By Clayton Walters
Introduction
The life sciences industry has emerged as a powerful driver of the world economy.[1] Advancements in life sciences fuel the creation of innovative technologies, such as pharmaceuticals, medical devices, therapeutics, and diagnostic tools aimed at improving patient care.[2] These innovations not only enhance healthcare access and technological availability, but also generate jobs, boost wages, and support economic growth.[3] Supporting the life sciences sector helps establish the infrastructure necessary for research, clinical trials, product development, and advanced manufacturing.[4]
However, given its global nature, life science companies with global operations are particularly susceptible to compliance challenges under the U.S. Foreign Corrupt Practices Act(FCPA).[5] The FCPA is a powerful anti-bribery law with extraterritorial reach that bars U.S.companies and foreign entities listed on U.S. exchanges from offering bribes to foreign officials to secure or maintain business advantages.[6] Life science companies have been one of the most regulated industries under the FCPA over the past ten to fifteen years.[7]
Due to this heightened scrutiny of anti-corruption policies in the life sciences industry, it is paramount that life science companies invest in strong compliance programs. These programs must be data-driven, resourceful, and attuned to third-party risks. Strong ethical reporting systems must be in place, along with robust communication and commitment to compliance policies by top management. The reliance upon the life sciences industry in improving the health of humanity makes it even more essential that these companies adhere to the highest ethical standards by prioritizing efficient and adaptive compliance.
Importance of the Life Sciences Industry
The life sciences industry is a dynamic and expanding field centered on living organisms and life processes.[8] Beyond biology, physiology, and genetics, it encompasses areas such as biotechnology, bioinformatics, and other disciplines that bridge the gap between life and technology.[9]
The COVID-19 pandemic response showcased the life sciences industry at its finest. The rapid identification, testing, development, approval, and global deployment of effective COVID-19 vaccines and treatments demonstrated what is achievable when public, industry, and government sectors work collaboratively and seamlessly.[10] The pandemic also demonstrated the importance of having strong public health leaders, widespread access to personal protective equipment, and vaccine development and distribution—all to combat global pandemics.[11] Clinical trial infrastructure is also vital in bringing new drugs and treatments into the market. For these reasons, the life sciences industry is critical to the improvement of healthcare and a better quality of life for all.[12]
Corruption Susceptibility of the Life Sciences Industry
Life science companies face heightened scrutiny due to their reliance on international partnerships, regular interactions with foreign healthcare providers, and engagement with government regulators.[13] Operating in this high-pressure environment, they encounter significant risks of violations under the FCPA, as they must navigate complex and often unclear anti-corruption compliance requirements, further complicated by varying regulatory standards across countries.[14]
Due to significant government involvement in healthcare systems worldwide, it is unsurprising that the healthcare and life sciences sectors are among the industries at highest risk for FCPA violations.[15] Since the first FCPA enforcement action involving the life sciences industry in 2002, companies in these sectors have incurred over $1.5 billion in penalties and disgorgement related to FCPA violations.[16]
The Biden administration made it clear that corruption and white-collar crime are priorities, noting a ramp-up of additional resources to the criminal division’s fraud section tasked with investigating FCPA cases.[17] On the other hand, President-elect Trump previously denounced the FCPA as a “horrible law” because “it puts the [United States] at a huge disadvantage.”[18] Yet, according to Fry Wenwick, former supervisor of the Department of Justice’s FCPA unit, the first Trump administration was likely “the most robust four years of FCPA enforcement ever,” and “more and more resources ended up going into the FCPA unit.”[19] Trump’s then Secretary of State, Rex Tillerson asserted, “the FCPA is good law” because “it helps balance the playing field for U.S. companies who are operating abroad.”[20] Fears about the first Trump administration being soft on corruption were overblown, and it is just as likely that Trump’s second term in office will continue its record breaking enforcement of the FCPA.
Understanding the Foreign Corrupt Practices Act
The FCPA was enacted in 1977 in response to revelations of widespread bribery of foreign officials by U.S. companies.[21] The Act was intended to halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integrity of the marketplace.[22]
Under the FCPA, three types of individuals are covered. The first involves domestic concerns, which are U.S. persons and businesses.[23] The second involves issuers, which are U.S. and foreign companies listed on stock exchanges in the U.S. or companies that are required to file periodic reports with the SEC.[24] The third involves persons in extraterritorial jurisdictions, which includes certain foreign persons and businesses acting while in the territory of the United States.[25] What makes the FCPA so unique is this application in extraterritorial regions.
