Pharmaceutical giant Eli Lilly and Co. agreed December 20 to pay $29.4 million to settle charges by the U.S. Securities and Exchange Commission that it violated the Foreign Corrupt Practices Act by making improper payments to officials in Russia, Brazil, China and Poland.
According to the SEC complaint filed in the U.S. District Court for the District of Columbia, Eli Lilly subsidiaries made payments to win millions of dollars of overseas business. Lilly did not admit or deny the allegations, but in a statement the company said it “believes that this civil settlement brings resolution to issues from the past and is in the best interest of the company.”
Lilly was first notified of the investigation, which covered activities from 1994 until 2009, in August 2003.
The SEC said Lilly’s Russian subsidiary used offshore “marketing agreements” as a vehicle to “pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services and in some instances were used to funnel money to government officials in order to obtain business for the subsidiary.”
The SEC also said that even after Lilly became aware that this conduct might violate the Foreign Corrupt Practices Act, or FCPA, the company did not discontinue use of such marketing agreements for another five years.
In China, company employees allegedly falsified expense reports and used the money to pay for spa treatments, jewelry and other improper gifts and cash payments to government-employed physicians.
The SEC said that Lilly’s subsidiary in Brazil “allowed one of its pharmaceutical distributors to pay bribes to government health officials to facilitate $1.2 million in sales of a Lilly drug product to state government institutions.”
And in Poland, the SEC objected when the subsidiary made eight payments totaling $39,000 to a small charity run by a regional health official “in exchange for the official’s support for placing Lilly drugs on the government reimbursement list.”
“When a parent company learns tell-tale signs of a bribery scheme involving a subsidiary, it must take immediate action to assure that the FCPA is not being violated,” said Antonia Chion, associate director in the SEC Enforcement Division, in a news release. “We strongly caution company officials from averting their eyes from what they do not wish to see.”
In addition to the fine — disgorgement of $14 million, prejudgment interest of $6.7 million and a penalty of $8.7 million — Lilly also agreed to have an independent compliance consultant conduct a 60-day review of the company’s internal controls and compliance program related to the FCPA.
Lilly was represented by Latham & Watkins partner William Baker III, who referred a request for comment to the company.
Lilly is not the first pharmaceutical company to face FCPA scrutiny. In April 2011, Johnson & Johnson agreed to pay $70 million to settle charges that it violated the FCPA by bribing doctors at state-run hospitals overseas.
Jenna Greene is a reporter for The National Law Journal, a Legal affiliate based in New York. This article first appeared on The BLT: The Blog of Legal Times. •