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Issues To Consider From The AstraZeneca Enforcement Action


This post summarized the recent SEC Foreign Corrupt Practices Act enforcement action against AstraZeneca in which the company, without admitting or denying the SEC’s findings, agreed to cough up $5.5 million.

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


In an August 9, 2010 filing, AstraZeneca first disclosed:

“AstraZeneca PLC has received inquiries from the US Department of Justice and the Securities and Exchange Commission in connection with an investigation into Foreign Corrupt Practices Act issues in the pharmaceutical industry. AstraZeneca is cooperating with their inquiries.”

Thus from start to finish, AstraZeneca’s FCPA scrutiny lasted over six years.

It is absolutely inexcusable on any level for FCPA scrutiny to last over six years. If the SEC wants the public to view its FCPA enforcement program as legitimate, credible, and effective, it must resolve instances of FCPA scrutiny much faster.

Sparse Allegations

Rarely has an SEC enforcement action against an issuer contained such few allegations against, well, the issuer.

Aside from the two conclusory legal allegations:

  • (i) AstraZeneca violated the books and records provisions because its subsidiaries mischaracterized improper payments as legitimate expenses in AZN’s books and records; and
  • (ii) AstraZeneca’s internal controls were deficient because with the benefit of hindsight there were things the company could have perhaps done better

the SEC’s order contains no substantive allegations against AstraZeneca itself as opposed to its China and Russia subsidiaries.

Approaching 25

Certain people seem to be confused about the reasons why FCPA enforcement has generally increased over the past decade.

However, there are several practical (as well as provocative) reasons.

Among the more obvious practical reasons (no doubt it is provocative as well) is that in 2002 the FCPA enforcement agencies came up with the theory that employees (such as physicians, nurses, mid-wives, lab personnel, etc.) of certain foreign health care systems are “foreign officials” under the FCPA and thus occupy a status equal to Presidents, Prime Ministers, and other bona-fide foreign officials that Congress had in mind when passing the FCPA in 1977.

It is one of the more aggressive and dubious FCPA enforcement theories there is.  It has never been subjected to judicial scrutiny and perhaps most telling as to its validity and legitimacy, the DOJ has never charged an individual with an FCPA violation based on this theory.

Nevertheless, the theory is frequently used in FCPA enforcement actions and the AstraZeneca enforcement action provides yet example in that the conduct at issue focused on various things of value provided to health care providers in China and Russia. Sure the enforcement action found “only” FCPA books and records and internal controls violations (presumably because the U.S. nexus needed for the FCPA’s anti-bribery provisions to be triggered against a foreign company were lacking), but make no mistake this enforcement action was all about the alleged “foreign officials.”

According to FCPAnalytics, the number of FCPA enforcement actions based on the enforcement theory that employees of certain foreign health care systems are “foreign officials” under the FCPA is approaching 25.

Interested in learning about other practical reasons for the general increase in FCPA enforcement? This prior post details three historical events that together served as the foundation for 35% of all corporate enforcement actions between 2007-2011 and resulted in 55% of the settlement amounts in corporate enforcement actions between 2007-2011.

No Charged Bribery Disgorgement

The $5.5 million AstraZeneca enforcement action was mostly comprised of disgorgement and prejudgment interest (approximately $5.1 million) even though the company was not charged with violating the FCPA’s anti-bribery provisions.

As highlighted in this previous post, so-called no-charged bribery disgorgement is troubling.

Among others, Paul Berger (here) (a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”

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.

For instance, in the recent SciClone enforcement action the SEC found:

“Local Chinese travel companies were routinely hired to provide services (such as arranging transportation, accommodations, and meals for HCPs) in connection with what were ostensibly legitimate conferences, seminars, and other events. In addition to a lack of due diligence for these third party vendors … there was a lack of controls over the events to ensure they had an appropriate business purpose and that the events actually occurred.”

Similarly, in the recent Novartis enforcement action, the SEC found:

“As part of its normal business operations, Sandoz China hired local Chinese travel companies to arrange transportation, accommodations, and meals for HCPs in connection with education events. However, in many instances, the actual trips did not include an educational purpose or the scientific/educational components were minimal in comparison to the sightseeing or recreational activities, and were instead a method of influencing the HCPs. The related expenses were approved and paid with little or no supporting documentation.”


Between 2011 and 2013, employees and agents of Novartis China made payments to government officials in China in connection with pharmaceutical sales. The payments were made through event planning and travel companies retained by Novartis China ostensibly to arrange transportation, accommodations and meals for HCPs in connection with educational conferences and other business activities. Through the use of these complicit vendors, HCPs were provided with improper inducements to prescribe or recommend Novartis products. The subsidiary recorded these payments as legitimate selling and marketing costs in its books.

Novartis China retained numerous third-party travel and event planning vendors to organize and manage marketing for HCPs events, both locally within China, and outside China. The range of services varied but in some cases vendors arranged the venue, food, entertainment, flights, hotels, and transit depending upon the location of the event and number of participants. In the past several years, Novartis China has hosted thousands of such events, and the pharmaceutical business unit within Novartis China was the largest consumer of these services.

Despite the widespread use of third-party travel and event planning vendors in China, Novartis did not have sufficient internal accounting controls or anticorruption compliance measures in connection with the use of these vendors. Among other things, Novartis failed to conduct sufficient training of its sales staff and managers to prevent and detect inappropriate payments made to and/or through these vendors, failed to conduct proper due diligence in connection with these vendors and failed to ensure sufficient and appropriate support for the selling and marketing expenses submitted by these vendors.”

On this topic, the SEC’s AstraZeneca order found:

“In numerous instances, AZ China sales staff submitted, and managerial employees knowingly approved, fake fapiao (tax receipts) for fraudulent reimbursements to generate cash that was used to make improper payments to HCPs.

Other methods were also used, such as establishing bank accounts in doctors’ names as part of an improper payment scheme, or engaging a collusive travel vendor who submitted fake or inflated invoices to generate cash that could be used to funnel money to HCPs.

As a result of the deficient controls, AZ China employees were regularly reimbursed for submitted expenses despite inadequate supporting documentation.


AZN did not employ reasonable due diligence and monitoring of third-party contractors engaged by its China and Russia subsidiaries, such as travel vendors who provided false invoices to the subsidiaries’ employees that facilitated the unauthorized use of corporate funds to improperly incentivize HCPs.”

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