J&J Takes The Lead In Settling SEC/DoJ Foreign Corrupt Practices Act Probe

The government charged J&J with bribing doctors in Greece, Poland and Romania to order or prescribe its products; the $70 million settlement includes a deferred prosecution agreement.

Johnson & Johnson agreed to pay $70 million to resolve charges by the Securities and Exchange Commission and the Department of Justice that the company bribed doctors in several European countries to order or prescribe its products in violation of the Foreign Corrupt Practices Act.

The settlement, announced April 8, also resolves charges the company paid kickbacks to Iraq to obtain 19 contracts under the United Nations Oil for Food Program.

The $70 million payment includes a $21.4 million fine to the DoJ to settle criminal charges. The penalty is part of a deferred prosecution agreement with DoJ. J&J also entered a consent to final judgment with the SEC.

The SEC and DoJ announced in 2009 that they were stepping up FCPA investigations of the pharmaceutical and medical device industries ('SEC, DoJ Beef Up Investigations Of Corporate Bribery & Corruption Overseas,' 'The Pink Sheet,' Aug. 31, 2009). Several companies have reported that they are under investigation, including Merck & Co. Inc., SciClone Pharmaceuticals Inc., Eli Lilly & Co., Bristol-Myers Squibb Co. and AstraZeneca PLC.

The J&J settlement "is one of the first, if not the first with the big pharma companies," said Fish & Richardson partner Matthew Levine, a former assistant U.S. Attorney. "It's really scratched the surface of what is to come."

The settlement is the latest in a series of highly visible problems besetting the company, many related to manufacturing issues and recalls on the consumer side ('J&J Separates U.S. OTCs In 'Unorthodox' Reorg To Get McNeil Back On Track,' 'The Pink Sheet' DAILY, April 6, 2011).

SEC And DoJ Cite J&J Cooperation

SEC did note in a release that J&J voluntarily disclosed some of the violations by its employees, and conducted a through internal investigation to determine the scope of the bribery and other violations. In a separate release, DoJ also cited J&J's cooperation and said it was a factor in the agreement.

"More than four years ago, we went to the government to report improper payments and have taken full responsibility for these actions," J&J Chairman and CEO William Weldon said in a release. "We are deeply disappointed by the unacceptable conduct that led to these violations. We have undertaken significant changes since then to improve our compliance efforts, and we are committed to doing everything we can to ensure this does not occur again."

The SEC complaint, filed April 8 in the U.S. District Court for the District of Columbia, alleges that since at least 1998 J&J's subsidiaries paid bribes to public doctors in Greece to get them to use J&J surgical implants, paid bribes to public doctors in Romania to prescribe its drug products and paid bribes to public doctors and hospital administrators in Poland to obtain their business.

Distributors Allegedly Delivered Cash To Docs

With regard to the charges involving pharmaceuticals, the complaint says employees at J&J subsidiary J&J d.o.o. worked with the company's local distributors to deliver cash to doctors who ordered J&J drugs for their patients and provided travel to certain doctors who agreed to prescribe J&J products.

"The distributors obtained the cash to pay the doctors by receiving discounts on each invoice or by receiving free goods that the distributors could sell for profit to obtain extra cash," the complaint states.

The complaint says that from 2000 to 2007, J&J earned $3,515,500 in profit from its sales through the bribery.

Levine noted that the countries cited in the complaint have not typically been the focus of FCPA investigations. "The use of bribery appears to be maybe deeper than people thought," he said.

Levine also noted the degree of international cooperation involved in the investigation. In its release the SEC acknowledged the assistance of the DoJ, FBI, the Serious Fraud Office in the United Kingdom and the 5^th Investigation Department of the Regional Prosecutor's Office in Random, Poland. DoJ noted that resolution is expected of a related investigation by the U.K.

Michael Li-Ming Wong, a partner at Ropes & Gray, said the U.K.'s participations is particularly significant given that the U.K. Bribery Act is set to go into effect this summer. The U.K. law is more expansive than the FCPA, as it is not limited to the bribery of government officials and includes a strict liability provision holding executives liable unless the company had an adequate procedure in place to prevent bribery.

"It has businesses all over the world quaking in their boots," he said.

Hank Bond Walther, acting deputy chief in DoJ's Fraud Section, noted at a conference last year that there was a new dynamic going on in FCPA investigations as the department was working more closely with its foreign counterparts and getting help from industry insiders to build broad cases ('Corporate Compliance Programs Are Often Inadequate To Avoid Foreign Corrupt Investigations, DoJ Official Says,' 'The Pink Sheet,' May 24, 2010).

- Brenda Sandburg ([email protected])