Foreign Corrupt Practices Act (FCPA): How 2011 Enforcement Initiatives Will Affect Your Company

Transcription

1 Foreign Corrupt Practices Act (FCPA): How 2011 Enforcement Initiatives Will Affect Your Company Kirk Ogrosky John Nassikas Thompson Interactive Food & Drug Regulation Series Tuesday, December 7, :30 PM

2 2 Intersection of Business, Government and the Media While it is legal for doctors in this country [United States] to accept money from drug companies for acting as consultants, this is not the case abroad, where doctors often are government employees, and such payments can be considered bribes. Donald L. Barlett & James B. Steele, Deadly Medicine, 605 Vanity Fair 56, 63 (Jan. 2011).

3 3 Intersection of Business, Government and the Media I have been concerned about law enforcement for a long time and have had some experience in the field and am convinced that the only impact on matters of this sort is a jail sentence. Fines are added to the cost of doing business, end up being paid by the shareholders. Criminal conduct is individual. Nobody likes to pay fines, but it doesn't amount to a whole lot in the context of what is going on here. Senator Arlen Specter, Hearing on Examining Enforcement of the Foreign Corrupt Practices Act before the Crime and Drugs Subcommittee of the US Senate Judiciary Committee (Nov. 30, 2010).

4 4 Intersection of Business, Government and the Media The department has made the prosecution of individuals a critical part of its FCPA enforcement strategy. We understand well that it is an important and effective deterrent. Paying large criminal penalties cannot be viewed and is not simply the cost of doing business. Corporate prosecutions and resolutions do not and cannot provide a safe haven for corporate officials. Testimony of Deputy Assistant Attorney General Greg Andres, Hearing on Examining Enforcement of the Foreign Corrupt Practices Act before the Crime and Drugs Subcommittee of the US Senate Judiciary Committee (Nov. 30, 2010).

5 5 Statement of U.S. Assistant Attorney General November 12, 2009 "[A] typical U.S. pharmaceutical company that sells its products overseas will likely interact with foreign government officials on a fairly frequent and consistent basis. In the course of those interactions, the industry must resist short cuts. It must resist the temptation and the invitation to pay off foreign officials for the sake of profit. It must act, in a word, lawfully.... [T]he types of corrupt payments that violate the FCPA because they are given to obtain or retain business in other countries are not any different than the items of value that would violate the Anti Kickback Statute if given within the United States cash, gifts, charitable donations, travel, meals, entertainment, grants, speaking fees, honoraria, and consultant arrangements, to name a few.

6 6 US DOJ and SEC Pharma/Device Initiative Corporate executives may be tempted both to look the other way and to invest fewer resources in their compliance efforts.... The Department is looking carefully at lapses both past, present, and future in corporate compliance as a result of the downturn of the economy." "First and foremost, every company should have a rigorous FCPA compliance policy that is faithfully enforced." The government is mindful of the significant costs companies have to pay for outside counsel to conduct in depth internal investigations and implement comprehensive compliance programs, but added that the cost to a company of not doing so can be far higher. Indeed, 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. Assistant Attorney General Breuer

7 7 Foreign Clinical Trials United States Department of Health and Human Services, Office of Inspector General (HHS OIG) Report stated that 80 percent of drugs approved for sale in the US in 2008 were supported by foreign trials, and 78 percent of all participating human subjects were enrolled at foreign sites. Office of Inspector General, Challenges to FDA s Ability to Monitor and Inspect Foreign Clinical Trials (June 2010).

8 8 Overview The depth of government involvement in foreign health systems, combined with fierce industry competition creates risk. In last five years, DOJ has brought approximately 80 cases. Exclusive FCPA jurisdiction in Criminal Division, Fraud Section. The FBI created a squad of dedicated agents in WFO three years ago. Criminal Division s FCPA group has been combined with health care fraud group to bring expertise from handling Anti Kickback Statute violations within the pharmaceutical and device sectors into the new initiative. In 2011, emphasis on individual executive indictments. Key New DOJ Leadership in FCPA Personnel Changes H. Walther, New Deputy Chief in HCF recently indicted over 20 individuals with FCPA violations in sting operation; C. Duross, New Deputy Chief in FCPA former AUSA with over 10 years prosecutorial experience and tried Congressman Jefferson