The FCPA is enforced by the Department of Justice (DOJ) and the Securities Exchange Commission (SEC), and is divided into two parts: anti-bribery provisions[26] and accounting provisions.[27]
Anti-Bribery Provisions of the FCPA
The anti-bribery provisions require five elements to secure a conviction.[28] First, a payment, offer, authorization, or promise to pay money or anything of value.[29] Second, the involvement of a foreign government official (including a party official or manager of a state-owned concern), or any other person.[30] Third, a party having knowledge that the payment or promise will be passed on to a foreign official.[31] Fourth, a corrupt motive with consciousness of wrongdoing.[32] And fifth, a purpose to either influence an act or decision of the person receiving the promise or payment, induce that person to do or omit any action in violation of their lawful duty, secure an improper advantage, or induce that person to use their influence with a foreign government to affect an official act or decision of such government.[33]
Exceptions to the anti-bribery provisions include payments for routine governmental actions, payments permitted by law, or reasonable and bona fide expenditures which include travel expenses and promotion of products or services involved in the performance of a contract with a foreign government.[34]
Criminal penalties in place under the FCPA anti-bribery provisions include possible fines of up to $2 million to corporations and other business entities[35] and subjecting individuals including officers, directors, stockholders, and agents of companies to a fine of up to $250,000 and/or imprisonment of up to 5 years.[36] Additionally, under the Alternative Fines Act, courts may impose higher fines of up to twice the benefit the defendant obtained by making the corrupt payment, or if the offense resulted in a loss to a person other than the defendant, up to twice the loss sustained by the person.[37]
In addition to criminal penalties, civil penalties in place under the FCPA anti-bribery provisions include subjecting corporations and other business entities to a penalty of up to $25,597 per violation[38] and subjecting individuals including officers, directors, stockholders, and agents of companies to a penalty up to $25,597,[39] which may not be paid by their employer or principal.[40]
Notable Cases Related to Enforcement of Anti-Bribery Provisions
November 20, 2024, the SEC charged executives of Adani Green Energy Limited and an executive of Azure Power Global Limited for conduct arising out of a massive bribery scheme.[41] According to the SEC’s allegations, the bribery scheme was orchestrated to enable the two renewable energy companies to capitalize on a multi-billion-dollar solar energy project that they had been awarded by the Indian government.[42] During the alleged scheme, the executives raised more than $175 million from U.S. investors.[43]
Another notable case occurred in 2016, when Israel-based company Teva Pharmaceutical Industries Limited agreed to pay more than $519 million to settle parallel criminal and civil charges that it violated FCPA anti-bribery provisions.[44] The company had been paying bribes to foreign government officials in Russia, Ukraine, and Mexico.[45] The SEC’s complaint alleged that Teva made more than $214 million in illicit profits by making influential payments to increase its market share and obtain regulatory and formulary approvals, as well as favorable drug purchase and prescription decisions.[46]
Accounting Provisions of the FCPA
There are two possibilities for criminal liability under the accounting provisions of the FCPA. One involves the “books and records” provision, requiring that issuers make and keep books, records, and accounts, which in reasonable detail accurately and fairly reflect the transitions and dispositions of the assets of the issuer.[47] The second involves the “internal controls” provision, requiring issuers to devise and maintain a system of internal accounting controls sufficient to assure management’s control, authority, and responsibility over the firm’s assets.[48]
Criminal penalties in place under the FCPA accounting provisions include subjecting corporations and other business entities to a fine of up to $25 million,[49] and subjecting individuals to a fine of up to $5 million and/or imprisonment of up to 20 years.[50] Additionally, under the Alternative Fines Act, courts may impose higher fines—up to twice the benefit that the defendant obtained by making the corrupt payment, or if the offense resulted in a loss to a person other than the defendant, up to twice the loss sustained by the person.[51]
Civil penalties in place under the FCPA accounting provisions include the greater of either the gross amount of the pecuniary gain to the defendant from the violation or a specified dollar limitation based on the nature of the violation and the potential risk to investors.[52] The specified dollar limitation for an individual ranges from $11,524 to $230,464[53] and the specified dollar limitation for a company ranges from $115,231 to $1,152,314.[54]
Notable Cases Related to Accounting Provisions of the FCPA
In 2016, Switzerland-based global pharmaceutical and healthcare company Novartis AG agreed to pay over $112 million to settle charges that it violated FCPA accounting provisions.[55] The SEC order found that local subsidiaries of Novartis engaged in schemes to make improper payments to public and private healthcare providers in South Korea, Vietnam, and Greece in exchange for prescribing and using Novartis products between 2012 and 2016.[56] It was further discovered that Novartis lacked sufficient internal accounting controls, as its former subsidiary Alcon Inc. had used forged contracts as part of local financing arrangements that generated large losses and resulted in writing off $50 million in bad debt in China between 2013 and 2015.[57] Novartis consented to cease and desist from committing violations of the accounting provisions and complied with a three year undertaking to self-report on its remediation and implementation of compliance measures.[58]
