of the corporate compliance program set forth in Attachment C to the deferred prosecution agreement between the Fraud Section and the Company;
Although the Defendant and the Company have engaged in remedial efforts, many of their compliance program enhancements are more recent and have accordingly not been tested. Thus the Defendant and the Company have agreed to the imposition of an independent compliance monitor to diminish the risk of reoccurrence of the misconduct;
Accordingly, after considering … the above [factors], the Defendant received an aggregate discount of 20% off of the bottom of the Sentencing Guidelines fine range;
The nature and seriousness of the offense, including the high-dollar amount of illegal payments paid to foreign officials, conduct in a high-risk jurisdiction, the pervasiveness throughout the Defendant’s operations, and the involvement of high-level executives in the criminal conduct described in the Statement of Facts.
The plea agreements sets forth an advisory Sentencing Guidelines fine range of $245 million to $490 million and states: “the United States and the Defendant agree… to recommend jointly that the Court not impose a criminal fine on the Defendant, conditioned upon a monetary penalty in the amount of $283,177,348 paid by Teva Pharmaceutical Industries Ltd. under the terms specified in the TPI DPA.”
As is typical in corporate FCPA settlements, Teva Russia agreed to a muzzle clause prohibiting it and others speaking on its behalf from making any public statement contracting its acceptance of responsibility or the information alleged in the plea agreement.
Deferred Prosecution Agreement
The DPA with Teva is based on the same core conduct alleged in the Teva Russia information concerning Russia plus additional conduct in Ukraine and Mexico.
As to Ukraine, the DPA alleges in summary fashion:
“between 2001 and 2011, Teva, through its employees and agents, together with others, agreed to pay and provide things of value to Ukrainian Official [described as a high-ranking official within the Ukrainian Ministry of Health who held official positions at government agencies and on government committees and who could take official action on, and exert official influence over, matters related to the registration and pricing of pharmaceutical products in Ukraine] to corruptly influence the Ukrainian government in approving the registration of Teva pharmaceutical products in Ukraine, which thereby allowed Teva to market and sell its products in the country.”
The DPA states that in furtherance of the scheme in Ukraine, Teva sent e-mails through the United States and caused wire transfers to be made through U.S. financial institutions.
As to Ukraine, the DPA further states:
“Ukraine had a socialized healthcare system, with the national Ministry of Health coordinating the provision of healthcare to its citizens with regional and local counterparts. Most healthcare services were provided through government-owned healthcare facilities. Pharmaceutical products were regulated by agencies under the Ukrainian Ministry of Health. In Ukraine, drugs were permitted for marketing and sale in Ukraine only after registration by the state, which included clinical testing and examination as part of the approval process. In Ukraine, medications for certain socially significant or especially serious illnesses, including multiple sclerosis, were dispensed free by the government.
During the relevant time period, Ukrainian Official held senior positions within the agencies under the Ukrainian Ministry of Health responsible for registering and approving drugs for marketing and sale in Ukraine. In those official positions, Ukrainian Official had the ability to influence the Ukrainian government’s decision to approve the registration of pharmaceutical products.
Teva operated directly in Ukraine until in or around 2007, at which time Teva began operating through subsidiaries, including Teva Ukraine in 2010.
In or around August 2001, Teva, through its employees and agents, engaged Ukrainian Official as a third-party “registration consultant” and entered into consulting agreements to pay Ukrainian Official a monthly “consultancy fee.” In addition to the monthly payments, Teva, through its employees and agents, provided Ukrainian Official with cash bonuses, travel expenses and other things of value. The consulting agreement between Teva and Ukrainian Official was renewed annually, on the same terms, until in or around late 2011.
The payments under the agreements between Teva and Ukrainian Official were made for the purpose of inducing Ukrainian Official to use his official position within the Ukrainian government to improperly influence the registration of Teva pharmaceutical products in Ukraine.
From in or around June 2002 through approximately March 2011, Teva and Teva Ukraine paid cash and provided other things of value to Ukrainian Official worth a total of approximately $200,000.”
As to Mexcio, the DPA alleges in summary fashion:
“Teva marketed and sold pharmaceutical products in countries with high corruption risks, including, among other places, Mexico. Despite being aware of red flags and prior corruption-related misconduct at Teva’s subsidiary in Mexico, Teva knowingly failed to implement an adequate system of internal accounting controls and failed to enforce the internal accounting controls it did have in place, including those requiring due diligence of distributors and other third party agents, which resulted in improper payments being made in Mexico.”
