Introduction

Annually, about $100 million of American pharmaceutical companies’ earnings occur overseas. As pharmaceutical companies continue to expand, the Department of Justice (DOJ) recently announced they would be increasing their efforts on ensuring compliance of the Foreign Corrupt Practices Act (FCPA) for each company.

Background

The focus of the DOJ on pharmaceutical companies is strongly evident. In 2009, Assistant Attorney General Lanny Breuer attended the Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum to warn pharmaceutical higher-ups that the American government would be increasing resources to enforce the FCPA (Bloomberg).

Bribery in the pharmaceutical industry has become a huge burden on the American healthcare system. As a result, increases in the cost of  pharmaceuticals in our country have grown exponentially, while pharmaceutical companies churn out more profits to new markets overseas. In America, these bribes would be repelled by the Anti-Kickback Statute (FCPA Blog).

The FCPA makes it a federal crime for a business or individual to corruptly offer, pay, promise to pay, or authorize payment of anything of value to a “foreign official” for the purpose of obtaining or retaining business or securing any improper business advantage (Bloomberg). However, the FCPA will allow payments to facilitate or aid routine governmental action, provided that those payments are used for that governmental action.

Issue

Will American pharmaceutical companies comply with the Foreign Corrupt Practices Act (FCPA)?

Rule

The FCPA will prosecute any pharmaceutical business if they: (1) made illegal payments from previous years that are not openly disclosed to FCPA officials (2) violate the act because it is a federal crime for a business or individual to corruptly offer, pay, promise to pay, or authorize payment of anything of value to a “foreign official” for the purpose of obtaining or retaining  business or securing any improper business advantage (3) are found to be in violation of the act as a result of increases in FCPA investigative enforcement  (4) payments were given to the broadly-defined group of “foreign officials” under the guise that they were for governmental action, while they were really given as gifts to keep or create business.

Analysis

Although pharmaceutical companies may face steep costs to comply with the FCPA involving past violations, it would be nothing compared to the penalties they would face today if brought to trial and found guilty. For example, in 2008, Siemens healthcare pled guilty to violations of the FCPA and were required to pay over $800 million in penalties (Wilkie).

Any violation of the act has been determined to be a federal crime and can result in astronomical penalty fees, other financial restrictions, and even prison time, which may frighten higher-ups into compliance.

FCPA federal prosecutions are on the rise. For example, from 1977-1997, an average of only 17 companies were prosecuted on an annual basis. However, from 1998-2008, the American government prosecuted 50 companies per year on average. In 2009, the DOJ investigated approximately 120 FCPA investigations (Bloomberg, FCPA Blog). This may be a significant warning for pharmaceutical companies to gain compliance.

The definition of foreign official has grown to encompass nearly every facet of overseas pharmaceutical business. According to the FCPA, the term “foreign official” will technically be the name for every person involved in every aspect of pharmaceutical business overseas, which may increase the chances of attempted bribery.

Conclusion

As more pharmaceutical companies are found to be in violation of FCPA, we will begin to see more pharmaceutical companies become increasingly compliant with the act. This is because violations of the FCPA are now astronomically expensive, may additionally include prison time or other financial restrictions, are increasing in prosecution rates, and the term “foreign official” is growing to encompass nearly every person involved with every facet of pharmaceutical companies’ overseas operations.

For more information on this issue, contact the Kulkarni Law Firm.