Busy Month for FCPA Watchers Capped with Significant Warning to Big Pharma

November 13, 2009

On November 12, Assistant Attorney General and Department of Justice (“DOJ”) Criminal Division Chief Lanny A. Breuer delivered a speech on Foreign Corrupt Practices Act (“FCPA”) enforcement that has likely left most pharmaceutical and medical device companies reaching for the aspirin. In his keynote address to the Tenth Annual Pharmaceutical Regulatory and Compliance Congress in Washington, D.C., Mr. Breuer outlined an aggressive FCPA enforcement agenda focused squarely on pharmaceutical and medical device companies “in the months and years ahead.”

Mr. Breuer began his remarks by noting that a substantial portion of U.S. pharmaceutical companies’ sales–$100 billion, or one third–are generated outside the United States “where health systems are regulated, operated and financed by government entities to a significantly greater degree than in the United States.” He continued by explaining the extensive reach of the FCPA in this context, where many health care providers in foreign countries could be considered “foreign officials” under the FCPA. Mr. Breuer went so far as to say that “it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a ‘foreign official’ within the meaning of the FCPA.”

According to Mr. Breuer, this intertwining of health care and government, combined with “fierce industry competition” pose a significant risk of corruption. In response, the DOJ “will be intensely focused on rooting out foreign bribery in [the pharmaceutical] industry.” Mr. Breuer went on to cite the “exponential” growth of the FBI’s dedicated FCPA squad since its 2007 formation in the FBI’s Washington Field Office, and announced that it has already begun working with the DOJ’s health care fraud group to begin actively investigating the pharmaceutical and medical device industries.

Perhaps most alarming for industry officials was Mr. Breuer’s comment that a significant focus of this new enforcement effort will be the investigation and prosecution of senior executives. According to Mr. Breuer, “Effective deterrence requires no less . . . for our enforcement efforts to have real deterrent effect, culpable individuals must be prosecuted and go to jail.”

In closing, Mr. Breuer counseled potential targets of FCPA scrutiny to ensure they have a “rigorous FCPA compliance policy that is faithfully enforced,” to “seriously consider voluntarily disclosing” violations that are discovered, and to quickly remediate the source of any violations. He noted that failure to take these steps can result in substantial negative consequences including significant criminal fines and possible exclusion from Medicare and Medicaid.

Mr. Breuer’s speech caps off a notable few weeks for FCPA observers, which began in October with another address by Mr. Breuer containing significant warnings about the DOJ’s continued focus on FCPA enforcement.

In an October 1 address to the National Association of Criminal Defense Lawyers, presented at a Fordham Law School seminar in New York, Mr. Breuer discussed how “[d]ifficult economic times can create significant temptations for sales and marketing personnel to obtain business abroad however they can, including by paying bribes to foreign officials, and for corporate executives to turn a blind eye.” He went on to say that rather than simply being reactive to voluntary disclosures and corporate internal investigations the “Department is being proactive and aggressive” in this area. According to Mr. Breuer, not only will the DOJ “continue to pursue vigorously violations of the Foreign Corrupt Practices Act,” but he “fully expect[s] that the number of FCPA prosecutions–of corporations and individuals alike–will continue to rise, as will the extent of our cooperation with foreign law enforcement partners.” The DOJ currently estimates that there are over 120 active FCPA investigations underway within the DOJ and SEC.

One month later, on November 7, Attorney General Eric Holder spoke in Doha, Qatar at the opening of the Ministerial Global Forum on Fighting Corruption and Safeguarding Integrity. Mr. Holder expressed alarm at the “sobering results” of Transparency International’s 2009 Global Corruption Barometer, a global public opinion survey used to gauge perceptions about corruption around the world. He noted that the survey shows increasing percentages of respondents view the private sector as corrupt, and over 60 percent view key public institutions in a similarly poor light. He outlined “three critical steps” for combating corruption: renewed efforts to ratify and fully implement the UN Convention Against Corruption, a continuing focus on recovery of illicit proceeds from corrupt officials, and an end to impunity for officials found to have engaged in corruption.

Three days after Mr. Holder’s speech, on November 10, the much anticipated sentencing of Frederic Bourke occurred. The cofounder of Dooney & Bourke was sentenced to one year and one day of incarceration, plus payment of a $1 million fine following his July conviction for conspiring to violate the FCPA and the Travel Act and lying to the FBI. Bourke’s was a landmark FCPA case where the defendant was convicted not because of his affirmative acts but because he “put his head in the sand” and consciously disregarded red flags indicating that he was involved in a bribery scheme.

Meanwhile, in the background of this activity, Mark Mendelsohn, Deputy Chief of the DOJ’s Fraud Section and gatekeeper on FCPA matters appears to be heading for private practice. On October 30, the National Law Journal reported that Mr. Mendelsohn had issued a recusal letter indicating his intent to seek employment outside the DOJ. Although this is not likely to impact enforcement trends or pending investigations, the search for Mr. Mendelsohn’s replacement will be closely watched due to the pivotal role his position plays in all FCPA enforcement matters.

McGuireWoods’ Government, Regulatory and Criminal Investigations Department has attorneys with extensive experience in defending FCPA investigations, conducting FCPA/anticorruption risk assessments, audits and internal investigations, as well as designing and helping to implement overall and FCPA/anticorruption-specific corporate compliance programs and training. The most valuable weapons a corporation and its officers and directors have against potential FCPA/anticorruption issues are preparedness, responsiveness and the deployment of a robust compliance program designed to identify, address and prevent issues before they become government investigations.

For more information about the capabilities of our Government, Regulatory and Criminal Investigations Department in this or any other area, please contact the authors.