The DPA alleges that “Teva’s total profits from the conduct … in Russia, Ukraine and Mexico were approximately $221,232,303.”
Specifically, under the heading “Teva’s Failure to Implement Adequate Internal Accounting Controls in Mexico,” the DPA states:
“At all relevant times, Teva marketed and sold pharmaceutical products in countries with high corruption risks, including, among other places, Mexico. Despite understanding the nature of the corruption risks presented by doing business in Mexico and awareness of red flags and prior corruption-related misconduct at Teva’s subsidiary in Mexico, Teva knowingly and willfully failed to implement an adequate system of internal accounting controls and failed to enforce the internal accounting controls it did have in place, which in turn failed to prevent improper payments from being made in Mexico.
For example, in or around 2011 and 2012, Teva Mexico [a wholly-owned subsidiary of Teva], through its executives, employees and agents, used its third-party distributor, Mexican Company [a distributor retained by Teva Mexico to distribute Copaxone to state-owned and state-managed hospitals and healthcare facilities in Mexico], to make payments to physicians and other healthcare providers (collectively “HCPs”). Some of the HCPs paid by Mexican Company had received payments from Teva Mexico and its predecessor entities in exchange for prescribing Copaxone since at least 2005. The existence and improper nature of these payments was known to Teva executives who were responsible for developing and approving the Company’s anti-corruption internal controls in 2009.
Numerous Teva executives involved in developing, approving and implementing the Company’s anti-corruption program, including Teva Executive, were aware that the policies and procedures they approved were not adequate to prevent or detect improper payments to foreign officials. These executives also understood that the internal controls were not adequate to meet the risks posed by Teva’s business and, indeed, had intended such a result.
Teva executives also put in place managers to oversee the compliance function who were unable or unwilling to enforce the Company’s anti-corruption policies.
In or around early 2011, Teva reduced the budget for marketing and promotion of Copaxone in various countries, including Mexico. As a result, Teva Mexico no longer had sufficient funds to pay the government HCPs to whom it had been making payments. In or around early 2011, after the reduction in their marketing and promotions budget, employees in the Teva Mexico group responsible for sales of Copaxone agreed to continue the payments to the government HCPs in the form of cash payments made by Mexican Company, which was a Teva Mexico distributor for sales of Copaxone to government institutions.
On or about November 15, 2011, a Teva employee with responsibility for financial controls over Teva Mexico prepared a memorandum detailing perceived deficiencies in the internal accounting controls for Teva operations in Latin America. The memorandum concluded: “[w]e cannot guarantee that we are not (1) executing payments that would violate FCPA anti-bribery provisions and (2) properly accounting for any such payments under the books and records provision of the FCPA.”
In or around January 2012, employees of Teva Mexico met with employees of Mexican Company, and agreed to provide Mexican Company with an additional margin of 2% on sales by Mexican Company to its government customers. The purpose of the 2% margin was to pay the government HCPs in exchange for their writing prescriptions of Copaxone.
Between on or about February 16, 2012 and March 6, 2012, using the additional margins provided under the agreement with Teva Mexico, a Mexican Company employee delivered cash payments to at least seven HCPs employed by Mexican state-owned or statemanaged hospitals and healthcare facilities.
Prior to engaging Mexican Company as a distributor, Teva Mexico conducted no due diligence on Mexican Company, did not have a written distribution agreement in place, did not require Mexican Company to certify its compliance with Teva’s anti-corruption policies, and knew there was no legitimate purpose for an increased margin Mexican Company had received on sales to Mexican government customers.”
Based on the above conduct, the DPA charges Teva with conspiracy to violate the FCPA ‘s anti-bribery provisions in connection with the Russia and Ukraine conduct and FCPA internal controls violations for the overall conduct.
The three-year DPA contains the same relevant factors listed above in the Teva Russia plea agreement and sets forth an advisory Sentencing Guidelines fine range of approximately $354 million to $708 million and states:
“The Company and the [DOJ] agree that the appropriate resolution in this case is a criminal penalty of $283,177,348, and disgorgement of the Company’s profits in the amount of $214,596,170, plus prejudgment interest on the disgorgement of $21,505,654.
The [DOJ] further agrees to credit the $236,101,824 disgorgement and prejudgment interest paid by the Company in connection with its settlement of this matter with the U.S. Securities and Exchange Commission.”
