Canada-based global life sciences company Nordion last week agreed to pay a $375,000 civil penalty to the Securities and Exchange Commission for violating the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act in connection with payments made to a third-party agent to obtain business in Russia.
The settlement, reached on March 3, resolves allegations that from at least 2004 through 2011, Mikhail Gourevitch, a former engineer at Nordion, facilitated, helped negotiate, and monitored consulting contracts between Nordion and a Russian third-party agent to license, register, and distribute Nordion’s liver cancer treatment, TheraSphere, in Russia. Gourevitch and the agent hid the scheme from Nordion by communicating in Russian, preparing multiple drafts of documents to conceal the true use of funds, and misrepresenting how the agent would use the funds it received from Nordion, according to the SEC order.
As a result of this scheme, Gourevitch received $100,000 in kickbacks from the third-party agent. Ultimately, Nordion was unable to distribute the product in Russia.
The SEC identified several compliance deficiencies that led to violations of the books and records and internal accounting controls provisions of the FCPA, including:
Deficient internal accounting controls. Nordion failed to detect or prevent agent expenditures, which the agent delineated as both official fees and unofficial fees required to obtain Russian government approval to distribute TheraSphere. “Nordion also lacked sufficient internal accounting controls to ensure it made payments to entities with which it had contractual arrangements,” the SEC said.
Mischaracterization of fees. Nordion mischaracterized fees paid to its agent as legitimate business expenses when some or all of the fees may have been used to make corrupt payments to Russian government officials and to pay kickbacks to Gourevitch. “Nordion failed to devise and maintain sufficient accounting controls to detect and prevent the making of potential improper payments to foreign officials,” the SEC said.
Inadequate policies and procedures. Nordion provided “little, if any, anti-corruption compliance training to its employees during the relevant time about how to detect corruption and how to conduct business in a high-risk jurisdiction,” the SEC said.
In 2012, Nordion discovered evidence of the improper payments and shortly thereafter publicly announced that it was conducting an internal investigation into possible violations of the FCPA and Canada’s Corruption of Foreign Public Officials Act.
As a result of its prompt response, the SEC credited Nordion with taking the following measures:
The prompt hiring of both outside counsel and forensic auditors to examine and revise its policies, procedures and internal controls and conduct an independent investigation to determine the scope of potential compliance issues related to Nordion’s business in Russia;
The swift self-reporting by the company to enforcement authorities in Canada and the United States coupled with the full co-operation extended to the authorities in the parallel investigations;
The voluntary production of witnesses from Canada for interviews in the United States; and
The implementation of “extensive remedial measures” to avoid future violations including hiring new compliance personnel.
Regarding its remedial measures, in particular, Nordion hired a new director for corporate compliance, as well as additional compliance personnel. It has also made compliance a component of its annual employee performance reviews, and now provides anti-corruption, internal accounting controls and finance training to its board of directors, management and employees.
Nordion also implemented risk assessment procedures for retaining agents and determining their compensation. Nordion also now requires all of its agents to adopt its anti-corruption policies and sign contracts that include FCPA warranties and representations.
In a separate action, Gourevitch, whose employment was terminated by Nordion, agreed to settle the SEC’s charges by paying $100,000 in disgorgement, $12,950 in prejudgment interest, and a $66,000 penalty, according to the SEC’s order against Gourevitch.