SEC, Bristol-Myers Settle FCPA Charges
FCPA procedures, internal controls and travel, entertainment and gifts were at the center of the SEC’s latest FCPA action. The action names as a Respondent Bristol-Myers Squibb Company and focuses on its efforts to sell pharmaceuticals in China. In the Matter of Bristol-Myers Squibb Company, Adm. Proc. File No. 3-16881 (October 5, 2015).
Bristol-Myers entered the China market in 1982. The firm does business in China through Bristol-Myers Squibb (China) Investment Co. Limited which in turn operates through Sino-American Shanghai Squibb Pharmaceuticals Limited, a majority owned joint venture.
Beginning in 2009, and continuing through 2014, Respondent marketed its products to state-owned and state controlled hospitals in China. During the period, sales representatives used company funds to purchase gifts, entertainment and as inducements to market its products. Sales representatives provided benefits to health care provides which ranged from small food and personal care items to shopping cards, jewelry, sightseeing, and cash. It was widely known at the firm that “No money, no prescription.” Indeed, the practice was widely documented in emails and activity plans of the firm.
Despite the wide spread nature of the practices, the China subsidiary failed to respond effectively to a series of red flags. Those included items such as the findings of a 2009 a review of travel and entertainment expenses from sale personnel which uncovered fake and alter invoices and receipts and other practices evidencing abuse. Some employees of the China subsidiary admitted submitting false reimbursement claims to obtain funds used to market the firm’s products to health care workers. It was an open secret that firm employees maintained their income through these practices which were noted in reports provided to management.
Despite the widespread nature of the practices the China subsidiary did not implement a formal FCPA compliance program until April 2006. At the same time an internal audit function began reporting weaknesses in internal controls. The reports went to senior management. Nevertheless, the control deficiencies were not immediately remediated. Indeed, the corporate compliance officer responsible for the Asia-Pacific region through 2012 was based in the U.S. and rarely traveled to China. There was no dedicated compliance officer at the China subsidiary until 2008 and no permanent compliance position in China until 2010. The improper practices were reflected in the books and records of the China subsidiary which were incorporated into those of the parent. The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).
In resolving the proceeding Bristol-Myers undertook a series of remedial acts. Those included enhancing its anti-bribery and general compliance training and policies; adopting a 100% pre-reimbursement review of all expense claims; implementing an accounting system designed to track each expense claim; terminating over ninety employees and disciplining ninety others; replacing certain officers at the China subsidiary to improve tone at the top and encourage a culture of compliance; and revising its compensation structure to reduce incentive-based compensation for sales.
To resolve the action, the firm consented to the entry of an order based on the Sections cited in the Order. The firm also agreed to pay disgorgement of $11,442,000, prejudgment interest and a civil penalty of $2,750,000. The firm also undertook to report to the staff for two years regarding its anti-corruption remediation and implementation.