The DOJ is currently pursuing 120-130 FCPA investigations, and now it has set its sights on enforcement in the pharmaceutical industry where on an annual basis “close to $100 billion dollars, or roughly one-third, of total sales … [are] generated outside of the United States.” The DOJ’s new focus stems in part from the fact that many foreign health systems are regulated, operated and financed by government entities, and competition is intense, which creates more opportunities to “pay off foreign officials for the sake of profit,” and a perceived need for greater supervision from law enforcement.
The head of the Criminal Division of the United States Department of Justice (DOJ), Assistant Attorney General Lanny A. Breuer has indicated their interest in looking at this industry with increased scrutiny. So if you are a General Counsel at one of the companies in the cross-hairs of the government what are you doing about it?
First, you have to call together the right people and create your own internal FCPA Task Force within the enterprise. The General Counsels Office has the lead on bringing together four to six people from Sales & Marketing, Finance, Information Technology, and Internal Audit. This team will have the autonomy, funding and jurisdiction to work specifically on the vulnerabilities that exist on a global basis.
Second, you have to understand the culture, governments and the "Ground Truth" in each country you are selling your pharmaceuticals in, to map the processes and the people associated with the heath care systems, hospitals or the military that are the actual consumers of the medicines and drugs.
Finally, you have to educate your work force on the fact that pharmacists, doctors, lab technicians and other health care consultants may indeed be officials of the government of that country based upon who they work for. Why is this important?
The FCPA has a broad definition under the law that pertains to the foreign officials. In some countries it's entirely possible that if the medical institutions are owned by the government that almost everyone who works in these facilities could be considered under the FCPA. So what is the task force going to do to ensure that the company does not violate the law?
Beyond the focus on compliance and education of employees, there is much work to be done in the collection, analysis and actions within the enterprise of relevant information. Predictive analysis of data that is coming from the CRM, ERP and other open sources can provide the task force with the "Corporate Intelligence" and "Red Flag" warning to prevent a violation of the law. The ability of the company to utilize data collection and predictive analytics to not only head off any DOJ investigation also can be effective in providing voluntary disclosure to government.
Wait a minute. You mean, tell the government that we have identified a violation of the law and bring the wrath of the law and the possible impact on our corporate reputation? Yes and this is why.
Under Federal Sentencing Guidelines, those organizations that do a rigorous internal investigation and share the results with the government can avoid such sanctions as the mandate for a costly independent compliance monitor. Deferred prosecutions are not unheard of and the government can in some cases help you save money in terms of getting fines on the lower end of the sentencing guidelines.
The General Counsel's "Corporate Intelligence Unit" that is focused on the analytics of relevant data, combined with the education, awareness and compliance processes will be well on there way to keeping the legal risk and Operational Risk events associated with the Foreign Corrupt Practices Act (FCPA) from impacting their global pharmaceutical enterprises. And just when you think that the DOJ is only looking at the Fortune 500, then think again:
More focus on small and mid-sized companies: As part of their increased FCPA-related efforts, the DOJ and SEC are expected to look more at small and mid-sized firms which do business overseas. The majority of such companies have a small established compliance program, or none at all, yet some may conduct billions of dollars in foreign transactions.
Companies that are not household names have long believed that they were under law enforcement’s radar. Smaller firms have also thought that the DOJ would not expend the resources to investigate their overseas sales. That comfortable illusion no longer exists.
If you are a small disadvantaged supplier to a large Defense Industrial Base (DIB) company working on a sub-contract, then you too should be standing up your FCPA Task Force now:
On January 18, 2010 twenty-two business executives were arrested and over 100 FBI agents conducted related searches. These actions were based on sealed federal indictments handed down by a grand jury several weeks earlier, which in turn stemmed from a two-and-a-half year undercover operation. The indictments claimed that the defendants believed that they were involved in a scheme to acquire a US$15 million defense contract to outfit the presidential guard of an unnamed country. They allegedly agreed to pay a 20 percent bribe to a sales agent, supposedly representing the defense minister but really an undercover FBI officer. This was the first large-scale use of undercover law enforcement techniques to investigate Foreign Corrupt Practices Act (FCPA) violations.
operational risk
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