Intensifying Scrutiny: Increased Enforcement and New Laws in - PDF document

Intensifying Scrutiny: Increased Enforcement and New Laws in Pharmaceutical and Medical Device Industries Webinar | December 8, 2011 Thomas W. McNamara San Diego | 619.487.0799 | mcnamarat@ballardspahr.com Henry E. Hockeimer, Jr. Philadelphia | 215.864.8204 | hockeimer@ballardspahr.com Samuel W. Cantrell Denver | 303.299.7353 | cantrells@ballardspahr.com Jonathan S. Satinsky Philadelphia | 215.864.8725 | satinskyj@ballardspahr.com Intensifying Scrutiny: Increased FCPA Enforcement • Federal anti-bribery statute enforced by Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) • Anti-bribery → DOJ - Paying or offering anything of value - To a foreign official (or conduit) - Corruptly - For purpose of influencing the official in order to obtain or retain business • Distinguish facilitation payments • Books and Records/Internal Controls – SEC • No need to prove underlying anti-bribery violation; merely failure to describe what actually occurred is violation 2 1

FCPA Prosecutions Have Exploded • Number of FCPA cases has exploded as have fines, settlements and prosecution of individuals. Top 10 FCPA-Related Monetary Settlements* FCPA Prosecution by Year: 2005-2010 $58.3 ABB (2010) $70 Johnson & Johnson (2011) 48 50 $81.9 Panalpina (2010) $137.4 40 Alcatel-Lucent (2010) $185 Daimier (2010) 30 26 26 $338 DOJ Technip (2010) 1820 20 20 $365 SEC ENI/Snamprogetti (2010) 14 13 $400 BAE Systems (2010) 7 8 10 7 5 $579 KBR/Halliburton (2009) 0 $800 Siemens (2008) 2005 2006 2007 2008 2009 2010 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 *Settlement amounts are in millions of dollars 3 More Aggressive FCPA Enforcement • DOJ and SEC have signaled an even more muscular approach: - “I’m proud to say that our FCPA enforcement is stronger than it’s ever been – and getting stronger. To give you just one metric, in the past year, we’ve imposed the most criminal penalties in FCPA-related cases in any single 12-month period – ever. Well over $1 billion.” - Lanny A. Breuer, Assistant Attorney General, Crim. Div., 11/16/2010 - “The SEC has created an FCPA unit to crack down on cross- border bribery, and in the first nine months of 2010 alone, we obtained more than $400 million in disgorgement and penalties.” - Robert Khuzami, Director, SEC Division of Enforcement, 10/20/2010 4 2

FCPA Focus on Life Science Industry • DOJ has made it clear that spotlight is trained on the area: - “Our focus and resolve in the FCPA area will not abate, and we will be intensely focused on rooting out foreign bribery in [the pharmaceutical] industry. That will mean investigation and, if warranted, prosecution of corporations to be sure, but also investigation and prosecution of senior executives.” - Lanny Breuer, Assistant Attorney General, Crim. Div. 11/12/2009 5 Why Focus on Life Sciences? • Globalization of healthcare • Almost everyone can be “foreign official” in the healthcare industry. • As DOJ understands: “nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a ‘foreign official’ within the meaning of the FCPA.” - Lanny Breuer, Assistant Attorney General, Crim. Div. 11/12/2009 6 3

Focus on the Healthcare Industry Scores of healthcare companies have been subject to FCPA investigations. Many are presently under investigation: - AstraZeneca - Orthofix International N.V. - Bio-Rad Laboratories Inc. - Pfizer Inc. - Biomet Inc. - Sciclone Pharmaceuticals Inc. - Bristol-Meyers Squibb - Smith & Nephew plc - Eli Lilly - Stryker Corporation - GlaxoSmithKline plc - Talecris Biotherapeutics Holdings Corp. - Medtronic Inc. - Wright Medical Group Inc. - Merck - Zimmer Holdings 7 Future Trends in FCPA Prosecutions • More individuals prosecuted - Control Person Liability • Nature’s Sunshine • More judicial interpretation - Companies don’t go to trial – but people do • Judicial gloss on statute: “foreign official” “instrumentality” • Recent black eye for DOJ – Lindsey Manufacturing - DOJ 0-2 in corporate criminal prosecutions • Business Backlash - Chamber of Commerce • DOJ “detailed guidance” forthcoming 8 4

