On March 23, 2016, Novartis AG settled with the United States Securities and Exchange Commission (“SEC”) for $25 million, resolving allegations that Novartis subsidiaries in the People’s Republic of China violated the U.S. Foreign Corrupt Practices Act (“FCPA”) when subsidiary employees allegedly bribed Chinese doctors.  The SEC alleged that from 2009 to 2013, Novartis employees buried payments to various government officials in China as event planning and travel expenses, among other subterfuge.

This is far from the first FCPA action involving pharmaceutical companies and China.  Last month, the SEC settled with SciClone Pharmaceuticals over alleged bribery of Chinese health care professionals, with SciClone paying out approximately $13 million.  As they did with Novartis, the SEC alleged that SciClone employees were providing things like and related items to Chinese doctors.  Similarly, in October 2015, Bristol-Myers Squibb Co. settled a Department of Justice (“DOJ”) inquiry of alleged FCPA violations by providing items such as travel to doctors and other health care professionals at state-owned hospitals in China.

Pharmaceutical companies have not been the sole source of FCPA settlements with the U.S. government. Last month, software company PTC Inc. paid nearly $30 million to settle bribery allegations stemming from its Chinese subsidiary’s provision of trips to certain individuals employed by PTC customers.  In early March, Qualcomm settled like allegations for $7.5 million.

In part because of the unique nature of its economy, China is fraught with FCPA risk. Numerous major companies in China, especially hospitals, are state-owned enterprises (“SOE”).  The DoJ and the SEC have taken the position that state-owned enterprises act as instrumentalities of the Chinese government and are therefore considered foreign officials; thus employees of an SOE come within the ambit of the FCPA’s requirement that a foreign official be involved for FCPA liability to attach.  Routine actions for sales representatives in the United States may, potentially, accrue FCPA liability when executed in China precisely because of the SOE status.  Providing a business contact with tickets to sporting events, travel to conferences, meals, or the like can be a standard business practice around the globe – but, again, in China, when dealing with SOEs, FCPA liability lurks.

On March 15, Alere, yet another pharmaceutical giant, announced that it received a grand jury subpoena related to – almost without saying – FCPA compliance and sales practices in, among other places, China.  The string of FCPA settlements, and charges, is unlikely to cease.

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