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SEC Commences FCPA Investigation of Pharmaceutical and Other Companies Doing Business in or With Countries Designated as State Sponsors of Terror
The Disclosure
It was disclosed last week in the press that the Securities and Exchange Commission (“SEC”) is conducting a broad investigation into accounting and disclosure compliance under the Foreign Corrupt Practices Act (“FCPA”) for companies doing business with countries designated as state sponsors of terror. 1
The SEC is not acting alone. Consistent with its promise of aggressive enforcement, the Department of Justice (“DOJ”) also has been seeking information, according to the reports, from pharmaceutical companies concerning payments made to foreign officials in countries other than those designated as state sponsors of terror.2
The focus on pharmaceutical companies comes as no surprise. In November 2009, the assistant attorney general in charge of the DOJ’s Criminal Division announced that the DOJ would be “intensely focused on rooting out foreign bribery” in the pharmaceutical industry.3 The DOJ has recognized that the pharmaceutical industry is fertile ground for FCPA enforcement.4 Almost $100 billion – about a third – of industry sales were generated outside the United States, according to a recent industry survey.5
The AAG pointedly stated: “The depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates a significant risk that corrupt payments will infect the process.”6 No doubt because of this, SEC chairwoman Mary Schapiro recently told Congress that the SEC is considering whether it should require expanded disclosure of activities in states deemed to be sponsors of terrorism, without regard to materiality.7
In this investigation, the DOJ and the SEC have aligned stepped up FCPA enforcement with the Treasury and Justice departments’ increased focus on enforcing federal export control laws.8 The combination promises even greater regulatory scrutiny over the next several years for companies doing business abroad.
The Response
These developments re-emphasize the need for public companies to ensure that existing record keeping and controls are robust, and that rigorous compliance systems are in place and enforced, including:
- Well-developed and well-executed compliance risk assessments and audits of internal controls;
- Competent employee training on export control prohibitions and requirements, visible codes of conduct, and effective mechanisms to allow for reporting of suspicious activity;
- Thorough due diligence in acquisitions and establishment of business arrangements with agents and third parties; and
- Enhanced controls over financial transactions.
For more information on FCPA compliance or Export Control issues, please contact any Fish & Richardson attorney or:
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