In 2015, New York-based pharmaceutical company Bristol Myers Squibb paid more than $14 million in a settlement with the SEC.[59] The SEC found that between 2009 and 2014, Bristol-Myers Squibb China sales representatives sought to secure and increase business by providing healthcare providers at state-owned and state-controlled hospitals with cash, jewelry, gifts, meals, travel, and entertainment.[60] This spending was inaccurately recorded as legitimate business expenses in the books and records of Bristol-Meyers Squibb. Bristol-Myers Squibb agreed to report to the SEC for a two-year period on the status of its remediation and implementation of FCPA and anti-corruption compliance measures.[61]
Assessment of Risks of FCPA Enforcement
Several factors have heightened the risk of bribery and corruption violations for multinational life science companies. Following the COVID-19 pandemic, governments worldwide increased their demand for personal protective equipment (PPE), medical devices like respirators, and medicines, often implementing special regulations to bypass standard procedures, such as public tenders.[62] The pandemic also caused widespread closures of government agencies, leading to significant delays in obtaining essential permits, licenses, and visas.[63] Additionally, governments issued substantial grants to pharmaceutical companies for research and development, increasing the potential for corruption.[64] Travel restrictions further compounded these risks, as companies were forced to reduce or suspend in-country audits of distributors and other third parties.[65]
In order to reduce the risk of FCPA violations, life science companies should devote resources to effective and adaptable compliance programs that utilize data analytics and set strong ethical reporting mechanisms for whistleblowers.[66] Additionally, these compliance programs should enact heightened compliance measures for third-party relationships, including an extensive review of their contracts, implementing risk-focused monitoring systems on third parties, and creating training programs for third parties that cover the heightened risks of FCPA violations.[67] Finally, companies should ensure that management is committed to FCPA compliance protocols, setting a tone of staunch support, and clearly defining and communicating their anti-corruption policies.[68]
Resourceful Compliance with Data Analytics and Ethical Reporting
Companies should regularly assess and enhance their compliance programs to address control gaps, incorporate risk assessment findings, and adapt to regulatory changes in alignment with their risk profile and tolerance.[69] While considerable time and resources are often devoted to designing programs to prevent and address corruption, a critical area often overlooked is detection through monitoring and testing.[70] Regularly tracking regulatory changes, along with periodic monitoring and testing of controls governing interactions with healthcare professionals, government officials, and third parties, are essential to ensuring continuous compliance with anti-corruption laws, including the FCPA.[71]
The FCPA policies and procedures a company implements should be tailored to its specific business risks and grounded in a thorough understanding of its products and services, use of third-party agents, customer base, government interactions, industry risks, and the geographical risks of the countries where it operates.[72] The FCPA Resource Guide acknowledges that the resources allocated to compliance will vary based on a company’s size, industry, geographic presence, and other business risks.[73] Therefore, understanding the company’s risk profile is essential for developing an effective compliance program with policies and procedures designed to prioritize and address the most significant risk areas.[74]
A major compliance challenge in the life sciences sector lies in the application of data analytics.[75] The DOJ continues to emphasize the importance of leveraging centralized data to inform decision-making and improve compliance programs.[76] Companies should identify key, readily available data that can help detect risks, red flags, and trends, and use this information proactively to demonstrate an effective, evolving, and adaptable compliance program.[77] For instance, organizations should evaluate data sources, targeted analytics, and continuous monitoring tailored to sector-specific risks, such as interactions with healthcare professionals and patient associations, travel, gifts, entertainment, sponsorship of educational events and conferences, and the activities of third-party distributors.[78]
Additionally, there exists a rise in whistleblower-initiated cases in FCPA enforcement. Companies should evaluate the effectiveness of their whistleblower programs as part of their broader compliance efforts.[79] They should ensure that employees and business partners are informed about ethics reporting mechanisms and are encouraged to raise compliance concerns and questions.[80]
Understanding and Preventing Third-Party Risks
