Biopharmaceutical-company AstraZeneca this week reached a $5.5 million settlement with the Securities and Exchange Commission to settle claims that it violated the Foreign Corrupt Practices Act by making improper payments to state-controlled health care providers in China and Russia.

According to the SEC’s order, the proceeding arose out of violations of the internal controls and record-keeping provisions of the FCPA by AstraZeneca and its wholly-owned subsidiaries in China and Russia. Through at least 2010, AstraZeneca failed to devise and maintain a sufficient system of internal accounting controls relating to the interactions of its China and Russia subsidiaries with government officials, the vast majority of whom were health care providers (HCPs), at state-owned and state-controlled entities in China and Russia, the order stated.

Sales and marketing staff, along with multiple levels of management at the two AstraZeneca subsidiaries, designed and authorized several schemes to make improper payments of gifts, conference support, travel, cash and other benefits to HCPs to reward or influence their purchases of AstraZeneca pharmaceuticals.

The SEC added that employees in the China subsidiary made cash payments to local officials to reduce or avoid fines that were levied against the China subsidiary. According to the order, AstraZeneca falsely recorded all of the improper payments by its China and Russia subsidiaries as bona fide business expenses in its consolidated financial statements.

Additionally, the SEC order stated that AstraZeneca did not provide adequate FCPA training to its sales and marketing employees in China and Russia who had routine interactions with government officials in the healthcare industry that posed a high risk for bribery and corruption.

“Furthermore, 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. ”

The AstraZeneca settlement “emphasizes the importance of FCPA compliance by U.S. companies that do business abroad,” Nevena Simidjiyska, a partner with law firm Fox Rothschild, wrote in a blog post. “The line between proper and improper payments, gifts, travel, and entertainment expenses to foreign officials under the FCPA can be difficult to draw by company staff without proper training.”  

“Doing business in countries where the level of corruption is high—such as Russia and China—a can make FCPA compliance especially challenging,” Simidjiyska wrote. “As such, it is key for U.S. companies to have robust FCPA compliance programs and audit testing, to provide careful due diligence for particular transactions and relationships, to keep proper records, and to promptly respond to violations or indications of violations.”

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