Richard Craig Smith, John E. Kelly, Kimberly Sullivan Walker and Gloria Salcedo Padula
February 9, 2010
Enforcement of the Foreign Corrupt Practices Act ("FCPA") has increased over the past several years. In 2009 alone, the Department of Justice ("DOJ") and Securities Exchange Commission ("SEC") announced 11 enforcement actions against corporations and 33 enforcement actions against individuals. The dollar value of the corporate enforcement actions in 2009 exceeded $644 million. Continued aggressive enforcement is expected, and 2010 opened with the announcement of a "sting" operation in which 22 individuals in the military law enforcement products industry were arrested and indicted. This was the first large-scale use of undercover law enforcement techniques in an FCPA case, and the DOJ warned that more will follow.
Against the backdrop of increased enforcement, the DOJ leadership has recently announced on more than one occasion that it is targeting the health care industry for FCPA investigations, with a particular focus on pharmaceutical and medical device companies. For this purpose, the DOJ also plans to continue to work closely with its partners at the SEC and the Federal Bureau of Investigation to make sure that all of the government's enforcement tools are effectively used.
Medical device and pharmaceutical companies are especially susceptible to FCPA exposure because they commonly conduct business in countries where government-sponsored medicine is the norm. One unique challenge faced by global health care companies is that sales and marketing practices which raise concerns under the Medicare/Medicaid anti-kickback statute in the United States can also result in an FCPA violation when applied abroad. For example, meals, entertainment, travel and gifts, when given to physicians or administrators employed by government-operated hospitals and other health care facilities, can trigger FCPA exposure in addition to potential liability under the domestic laws of the foreign country. If a pharmaceutical or medical device company has issues with the anti-kickback statute, similar conduct in a foreign country will most likely be a violation of the FCPA. And the cost to resolve such violations, whether caused by questionable sales and marketing practices or outright malfeasance, is staggering.
For example, in 2008, medical device manufacturer AGA Medical Corporation ("AGA"), settled one count of conspiracy to violate the FCPA and another count of violating the FCPA. The DOJ alleged that AGA, which manufactures devices used to treat congenital heart defects, made payments of at least $460,000 during an eight-year period to doctors employed by state-owned hospitals and other officials in China, including members of its patent office. In exchange for such payments, the doctors facilitated the purchase of AGA's products, resulting in sales of about $13.5 million. AGA and the DOJ thus entered into a three-year deferred prosecution agreement that required the appointment of a compliance monitor and the payment of a $2 million criminal penalty. AGA is not the only member of the health care industry to endure FCPA scrutiny. Of the 48 DOJ FCPA enforcement actions and resolutions announced since 2005, seven involved companies in the health care industry or health care industry employees.
As fines and penalties continue to mount for health care companies caught in the FCPA's web, other industries have faced record-setting exposure. In December 2008, Europe's largest engineering company announced that it had agreed to pay $1.6 billion to settle bribery investigations in the United States and Germany. In addition to the $1.6 billion the engineering company spent to settle the case, it also reportedly paid for more than 1.5 million billable hours by attorneys and forensic accountants as part of the internal investigation and cooperation efforts and spent over $150 million in remediation efforts.
In addition to significant fines, a company convicted of an FCPA violation could also face disgorgement of any ill-gotten profits, debarment from federal procurement opportunities, loss of export licenses, and exclusion from Medicare and Medicaid. Other costs incurred by companies dealing with an FCPA investigation include lost productivity, damage to corporate reputation, and decreased employee morale. Further, based on recent trends, it is likely that any resolution will include the oversight of a monitor, which is expensive and, at times, quite intrusive. Moreover, enforcement of the FCPA is focused on both the company and responsible individuals.
Given the risks facing the health care industry, and the industry's increasingly global presence, health care companies in the United States or doing business in the United States must establish sufficient safeguards to allow them to direct and monitor the actions of their employees, subsidiaries, agents, and distributors. Indeed, companies involved in the global health care industry must assess the business environments in which they operate and establish a robust compliance program, conduct due diligence on third parties and subsidiaries, train employees and agents to understand and identify red flags, and ensure transparency and accuracy when recording financial transactions. As Lanny Breuer, Assistant Attorney General, Criminal Division, Department of Justice, recently remarked, the DOJ is "fully aware that internal investigations and remedial measures may be costly. But the costs of not doing the responsible thing can be much higher."
This article was prepared by Richard C. Smith (firstname.lastname@example.org or 202 662 4795), John Kelly (email@example.com or 202 662 0256), Kimberly S. Walker and Gloria Salcedo Padula from Fulbright's White Collar Crime Practice Group and Health Care Practice Group.
 The FCPA, 15 U.S.C. §§ 78dd-1, et seq., contains two sets of provisions: (1) anti-bribery provisions that prohibit companies from offering, promising, making, or authorizing payments or anything of value to foreign officials, political parties, and certain other individuals in order to obtain or retain business; and (2) accounting provisions that require companies that trade on a U.S. stock exchange, among other things, to (a) maintain accurate books and records and (b) implement and maintain internal accounting controls based upon sound accounting principles.
 DOJ Press Release, Twenty-Two Executives and Employees of Military and Law Enforcement Products Companies Charged in Foreign Bribery Scheme (Jan. 19, 2010), available at http://justice.gov/opa/pr/2010/January/10-crm-048.html (hereinafter "DOJ Jan. 19 Press Release"). A brief analysis of this enforcement action is available at www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id =494&detail=yes.
 DOJ Jan. 19 Press Release.
 E.g., DOJ Press Release, Prepared Keynote Address to The Tenth Annual Pharmaceutical Regulatory and Compliance and Best Practices Forum (Nov. 12, 2009), available at http://www.justice.gov/criminal/pr/speeches/2009/11/11-12-09breuer-pharmaspeech.pdf, pg. 1 (hereinafter "Keynote Address").
 Id.at 2.
 42 U.S.C. § 1320a-7b.
 Deferred Prosecution Agreement (June 3, 2008), available at http://www.law.virginia.edu/pdf/faculty/garrett/agamedical.pdf, pg. 1.
 Id., Attachment A, at 4.
 Id.at 7.
 Id. (main text) at 6.
 In reaching this total, cases stemming from the same set of facts, even if more than one individual or entity was involved, were counted as a single case.
 DOJ Press Release, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 15, 2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html. Additional analysis regarding the Siemens resolution is available at http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id=3691&site_id=494&detail=yes.
 Id.at 19, 23.
 Keynote Address at pg. 3.
Richard Craig Smith
John E. Kelly
Kimberly Sullivan Walker
Gloria Salcedo Padula