Third-party relationships remain one of the highest risks for life science companies.[81] The FCPA resource guide released by the DOJ and SEC underscores how third parties, including agents, consultants, and distributors, are commonly used to conceal the payment of bribes to foreign officials in international business transactions.[82] The use of consultants, agents, or other third-party representatives in international business presents a significant risk factor, making robust, risk-based due diligence a critical component of a company’s compliance program.[83]
Companies should clearly understand the business rationale for involving a third party, the specific work they will perform, and whether their compensation aligns with the services provided and typical industry and regional standards.[84] Additionally, contracts with third parties should explicitly communicate the company’s compliance program and its expectations for ethical and lawful business conduct.[85] It is crucial to review and update the standard contract templates used with third parties to ensure they include essential clauses addressing service scope, compensation structure, responsibilities, and obligations, such as anti-bribery and corruption compliance, audit rights, and document retention.[86]
Furthermore, strengthening third-party governance controls and implementing a risk-focused monitoring program can enhance oversight and enable the timely identification of potential issues.[87] Insights from monitoring activities can inform risk assessments when evaluating third parties for compliance reviews.[88] Additionally, tailoring training programs to third parties helps them understand how risks may affect future business growth and equips them with best practices for effective risk management.[89]
Commitment of Management to Compliance Programs
Managerial tone is critical to building a culture of compliance in a life science company.[90] The board of directors establishes the organization’s values and culture, embedding ethical practices into its strategic direction.[91] It holds ultimate responsibility for overseeing the company’s anti-bribery management system, while delegating day-to-day operational oversight to senior management.[92] Unethical management practices can lead to an increased likelihood of unethical behavior, fraud, and corruption at all levels within the organization.[93] Without staunch support from the board, senior management cannot effectively implement and enforce compliance across the organization.[94]
An organization’s management must clearly define its policies, communicate them in straightforward and unambiguous terms both internally and externally, and consistently enforce them.[95] According to the FCPA Resource Guide, the most effective compliance programs are clear, concise, and easily accessible to all employees and third parties conducting business on the organization’s behalf.[96] Training is a critical component to ensure policies and procedures are effectively understood, communicated, and implemented.[97]
Conclusion
The power to innovate and impact well-being on a large scale comes with significant regulatory obligations and risks. While the life sciences industry has achieved remarkable progress, it also operates in a heavily scrutinized environment due to frequent interactions with government officials, healthcare providers, and regulatory agencies. To continue their positive impact and safeguard their financial viability, life science companies must invest in robust compliance programs.
The financial penalties levied in FCPA cases—often tens or hundreds of millions of dollars—highlight the substantial costs associated with FCPA violations.[98] Beyond monetary fines, the reputational damage from being associated with corruption can erode stakeholder trust, impact stock prices, and affect future business opportunities.[99] A well-resourced compliance team is essential to navigate complex anti-corruption laws like the FCPA and to avoid the penalties and reputational damage that accompany DOJ, SEC, or other federal investigations.
In short, life science companies committed to “doing good” must equally commit to “doing it right” by upholding stringent ethical standards, monitoring third-party partnerships, and ensuring transparency across their operations. Only by prioritizing compliance can they fulfill both their mission to improve health and their responsibility to operate within the law.
[1] What is a Life Sciences Ecosystem?, Medical Center of the Americas Foundation (June 15, 2021), https://mcamericas.org/news-events/news/what-is-a-life-sciences-ecosystem.
[2] Id.
[3] Id.
[4] Id.
[5] FCPA and Anti-Corruption Strategies for the Life Sciences Industry, KPMG (2022), https://kpmg.com/us/en/articles/2022/fcpa-anti-corruption-strategies-life-sciences.html.
[6] Id.
[7] Id.
[8] Medical Center of the Americas Foundation, supra note 1.
[9] Id.
[10] Id.
[11] KPMG, supra note 5.
[12] Id.
[13] 2024 Regulatory, Compliance, and Enforcement Predictions for Life Sciences Companies, Morrison Foerster (Jan. 10, 2024), https://www.mofo.com/resources/insights/240109-2024-regulatory-compliance-and-enforcement-predictions.
[14] Id.
[15] Id.
[16] Id.
[17] DOJ Announces Policy Changes and Additional Resources Focuses on White-Collar Enforcement, Jones Day (Nov. 10, 2021), https://www.jonesday.com/en/insights/2021/11/doj-plans-to-strengthen-whitecollar-enforcement.
[18] Peter W. Klein, How Will a New Trump Administration Prosecute Corruption, NBC News (Nov. 16, 2024), https://www.nbcnews.com/politics/national-security/trump-administration-prosecute-corruption-rcna179281.
[19] Id.
[20] Id.
[21] Crim. Div. of the U.S. Dep’t of Just. and the Enf’t Div. of the U.S. Sec. and Exch. Comm’n, FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act (2d ed. 2020).
