Novartis to pay $347M to resolve FCPA investigations

The FCPA investigations by the U.S. Department of Justice and the Securities and Exchange Commission arose out of a bribery scheme concerning the sale of Novartis and Alcon products.

“Novartis AG’s subsidiaries profited from bribes that induced medical professionals, hospitals, and clinics to prescribe Novartis-branded pharmaceuticals and use Alcon surgical products, and they falsified their books and records to conceal those bribes,” said Assistant Attorney General Brian Benczkowski of the Justice Department’s Criminal Division. “The resolutions announced today reflect the paramount importance of effective compliance programs and the department’s commitment to holding companies accountable when they fall short.”

“As illustrated by Novartis’ misconduct, weaknesses in one part of the business can often serve as a harbinger of larger unaddressed problems.”

Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit

In addition to the penalties, subsidiaries of Novartis and Alcon entered into deferred prosecution agreements (DPAs) with the Justice Department and have agreed to pay more than $233 million in criminal fines. According to its admissions, Novartis Greece conspired with others to violate the FCPA by engaging in a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Greece to increase the sale of Novartis-branded pharmaceutical products.

Specifically, Novartis Greece paid for employees of state-owned and state-controlled hospitals and clinics to travel to international medical congresses, including events held in the United States, as a means to bribe these officials in exchange for increasing the number of prescriptions they wrote for Lucentis, a prescription drug that Novartis Greece sold. In furtherance of the scheme, Novartis Greece employees traveled to the United States, and, while located in the United States, facilitated the provision of the improper benefits to publicly employed Greek health care providers.

In connection with the resolution, Novartis Greece also admitted that between 2009 and 2010, Novartis Greece made improper payments to health care providers in connection with an epidemiological study that was intended to increase sales of certain Novartis-branded prescription drugs. The epidemiological study was used as a vehicle to make improper payments to the health care providers in order to increase sales of certain Novartis-branded prescription drugs, and Novartis Greece employees recognized that many participating health care providers believed that they were being paid in exchange for writing prescriptions of Novartis products and not for providing data as part of a clinical study.

Alcon DPA

Alcon, a former Novartis subsidiary, has entered a separate DPA. According to its admissions, from 2011 through 2014, Alcon knowingly and willfully conspired with others to cause Novartis to maintain false books, records and accounts, as a result of a scheme to bribe employees of state-owned and state-controlled hospitals and clinics in Vietnam.

Specifically, the false books and records resulted from a scheme in which Alcon employees in Vietnam made corrupt payments through a third-party distributor to employees of state-owned and state-controlled hospitals and clinics in Vietnam to increase sales of intraocular lenses. Alcon employees in Vietnam reimbursed the distributor for up to 50 percent of the cost of the corrupt payments, and these reimbursements were falsely recorded as, among other things, consulting expenses, marketing expenses, and human resource expenses.

Novartis Greece was charged with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of conspiracy to violate the books and records provision of the FCPA. Novartis Greece has committed to pay $225 million of the Justice Department total, while Alcon will foot approximately $8.9 million.

SEC resolution

The SEC’s order finds that Novartis violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC’s order, between 2012 and 2016, local subsidiaries or affiliates of Novartis or its former subsidiary Alcon engaged in schemes to make improper payments or to provide benefits to public and private healthcare providers in South Korea, Vietnam, and Greece in exchange for prescribing or using Novartis or Alcon products. Moreover, certain managers of the local subsidiaries or affiliates were aware of these schemes.

The SEC order also finds Novartis lacked sufficient internal accounting controls within its former Alcon business in China from 2013 to 2015 regarding forged contracts used as part of local financing arrangements that generated large losses and resulted in Novartis and Alcon writing off more than $50 million in bad debt. “Poor control environments are fertile soil for malfeasance,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, in a press release. “As illustrated by Novartis’ misconduct, weaknesses in one part of the business can often serve as a harbinger of larger unaddressed problems.”

Novartis consented to the entry of an order requiring the company to cease and desist from committing violations of the books and records and internal accounting controls provisions of the FCPA. Novartis agreed to pay disgorgement of $92.3 million and $20.5 million in prejudgment interest, for a total of $112.8 million. It also agreed to comply with a three-year undertaking to self-report on the status of its remediation and implementation of compliance measures.

Novartis explains

As recognized by the Justice Department and SEC, “Novartis and its subsidiaries—current and former—fully cooperated with these investigations and have already implemented appropriate remedial measures,” the company stated. Among the enhancements made to its ethics, compliance, and risk policies and procedures, Novartis said it has “strengthened its governance by adopting principles-based compliance policies; reinforced its speak-up culture so associates can more effectively raise concerns about potential misconduct; and combined its risk management and compliance functions to enable more effective risk management and mitigation efforts.”

“Today’s resolutions contain no allegations relating to any bribery of Greek politicians, which is consistent with what Novartis found in its own internal investigation,” Novartis said in a statement. “With today’s agreements, all outstanding FCPA investigations into Novartis are now closed.

“We are pleased that all outstanding FCPA investigations into the company are now closed,” Novartis Group General Counsel Shannon Thyme Klinger said in a statement. “Today’s settlements represent another milestone in our commitment to resolving legacy compliance issues and ensuring that Novartis truly lives its values. We have implemented and continue to implement initiatives to ensure we operate with the same high ethical values wherever we do business, and we remain focused on building trust with society.”