Eli Lilly reached an agreement with the SEC to settle charges of Foreign Corrupt Practices Act violations.

The drug company agreed to pay a civil settlement  of $29.4 million and to have an independent compliance consultant conduct a 60-day review of the company's internal controls and compliance program related to the FCPA.

The settlement stems from an investigation by the SEC of Eli Lilly affiliates in four countries—Brazil, China, Poland, and Russia—from 1994 through 2009. Lilly was first notified of the investigation in August 2003.

The SEC alleges that the Indianapolis-based pharmaceutical company's subsidiary in Russia used offshore “marketing agreements” to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information.

These offshore entities rarely provided any services and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary, according to the SEC. Transactions with offshore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary's use of the marketing agreements for more than five years.

“When a parent company learns tell-tale signs of a bribery scheme involving a subsidiary, it must take immediate action to assure that the FCPA is not being violated,” said Antonia Chion, Associate Director in the SEC Enforcement Division. “We strongly caution company officials from averting their eyes from what they do not wish to see.”

The SEC noted that since the time of the conduct alleged in its complaint, Lilly has made improvements to its global anti-corruption compliance program, including: enhancing anti-corruption due diligence requirements for relationships with third parties; implementing compliance monitoring and corporate auditing specifically tailored to anti-corruption; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization.

"Lilly requires our employees to act with integrity with all external parties and in accordance with all applicable laws and regulations," said Anne Nobles, Lilly's chief ethics and compliance officer and senior vice president of enterprise risk management. "Since ours is a business based on trust, we strive to conduct ourselves in an ethical way that is beyond reproach. We have cooperated with the U.S. government throughout this investigation and have strengthened our internal controls and compliance program globally, including significant investment in our global anti-corruption program."

Employees at Lilly's subsidiary in China falsified expense reports in order to provide spa treatments, jewelry, and other improper gifts and cash payments to government-employed physicians, according to the SEC.

The Commission also took issue with Eli Lilly's due diligence of third-party affiliates. “Eli Lilly and its subsidiaries possessed a ‘check the box' mentality when it came to third-party due diligence," said Kara Novaco Brockmeyer, Chief of the SEC Enforcement Division's Foreign Corrupt Practices Unit. "Companies can't simply rely on paper-thin assurances by employees, distributors, or customers. They need to look at the surrounding circumstances of any payment to adequately assess whether it could wind up in a government official's pocket.”