Pursuant to the DPA, Teva agreed to retain a compliance monitor for a three-year period. Like the Teva Russia plea agreement, Teva agreed to a muzzle clause prohibiting it and others speaking on its behalf from making any public statement contracting its acceptance of responsibility or the information contained in the DPA.
In the DOJ’s release, Assistant Attorney General Leslie Caldwell stated:
“Teva and its subsidiaries paid millions of dollars in bribes to government officials in various countries, and intentionally failed to implement a system of internal controls that would prevent bribery. Companies that compete fairly, ethically and honestly deserve a level playing field, and we will continue to prosecute those who undermine that goal.”
Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division stated:
“No matter where corruption occurs, the FBI and our global partners are committed to diligently rooting out the corruption that betrays the public trust and threatens a fair economy for all.”
Assistant Special Agent in Charge William Maddalena of the FBI’s Miami Field Office stated:
“As demonstrated by this case, the Foreign Corrupt Practices Act has a long reach. Teva’s egregious attempt to enrich themselves failed and they will now pay a tough penalty.”
The SEC filed this complaint  against Teva alleging the same core Russia, Ukraine, and Mexico conduct alleged in the Teva DPA. In summary fashion, the complaint states:
“This action arises from violations of the FCPA by Defendant Teva Pharmaceutical Industries Ltd. (“Teva” or the “Company”), the largest generic drug manufacturer in the world, relating to illegal payments made to foreign government officials in three countries to assist Teva in obtaining or retaining business.
From at least October 2010 through at least December 2012, Teva paid bribes to a government official in Russia. From at least May 2002 through March 2011, Teva paid bribes to a government official in Ukraine. In 2011 and 2012, a Teva subsidiary in Mexico also paid bribes to government officials in Mexico. These illegal payments were made to influence regulatory and formulary approvals, drug purchase decisions, prescription decisions, and to increase Teva’s market share and develop competitive advantages over competitors. Teva realized more than $214,596,170 in profits from business obtained through the use of illegal payments.
These illegal payments were authorized by senior executives at Teva while knowing of or recklessly ignoring red flags which indicated a high probability that such payments were intended for, or would be paid to, foreign government officials.
Teva created false books and records to conceal illegal payments to a government official in Russia and illegal payments to a government official in Ukraine. Teva’s subsidiary in Mexico also created false books and records to conceal illegal payments to government officials in Mexico.
The illegal payments in Russia were improperly recorded as legitimate reductions of revenue in Teva’s books and records. The illegal payments in Ukraine were improperly recorded as sales and marketing expenses and consultancy fees in Teva’s books and records. The illegal payments in Mexico were improperly recorded as legitimate reductions of revenue, and the inaccurate books and records and financial statements of the Mexican subsidiary were consolidated into Teva’s financial statements, which were filed with the Commission.
Teva’s internal accounting controls were inadequate because they failed to prevent such payments or detect red flags which should have alerted its employees that these payments, in whole or in part, were bribes to foreign government officials. Moreover, the internal accounting controls were circumvented to allow employees to authorize payments with little or no supporting documents.
As a result of its conduct in Russia, Ukraine, and Mexico, Teva violated [the FCPA’s anti-bribery provisions] when it authorized or made illegal payments to foreign government officials in order to obtain or retain business. Teva violated [the FCPA’s books and records provisions] when it created false books and records to conceal illegal payments in Russia and Ukraine, and when its subsidiary in Mexico created false books and records to conceal the illegal payments in Mexico, which were then included in the subsidiary’s financial statements and consolidated into Teva’s financial statements. Teva also violated [the FCPA’s internal controls provisions] by failing to have sufficient internal accounting controls in place to detect and prevent the authorization or payment of illegal payments in Russia, Ukraine, and Mexico.”
Of note the SEC’s complaint makes generic references to “Teva sen[ding] and respond[ing] to a number of emails to the Russian Distributor’s President that were sent through U.S. servers” as well as the following:
“In December 2012, Teva Russia’s management became aware that a prominent U.S. pharmaceutical company had been charged by the Commission for FCPA violations in part as a result of making illegal payments to Russian Official and his companies.
Russian Official remained a high-ranking government official until March 2013, when he resigned his position. Teva ceased its relationship with Russian Distributor in August 2013. In 2016, Teva lost the last Copaxone tender, and ultimately lost its entire Copaxone market share in Russia.”
The above verbiage is perhaps a reference to the 2012 FCPA enforcement action against Pfizer .
