Foreign Corrupt Practices By the U.S. Pharmaceutical Industry

A recent $70 million settlement by Johnson and Johnson (J&J) with the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) is the first of a large number of cases now under investigation by the SEC of violations of the Foreign Corrupt Practices Act (FCPA) to be concluded. Quotes from the SEC’s April 8, 2011, press release announcing this action best convey what Band-Aid’s “creator” did: The company, said the SEC, “violated the Foreign Corrupt Practices Act (FCPA) by bribing public doctors in several European countries and paying kickbacks to Iraq to illegally obtain business.”

The SEC release alleges that “since at least 1998, J&J’s subsidiaries paid bribes to public doctors in Greece who selected J&J surgical implants, paid bribes to public doctors and hospital administrators in Poland who awarded tenders to J&J, and paid bribes to public doctors in Romania to prescribe J&J pharmaceutical products. J&J also paid kickbacks to Iraq in order to obtain contracts under the United Nations Oil for Food Program.” The SEC statement further alleges that “Doctors who ordered or prescribed J&J products were rewarded in a variety of ways, including cash and inappropriate travel. A variety of schemes were used to carry-out the bribery, including the use of slush funds, sham civil contracts with doctors, and off-shore companies in the Isle of Man.”

Although the company neither admits nor denies the SEC allegations, J&J agreed to pay more than $48.6 million to the DOJ to settle the SEC’s charges and to pay an additional $21.4 million fine to settle criminal charges.

Our previous report, entitled “Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010” and discussed in my column in April, focused on 20 years of illegal activities by U.S. pharmaceutical companies in this country, totaling almost $20 billion in civil and criminal penalties. Bribing public officials in this country, an activity that would be on everyone’s radar screen once it was unearthed, is apparently much more “acceptable” when carried out on foreign soil.

For too long, the important Foreign Corrupt Practices Act has not been vigorously enforced. This current resurrection of SEC and DOJ activity in this area will not only improve the health of people in foreign countries, to the extent it involves health products such as those made by J&J, but will also present an additional layer of legal barriers for such companies that increasingly seem to be an important part of organized crime and other illegal activities in this country.