Where Are New Anti-Bribery Investigations Coming From? • Historically, self-reporting has been primary source • Competitors • Dodd Frank Whistleblowers • UK Bribery Act of 2010 9 Competitors • Johnson and Johnson - Payments to Greek doctors, Romanian doctors and pharmacists, and Polish doctors and hospital administrators to use products - Internal investigation and self-reported - DPA $70 million total in fines and penalties: $21.4 to DOJ; $48.6 to SEC • “J&J has cooperated and agreed to continue to cooperate with the DOJ in the DOJ’s investigations of other companies and individuals in connection with business practices overseas in various markets.” • “J&J’s cooperation during this investigation and its substantial assistance in investigations of others has been extraordinary.” • Benefit to J&J – a reduction from minimum fine in recognition of, among other things, cooperation. Range $28.5 - $57 million. No monitor imposed. • Pfizer – $60 million settlement before end of year • Press reports four companies have received inquiries from DOJ as a result of the cooperation 10 5

Whistleblowers The Dodd-Frank Act SEC Regulation 21F • A “whistleblower” is an individual who voluntarily provides original information to the SEC that relates to a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur. (§ 240.21F-2) • The SEC shall award the whistleblower between 10% and 30% of all collected monetary sanctions imposed in the action or in a related action - Monetary sanctions must total more than $1 million to qualify. 11 Whistleblower Provisions: Concern for Companies • Challenges facing companies: - Corrupt culture in emerging markets - High bar for FCPA compliance - Renegade employees and corrupt agents • Whistleblower provisions may undermine reporting lines - May be increasingly difficult to self-monitor • A robust compliance program is not a defense to FCPA violations - A mitigating factor, but not insulation from liability - UK anti-bribery law provides an affirmative defense 12 6

Whistleblowers • Whistleblower’s interaction with entity’s internal compliance system can impact award amount (§ 240.21F-6) - In increasing award amount, SEC will consider: • Whether whistleblower reported possible violations through internal whistleblower, legal, or compliance procedures before reporting to SEC • Whether whistleblower assisted any internal investigation or inquiry concerning the reported securities violations - In decreasing award amount, SEC will consider: • Whether, in cases where whistleblower interacted with internal compliance system, he undermined the integrity of such system 13 Whistleblowers • No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower: - In providing information to the SEC • Must possess a reasonable belief that information relates to a possible securities law violation - In initiating, testifying in, or assisting in any investigation or enforcement action • Anti-retaliation provisions apply regardless of whether whistleblower meets conditions to qualify for award 14 7

Whistleblowers • A whistleblower may sue his employer in federal court - Statute of limitations, generally speaking, is six years - Relief includes: • Reinstatement • Twice the amount of back pay owed, with interest • Litigation costs, expert witness fees, and reasonable attorneys’ fees • These whistleblower rights and remedies cannot be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement 15 Whistleblowers – SEC’s FY 2011 Whistleblower Report • Only 7 weeks of data (Aug. 12, 2011 – Sept. 30, 2011) - 334 whistleblower tips received - 13 FCPA tips (3.9%) received - 32 tips from foreign sources • 10 from China • No data reported for tips received prior to effective date of Regulation 21F • No awards paid to date 16 8

U.K. Bribery Act 2010 • Received royal assent in April 2010, and came into force in July 2011 • Described by many as most draconian anti-bribery legislation in the world • Demonstrates international commitment to corruption prevention - Think Orwell’s 1984: wherever you go, you (and your agents) are being watched - Cooperation of foreign governments means enhanced resources to enforce FCPA 17 U.K. Bribery Act 2010 – Jurisdiction • Broad extraterritorial reach - Corporations are subject to Bribery Act’s jurisdiction if they: i. Are incorporated or formed in UK; or ii. Carry on business or part of business in UK - Individuals are subject to Bribery Act’s jurisdiction if: i. Offense committed in UK; or ii. Person committing offense has “close connection” with UK ( even if offense committed outside UK ) • Purpose is to level playing field - Non-UK company that conducts any business in UK could be liable, even if all misconduct occurs outside UK 18 9