Regarding Ukraine, the SEC’s complaint alleges that Teva paid for the Ukrainian Official’s “vacations to Israel on at least five occasions” with specific reference to the official traveling in business class and describes the official in more detail as follows.
“Ukrainian Official held a number of roles and positions in the government of Ukraine, including Deputy Director of one of the Institutes of the National Academy of Medical Science since at least 2000, Vice President of the National Academy of Medical Sciences since at least 2005, advisor to the sitting President’s administration from 2005 to 2009, Deputy Chairman of the Interagency Workgroup for the Issues of Price-Formation for Drugs and Other Medicinal Products, and Member of the Scientific and Expert Council of the State Pharmacological Center of Ukraine. In those roles and official positions, Ukrainian Official had the ability to influence the Ukrainian government’s decision to approve the registration of pharmaceutical products.”
Compared to the DOJ’s resolution documents, the SEC’s complaint contains additional allegations about Mexico and charges Teva for anti-bribery violations in connection with the Mexico allegations. According to the SEC:
“In 2011 and 2012, Teva’s subsidiary and distributor in Mexico made illegal payments to doctors employed at government hospitals, government officials under the FCPA, to obtain business valued at approximately $16,865,489.”
“In 2007, a number of employees in Teva’s Latin American Division (“Teva Miami”) became concerned that Teva Mexico may have violated the FCPA.
For example, they heard that a Teva Mexico manager routinely entertained Mexican government officials at a Cancun hotel to increase sales of Teva drugs in Mexico. At the time, Teva Mexico did not report to Teva Miami, but instead reported directly to Teva.
On or about February 23, 2007, an anonymous letter was delivered to a Teva internal auditor stating, among other things, that Teva Mexico was authorizing illicit payments to government officials as an incentive to increase sales.
As a result of that letter, Teva initiated an internal investigation in 2007. The internal investigation was completed in 2008, and found credible evidence of illegal payments by Teva Mexico to government officials in Mexico to influence regulatory and formulary approvals, drug purchase decisions, and prescription decisions, and to develop strategic advantages over competitors. Eleven Teva Mexico employees were terminated in connection with the investigation.
After the investigation, Teva’s internal accounting controls were still not sufficient to meet the risks posed by Teva’s business in Mexico. As a result, sporadic misconduct in Mexico continued and several Mexican doctors employed at government hospitals continued to receive money from Teva Mexico to prescribe Teva drugs.”
Teva had an anti-bribery policy in place, and it required that Teva Mexico conduct due diligence of third parties, such as distributors, and required that third parties sign an anti-corruption acknowledgement form. In the case of Teva Mexico’s Copaxone distributor in Mexico, neither requirement was met.
In January 2012, another Teva Mexico executive and a subordinate met with two executives of Teva Mexico’s Copaxone distributor in Mexico. The parties agreed that Teva Mexico would provide its Copaxone distributor in Mexico additional margins in its sales of Copaxone, through improper discounts.
After the January 2012 meeting, the Teva Mexico manager then gave the same subordinate a list of doctors, their phone numbers, and the amounts of money that they should be paid. The Teva Mexico manager then directed the same subordinate to call the doctors who had been receiving money from Teva and inform them that they would continue to be paid. Consistent with those assurances, Teva Mexico continued to pay Mexican doctors in 2012.
All doctors paid were health care providers at state-owned and state-controlled hospitals, working under the direction and control of the Mexican government. Some of these doctors employed at government hospitals were influential neurologists. Most of the doctors who were paid by Teva Mexico’s Copaxone distributor in 2011 and 2012 had also received illegal payments in or around 2007.
Teva Mexico directly and indirectly made use of the mails and of the means and instrumentalities of interstate commerce in connection with and in furtherance of its illegal payments to Mexican officials. For example, a Teva Mexico manager corresponded with Teva Mexico’s Copaxone distributor in Mexico about the delivery of cash to the Mexican officials using emails sent and stored on U.S. servers.
Teva Mexico through its Copaxone distributor paid the Mexican officials between $9,600 and $30,000 each per year to influence their Copaxone prescription decisions. In 2012, Teva paid Mexican officials approximately $159,000.
Teva Mexico mischaracterized its payments to Mexican officials as legitimate reductions of revenue in its books and records. As a result, Teva did not, in reasonable detail, accurately and fairly reflect in its books and records its payments to Mexican officials. Teva Mexico’s inaccurate books and records and financial statements were consolidated into Teva’s financial statements, which were filed with the Commission.”