9 9 FCPA Prosecutions 1977 to 2009

10 10 FCPA Corporate Penalties 1977 to 2009

11 11 FCPA Pharmaceutical and Device Initiative Seven Steps of US DOJ Process: Step One: FBI/SEC receives information Step Two: DOJ, SEC and FBI confer with foreign prosecutors and agents regarding access to witnesses, documents and data and scope of allegations Step Three: Agents confirm or refute information Step Four: DOJ decides to send inquiry to company or decline (SEC decides to send inquiry to company or decline) Step Five: DOJ requests company analyze conduct and disclose Step Six: FBI compares disclosed materials to investigatory findings Step Seven: Resolution decisions (Declination, Agreed Terms, or Indictment)

12 12 Key Things of Value in Healthcare Monetary payments Invitations to congresses, workshops and events Contractual payments for studies (clinical trials, either registrational or post marketing) Honoraria for speeches and articles Honoraria for advisory boards and consulting Gifts Charitable donations Favors (e.g. employing official s relatives)

13 13 Non US Government Official FCPA prohibits corrupt payments or benefits to: Government officials and employees Political parties or party officials Employees of designated international organizations (including the WHO, International Committee for the Red Cross, EU and UN agencies) Government official is used broadly Not limited to high level officials Not limited to central government officials Includes full and part time employees of governmentcontrolled entities (hospitals, companies, etc.) Includes doctors with split practices Covers relatives of officials Contractual payments for studies (clinical trials, either registrational or post marketing)

14 14 Officials? Doctors, Nurses, Pharmacists Employed By Government owned Hospitals Government Formulary Board Members Health Agency Regulators Government Advisory Board Members Professors At Public Universities Safety Inspectors Patent Officials Customs And Immigration Officials

15 15 Third Party Risks Use of Third Party Intermediaries "Third Party Intermediary means an individual or entity that a company engages to provide goods or services to, or on behalf of, a company The FCPA prohibits corrupt payments directly or indirectly through third party intermediaries Violations of the FCPA and anti bribery laws by third party intermediaries acting on a company's behalf are just as serious as direct violations by a company A company can be liable for a violation of the FCPA if a third party intermediary offers or pays a bribe on behalf of the company

16 16 Contracting with Intermediaries con t Payments to intermediary must be commensurate with services provided Payments should not be in case No slush funds Payments should not conceal identity of ultimate beneficiary Payments should be in US or local currency to local bank Travel and hospitality expenses of third party Require documentation Consider requiring advance approval in appropriate circumstances

17 17 US Focused on Transactions Consulting Agreements Payments to physicians to ensure products would be approved for reimbursement Payments to physicians based on the quantity of drug utilization by staterun hospital Hospital Donations Donations of medical equipment and supported oversees travel by state healthcare providers to attend medical conferences Donations valued as a percentage of purchased products by those staterun hospitals

18 18 US Focused on Transactions Payments to vendors in return for utilization promises Payments to physicians in return for utilization promises Payments for physicians to attend medical conferences with moderate scientific purpose Payments to healthcare providers for lectures that were never given Payments to fictitious foundations controlled by physicians Payments to assure or expedite regulatory approval of sales within country Payments (or discounts) to foreign distributors to assure access and reimbursement within foreign market Payments to consultants related to utilization

19 19 Clinical Trial Issues Clinical Trials are Key Area of Evaluation in DOJ/SEC Initiative Developments in Anti Bribery enforcement programs U.K. Anti Bribery bill significantly increases risk Focus on individuals (arms initiative), additional resources Control person liability Park Doctrine U.S. Financial Services reform whistleblower provisions US Regulatory activity impacting clinical trial s Patient Protection and Affordable Health Care Act, P.L , section 6002 includes Physicians Payment Sunshine Act Corporate Integrity Agreements (CIAs) driving disclosure Pfizer s April 10, 2010 disclosure of payments Total payments of $20+ million to physicians disclosed

20 20 Clinical Trial Overview Non corrupt payments to clinical investigators, including foreign officials, for genuine work performed do not violate the FCPA or, generally, other OECD nation laws Corrupt payment to such non U.S. officials can violate the FCPA, if jurisdiction exists: U.S. issuer status; U.S. domicile, citizenship or green card status of entities or persons; or Activity on U.S. soil and/or implicating U.S. interstate commerce nexus Corrupt payments are those intended to induce the official to breach her or his duty to act in the interests of her or his employer or others, e.g., patients or health care funds. Intent of the payor governs; FCPA violation is complete upon making of offer Issue: Paying a non U.S. government official to conduct an alleged sham clinical trial that is not intended to result in publishable or otherwise useful scientific data expressly in exchange for: (a) Favorable action with respect to the company s products in the official s role on a public hospital formulary board; (b) Favorable action with respect to the company s products in connection with the official s role on government advisory panel or in connection with government insurance programs; or (c) Favorable action with respect to the company s products in the official s role as a publicly paid prescribing doctor

