Pfizer Settles Foreign Bribery Charges With Prosecution Deferred
This article was originally published in The Tan Sheet
Executive Summary
Pfizer settles with DoJ and SEC to resolve charges its subsidiaries bribed foreign government officials; a subsidiary enters a deferred prosecution agreement with DoJ. In a separate case, Pfizer’s Wyeth subsidiary agrees to pay $18.9 million in disgorgement of net profits and prejudgment interest to SEC.
Pfizer Inc.’s “extraordinary cooperation” in disclosing and dealing with a subsidiary’s improper payments to foreign officials helped the company obtain a deferred prosecution agreement for violations of the Foreign Corrupt Practices Act.
On Aug. 7, Pfizer settled parallel investigations by the Department of Justice and the Securities and Exchange Commission for a total of $60 million, including the firm’s Wyeth LLC subsidiary agreeing to pay $18.9 million in disgorgement of net profits and prejudgment interest in the SEC case.
Pfizer agreed to pay a $15 million penalty to resolve the DoJ investigation and to pay $26.3 million in disgorgement of net profits and prejudgment interest to resolve the SEC probe.
SEC’s complaint against Madison, N.J.-based Wyeth alleges the company bribed government doctors in several countries, including Indonesia, Pakistan and China to recommend the company’s nutritional products, in some cases providing doctors with BlackBerrys and cell phones or travel incentives. The commission said Wyeth’s subsidiary in Saudi Arabia made an improper cash payment to a customs official to secure the release of a shipment of promotional items.
Pfizer said it identified certain improper payments in China, Saudi Arabia, Indonesia and Pakistan in its post-acquisition due diligence review of Wyeth and voluntarily disclosed them to the government.
With its $68 billion Wyeth acquisition in 2009, Pfizer returned to the consumer products market after selling its consumer health care business to Johnson & Johnson in 2006. The firm this year sold its international pediatric nutritionals business to Nestle SA for $11.85 billion (Also see "Nestle Pays Nearly $12 Bil. For Desirable Pfizer Nutrition Portfolio" - Pink Sheet, 30 Apr, 2012.).
Pfizer Disclosed Problems
DoJ said the $15 million penalty against Pfizer is a 34% reduction off the bottom of the recommended U.S. sentencing guidelines fine range.
The settlements come eight years after Pfizer voluntarily disclosed misconduct of its subsidiaries to SEC and DoJ. The agencies noted the company subsequently took extensive remedial actions, including a comprehensive worldwide review of its compliance program.
“The actions which led to this resolution were disappointing, but the openness and speed with which Pfizer voluntarily disclosed and addressed them reflects our true culture and the real value we place on integrity and meeting commitments,” Pfizer Executive VP and General Counsel Amy Schulman stated in a release.
DoJ and SEC agreed it was unnecessary for Pfizer to appoint an independent compliance monitor. Pfizer said in a November 2011 SEC filing that it had reached agreements-in-principle with DoJ and SEC staff to resolve FCPA issues.
Pfizer said under the deferred prosecution agreement, it will maintain its anti-corruption systems and innovative compliance program, including the proactive market reviews and trend analyses it pioneered approximately five years ago.
Preemptive Action Pays
The settlements indicate the level of liability pharmaceutical companies face in FCPA investigations and the benefit of taking preemptive action.
Pfizer Senior Corporate Counsel Karl Buch at a public meeting last year emphasized the importance of communicating with regulators about potential violations. He also cited the risk of acquiring FCPA liability with the purchase of other companies, noting that Pfizer gained FCPA problems in six or seven countries when it acquired Wyeth (Also see "DoJ Bull’s Eye: Off-Label Promotion, Formulary Placements, FCPA Violations Remain Targets" - Pink Sheet, 19 Dec, 2011.).
Pfizer is not the only firm in prosecutorial crosshairs because of this issue. The government initiated an industry-wide probe of pharmaceutical companies for FCPA violations several years ago. When J&J reached a similar $70 million settlement with DoJ and SEC in 2011, it also entered a deferred prosecution agreement with DoJ and was recognized by the government for cooperating (Also see "J&J Takes The Lead In Settling SEC/DoJ Foreign Corrupt Practices Act Probe" - Pink Sheet, 8 Apr, 2011.).
Other firms that have admitted to being under investigation for FCPA matters include Merck & Co. Inc., Eli Lilly & Co., Bristol-Myers Squibb Co. and AstraZeneca PLC. Teva Pharmaceutical Industries Ltd. said in an August SEC filing it received an SEC subpoena in July for documents concerning FCPA compliance in Latin America. Teva said it is cooperating and conducting “a voluntary investigation into certain business practices which may have FCPA implications.”
More Than $2 Million In Bribes
As part of its deferred prosecution agreement with Pfizer’s indirect subsidiary Pfizer H.C.P. Corp., DoJ filed a criminal information complaint against the unit in the U.S. District Court for the District of Columbia. Following Pfizer’s acquisition of Pharmacia Corp. in 2003, Pharmacia’s international operations were combined with Pfizer’s and incorporated into Pfizer H.C.P.
DoJ said the subsidiary admitted that between 1997 and 2006, it paid more than $2 million in bribes to government officials in Bulgaria, Croatia, Kazakhstan and Russia, and as a result of these payments earned more than $7 million.
Separately, SEC filed charges against Pfizer and Wyeth alleging that subsidiaries in Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan, Russia and Serbia made improper payments to officials to obtain regulatory and formulary approvals, sales and increased prescriptions of the company’s products. The SEC complaint against Pfizer said the misconduct occurred from as early as 2001 through 2007.
In addition, the complaint states that from as early as 2003 through 2007, Pfizer China provided cash payments, hospitality, gifts and support for international travel to doctors employed by Chinese government health care institutes to sway them to prescribe Pfizer products, provide hospital formulary listing and otherwise use their influence to give Pfizer China an unfair advantage.
However, the complaint says, Pfizer initially voluntarily disclosed certain of these issues to SEC and DoJ in October 2004, and “diligently and thoroughly undertook a global internal investigation of its operations in no less than 19 countries, which identified additional potential violations, and regularly reported on the results of these investigations and fully cooperated with” the commission.