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Under the heading “Failure to Maintain Adequate Internal Controls,” the complaint alleges:
“Teva failed to devise and maintain an adequate system of internal accounting controls. For example, Teva instituted a Code of Business Conduct (“Code of Conduct”) in February 2006. The Code of Conduct contained a section on the FCPA which prohibited employees “from directly or indirectly authorizing, offering, promising or giving anything of value to a foreign government official as a means of influencing or inducing the official to obtain or retain business for Teva.” Additionally, the Code of Conduct contained a section on financial reporting that prohibited “false, artificial, misleading, or deceptive entries [ ] in any of the books, records or accounts of the Company.”
Teva failed to take reasonable steps to publicize or enforce its Code of Conduct. Despite the existence of the Code of Conduct, employees were not familiar with the Code of Conduct’s prohibitions and were not trained about the FCPA or the implications of dealing with doctors employed at government hospitals or government tenders.
Teva first learned of potential violations of the FCPA in Latin America in 2007, and its internal investigation, confirming FCPA violations, was completed in 2008. Yet, Teva only rolled out an Anti-Corruption Policy in Latin America in 2009 at the behest of Teva Miami’s management. And despite conducting business in a number of high risk countries, Teva did not roll out a global Anti-Corruption policy until the summer of 2010, three years after learning of the first FCPA issues, and Teva employees did not begin to receive training until that time. The Anti-Corruption Policy had a number of requirements that were not implemented in time to prevent Teva’s illegal payment schemes. For example, the Anti-Corruption policy required that due diligence be conducted on third parties such as distributors. However, in some cases Teva did not attempt to conduct due diligence on third parties until 2013.”
In the SEC’s release, Stephanie Avakian (Deputy Director of the Enforcement Division) states:
“As alleged in our complaint, Teva failed to devise and maintain proper internal accounting controls to prevent the company’s payments of bribes to win business in certain regions around the globe.”
Eric Bustillo (Director of the SEC’s Miami Regional Office) states:
“As we allege in our complaint, many of these bribes were concealed as legitimate payments to distributors. While distributors can help companies navigate complex regulatory environments and provide valuable industry relationships, they also can create significant corruption risks for companies.”
In this release , Teva stated:
“Following Teva’s voluntary worldwide investigation into business practices, Teva and the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have agreed to a resolution to resolve previously disclosed investigations into conduct relating to three countries – Ukraine, Mexico and a guilty plea by the subsidiary in Russia. The resolution includes a deferred prosecution agreement, the implementation of a temporary independent compliance monitor, and previously reserved payments totaling $519 million. The resolution involves conduct occurring in the past, and none of the employees involved in the improper payments are still employed by Teva, including in Russia where the entire leadership team was replaced in 2013. None of the conduct in question involved Teva’s U.S. sales.
“While the conduct that resulted in this investigation ended several years ago, it is both regrettable and unacceptable, and we are pleased to finally put this matter behind us,” said Erez Vigodman, Teva’s President and CEO. “Since becoming CEO, I have worked diligently to make our culture of compliance central to everything Teva does. The compliance program that Teva has in place is serious, rigorous, and comprehensive and is designed to protect the company and its subsidiaries against future violations.”
Upon learning of initial FCPA concerns from both Teva employees and the U.S. government in early 2012, Teva began a voluntary and comprehensive investigation into our global operations, in addition to responding to the government’s specific requests for documents and information. Teva engaged independent counsel to assist in the investigation and conducted a global corruption risk assessment and a multi-country survey. Beginning in 2012, Teva accelerated the pace of changes to address these issues by naming a global head of compliance and completely transforming our governance program and processes on every level. This resulted in actions including, terminating problematic business relationships with third parties, separating relevant employees from the company, overhauling the management of several subsidiaries, and ceasing operations in several countries. We have also restructured the company through a new global organizational structure and chain of command that reduces risks. In order to institute a culture of compliance throughout the organization, we have also trained tens of thousands of employees on compliance and anti-corruption measures, protocols and best practices.
“The Teva of today is a fundamentally different company,” stated Vigodman. “We welcome working with the monitor as an added step in our process to ensure the program we have put in place is working as designed. Teva has a compliance culture that begins with a strong tone at the top, including our executive regional and local management and a culture of compliance that underpins every single business decision that Teva makes.”
Teva’s shares closed up approximately 1.5% on the day the enforcement action was announced.