Late last week, the SEC announced an FCPA enforcement action involving the California-based entity SciClone Pharmaceuticals, Inc. (SCI). SciClone was assessed a penalty of $2.5M, profit disgorgement of $9.42M and prejudgment interest of $900K for a total penalty of $12.8M, all to settle SEC charges that a Chinese subsidiary of SciClone, SciClone Pharmaceuticals International Ltd., it violated the Foreign Corrupt Practices Act. At issue were charges that SciClone employees in China pumped up sales for five years by making improper payments to professionals employed at state health institutions.
The company had been a poster child for (allegedly) greedy plaintiffs’ lawyers in the securities field who would file lawsuits immediately after a company announced a FCPA investigation was ongoing. Yet SCI demonstrated the usefulness of this private remedy when the company settled the a 2011 shareholder-driven class action against it, as the settlement significantly enhanced the SCI’s compliance program.
The settlement included clawbacks for senior management involved with FCPA violations, creation of a companywide, 13-point best practices compliance program, a compliance coordinator who sounded suspiciously like a Chief Compliance Officer, substantive written policies and procedures, and a robust third party management program for gifts, travel and entertainment.
I would note this enforcement action is a textbook case for CCOs and compliance practitioners to study for lessons learned. The first thing is to review your own compliance program to see if any of these anomalies that SCI engaged in, appear in your Chinese operations or any other high-risk areas. Beyond these general reviews, I would suggest a more detailed transaction monitoring and data analytics approach, such as tracking 1) the expenses paid for gifts, travel and entertainment by employees, 2) tying this information back to the foreign government officials who received these benefits, 3) considering the positions which received any lavish gifts, travel and entertainment, and 4) whether the employees who gave the favors actually had authority over contracts or permits to do business. A close examination of these data points will surely be a case for any or all of these components receiving greater compliance scrutiny.