[22] Id.
[23] 15 U.S.C. § 78dd-2.
[24] 15 U.S.C. § 78dd-1.
[25] 15 U.S.C. § 78dd-3.
[26] 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3.
[27] 15 U.S.C. § 78m.
[28] 15 U.S.C. §§78dd-1(a), 78dd-2(a), 78dd-3(a).
[29] Id.
[30] Id.
[31] Id.
[32] Id.
[33] Id.
[34] 15 U.S.C. §§ 78dd-1(b), 78dd-2(b), 78dd-3(b) 78dd-1(c)(1), 78dd-2(c)(1), 78dd-3(c)(1), 78dd-1(c)(2), 78dd-2(c)(2), 78dd-3(c)(2).
[35] 15 U.S.C. §§ 78dd-2(g)(1)(A), 78dd-3(e)(1)(A), 78ff(c)(1)(A).
[36] 15 U.S.C. §§ 78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A); 18 U.S.C. § 3571(b)(3), (e) (fine provision that supersedes FCPA-specific fine provisions).
[37] 18 U.S.C. § 3571(d).
[38] 15 U.S.C. §§ 78dd-2(g)(1)(B), 78dd-3(e)(1)(B), 78ff(c)(1)(B); see also 17 C.F.R. § 201.1004 (providing adjustments for inflation).
[39] 15 U.S.C. §§ 78dd-2(g)(2)(B), 78dd-3(e)(2)(B), 78ff(c)(2)(B); see also 17 C.F.R. § 201.1004 (providing adjustments for inflation).
[40] 15 U.S.C. §§ 78dd-2(g)(3), 78dd-3(e)(3), 78ff(c)(3).
[41] SEC Charges Three Senior Executives in Two Actions Alleging Massive Bribery Scheme Involving Indian Energy Companies Adani Green and Azure Power, U.S. Securities and Exchange Commission (Nov. 20, 2024), https://www.sec.gov/newsroom/press-releases/2024-181.
[42] Id.
[43] Id.
[44] Sec. & Exch. Comm’n v. Teva Pharm. Indus. Ltd., Civ. Action No. 1:16-Cv-25298 (S.D. Fla. Filed Dec. 22, 2016), Litigation Release No. 23708 (Dec. 22, 2016).
[45] Id.
[46] Id.
[47] 15 U.S.C. § 78m(b)(2)(A).
[48] 15 U.S.C. § 78m(b)(2)(B).
[49] 15 U.S.C. § 78ff(a).
[50] Id.
[51] 18 U.S.C. § 3571(d).
[52] 15 U.S.C. § 78u(d)(3).
[53] 15 U.S.C. § 78u(d)(3); see also 17 C.F.R. § 201.1004 (providing adjustments for inflation).
[54] Id.
[55] In the Matter of Novartis Ag, Respondent., Release No. 3759 (Mar. 23, 2016).
[56] Id.
[57] Id.
[58] Id.
[59] In the Matter of Bristol-Myers Squibb Co. Respondent., Release No. 76073 (Oct. 5, 2015).
[60] Id.
[61] Id.
[62] KPMG, supra note 5
[63] Id.
[64] Id.
[65] Id.
[66] Id.
[67] Id.
[68] Id.
[69] Id.
[70] Id.
[71] Id.
[72] M. Sean Purcell & Vorys, Sater, Seymour and Pease LLP, To Detect and Prevent Foreign Corrupt Practices Act (FCPA) Violations, Compliance is the Key, JVC Legal (Oct. 15, 2020), https://jvclegal.org/detect-and-prevent-fcpa-violations/.
[73] Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, supra note 21.
[74] M. Sean Purcell & Vorys, Sater, Seymour and Pease LLP, supra note 72.
[75] KPMG, supra note 5.
[76] Id.
[77] Id.
[78] Id.
[79] Id.
[80] Id.
[81] Id.
[82] Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, supra note 21.
[83] M. Sean Purcell & Vorys, Sater, Seymour and Pease LLP, supra note 72.
[84] Id.
[85] KPMG, supra note 5.
[86] Id.
[87] Id.
[88] Id.
[89] Id.
[90] Id.
[91] Id.
[92] Id.
[93] Id.
[94] Id.
[95] M. Sean Purcell & Vorys, Sater, Seymour and Pease LLP, supra note 72.
[96] Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, supra note 21.
[97] M. Sean Purcell & Vorys, Sater, Seymour and Pease LLP, supra note 72.
[98] KPMG, supra note 5.
[99] Id.