21 21 Evaluating Risks Clinical trials can seem non obvious vehicles for corrupt payments Clinical trials are integral to the business; they cannot be banned Post marketing studies whose true purpose is to identify new uses for existing medicines are also lawful aspects of business model Number of truly exceptional clinical investigators in many non U.S. markets is limited; these doctors likely also have key official roles Stringent regulatory regime governing U.S. clinical trials gives rise to incentives to off shore clinical trial activity where possible Cost factors may drive clinical trials in overseas markets, increasing internal company demand to conduct such trials Countries in which registration follows relatively automatically upon U.S. F.D.A. approval can require local trials on short notice

22 22 US Agents Looking at these facts: Clinical trial coordinators and teams chosen by marketing personnel instead of by medical/research staff Any other evidence that prescribing behavior is taken into account when decision is made to engage the investigator Local market personnel can sponsor trials or studies (either pre approval or post marketing) without notice to or approval by parent company headquarters medical staff Inadequate or weak due diligence and visibility into role of clinical trial investigators in official/governmental roles Payments to individual investigators instead of institutions Lack of approvals by local hospital, university, peer review or other applicable Independent Review Boards Lack of fair market value analysis for payments Payments made through intermediaries that provide no distinct value added or other legitimate role in the transaction Lack of publishable data arising out of the study Other grounds for concern, including Requests by an official exercising discretionary authority in one realm to be hired or to have others hired for clinical trial work, Evidence of parceling of payments to avoid limits of authority, Payments routed through bank secrecy jurisdictions, or Payments to investigators in high risk jurisdictions

23 23 Aligning Global Compliance Periodic risk assessments to identify world wide risks Reviewing the big picture of the company s business Imminent loss of patent protection as a risk factor Devoting audit resources to results too good to be true Reviewing the small details and their compliance impact The impact of compensation systems on compliance Five point COSO Framework of internal controls Tone at the top Formulation of clear and understandable policies Local implementation and training on policy mandates Testing, data mining and internal audits to uncover violations Remediation, including employee discipline and retraining

24 24 Aligning Global Compliance, Con t Adherence to the Company s core mission statement at all levels through general leadership and detailed guidance Tone from the middle as well as tone from the top Utilizing, where at all feasible, recommended best practices PhRMA October 1, 2009 Guidelines for Clinical Trials OECD February 18, 2010 Council Recommendations and Annex II Good Practice Guidance on Internal Controls

25 25 Aligning Global Compliance, Con t Components of clinical trial anti bribery compliance Protocols to ensure identification and compliance with local law, and local research institution regulations and industry guidelines Pre study review of study design by qualified researchers; appropriate notice and/or approval of studies by headquarters Researchers chosen by medical/scientific staff, not marketing Fair market analysis for payments to non U.S. physicians Documented due diligence on possible conflicts of interest by potential non U.S. investigators and general qualifications Payments made to institutions, not individuals, wherever feasible Execution of representations/warranties by research team Approvals of superiors and local supervisory bodies Close monitoring of and strict limits on related travel/per diem

26 26 Aligning Global Compliance, Con t Parent Company headquarters sign off: Is it always necessary? Identifying government physicians and scopes of practice Locating/enforcing local regulations governing conflict of interest Identifying the appropriate level of approvals by local superiors of government employed physicians and scientific researchers Calculating fair market value for non U.S. research services Cases in which company medical staff has marketing role Cases in which company marketing employee has genuine knowledge about the non U.S. team s scientific qualifications Preventive steps in connection with studies that, by design, will not meet scientific gold standards but still may provide useful data

27 27 Dealing with Internal Investigations and Government Inquiry Understand enforcement landscape Key players and issues Identify and Correct Potential Violations Institute Global Compliance If contacted Establish and maintain credibility with key players Thorough investigation and comprehensive disclosure Answer questions that are asked Assure once time global resolution

28 28 Questions

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