Companies doing business in the global marketplace engage all types of third parties. Generally, Foreign Corrupt Practices Act compliance tends to focus, with good reason, on third parties such as agents, representatives, distributors and others that assist a company in obtaining or retaining business.
However, given the DOJ and SEC’s broad interpretation of that key element of the FCPA’s anti-bribery provisions, any third party that has a point of contact with a foreign official – even if outside the context of foreign government procurement – can potentially expose a business organization to scrutiny and enforcement.
This includes travel agencies as recently demonstrated by the Novartis enforcement action. As highlighted in this prior post, among the allegations were the following:
“By sponsoring Greek State HCPs to attend congresses, Novartis Greece paid for the costs associated with that Greek State HCP’s attendance, such as airfare, hotel accommodations, and congress registration fees. Novartis Greece typically paid for travel costs associated with congresses through third-party travel agencies.”
The Novartis enforcement action was certainly not the only recent FCPA enforcement action to reference travel agencies as a problematic third party. Indeed, in the first FCPA enforcement action against Novartis in 2016 the SEC found:
“In connection with the SEC Staff s investigation and in response to media reports concerning a competitor in August 2013, Novartis instituted an expansive review of its relationships in China with travel and event planning vendors. Novartis’ internal review showed that the vast majority of these vendors were retained in connection with events in which HCPs attended. It also identified a significant percentage of events that did not comply with existing Novartis Corporate policies and procedures. This included events for which no record existed to verify it had occurred, events for which inconsistent records existed, and events that could not be verified from available information. Through this mechanism of using travel agencies and similar vendors to plan events, funds were generated that were used to provide improper payments and other inducements to HCPs in order to increase sales of Novartis products.”
Set forth below are other FCPA enforcement actions in the modern era that reference travel agencies.
In the 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, prior to 2012, there was a lack of controls over the events to ensure they had an appropriate business purpose and that the events actually occurred. Many events did not include a legitimate educational purpose or the educational activities were minimal in comparison to the sightseeing or recreational activities.”
In the FLIR Systems enforcement action, the SEC found:
“Although FLIR had policies and procedures over travel for its domestic operations, there were no controls or policies in place governing the use of foreign travel agencies. Instead, FLIR foreign sales employees worked directly with FLIR’s foreign travel agencies to arrange travel for themselves and others. Sales managers, such as Timms, were solely responsible for expense approvals for their sales staff. Timms’ manager was responsible for approving travel-related expenses for all non-U.S.-based senior sales employees (such as Timms) and approving the payment of large invoices to the foreign travel agencies.”
In the GlaxoSmithKline enforcement action, the SEC found:
“Among the ways employees were able to fund payments to HCPs was the use of collusive third party vendors, such as those used to perform planning and travel services for events involving HCPs. Between 2010 and June 2013, GSKCI spent nearly RMB 1.4 billion (USD $225 million) on planning and travel services. Test sampling showed that approximately 44 percent of the sampled invoices were inflated and approximately 12 percent were for events that did not occur.”
In the Pfizer/Wyeth enforcement action, the SEC found:
“Wyeth China employees took steps to conceal the true nature of the payments by falsifying expense reimbursement requests and, in concert with local travel agencies, by submitting false or inflated invoices and other supporting documentation for large-scale consumer education events, resulting in those transactions being falsely recorded in Wyeth China’s books and records.”
In the AstraZeneca enforcement action, the SEC 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. […] 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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