The Securities and Exchange Commission continues its steady march as the prominent FCPA enforcement agency against corporations. The Justice Department has not brought any enforcement actions this year and continues to reevaluate its FCPA compliance program.
In an interesting enforcement action, the SEC settled a case with SciClone Pharmaceuticals for $12.8 million for violations occurring in China.
Unlike many other SEC enforcement actions, the SEC’s case against SciClone is explained in much greater detail. The SEC’s explanations provide important compliance guidance for companies and specifically, should be examined closely by all healthcare companies operating in China.
A few of the highlights are outlined below:
Parent-Subsidiary Relationship: The SEC’s Order sets out specific facts concerning the oversight and interactions between SCiClone’s parent company and its Chinese subsidiary. The specific interactions support the SEC’s attribution of internal control failures within SciClone and its responsibility for conduct by SciClone’s Chinese subsidiary.
SciClone Sales Staff and Corrupt Intent: In contrast to the typical fact pattern of bribery in China involving bribery committed by local distributors, the SciClone sales staff engaged in a wide-range of bribery involving gifts, travel, and hospitality expenditures.
Companies have to review each of the examples of lavish gifts. Some of the items, on their face, do not constitute clear violations except when coupled with specific corrupt intent evidence. Other instances cited by the SEC involve lavish gifts and hospitality and, by inference, satisfy corrupt intent. As noted by the SEC, there was evidence in emails and documents confirming that items were given to foreign officials at state-owned hospitals with the expectation of increased sales. Here are a few examples: [sci2]
- SciClone provided its VIP clients (including hospital presidents) attendance at a beer festival where they played golf and beer drinking.
- SciClone paid for family vacations and family dinners through an employee expense account to recruit VIP clients. SciClone earned a four-fold increase in its sales from these efforts.
SciClone’s Regulatory Specialist: SciClone hired a specialist to assist in its interactions with the Chinese regulatory agency. The specialist planned to send two Chinese regulatory officials to an academic conference in Greece relating to its product at the same time it had pending applications for approval of a new product and renewal of another product. When the specialist could not get the visas in time for the officials to attend the conference, the specialist gave the officials $8600 in gifts.
Due Diligence Failures: SciClone failed to conduct any due diligence on a number of travel vendors who were used to funnel bribes and improper gifts and trips involving improper sightseeing and tourist expenditures.
Failure to Conduct an Effective Internal Investigation:After learning about the specialist’s activities, SciClone terminated the specialist and conducted an internal investigation of the specialist’s activities and China’s practices. The review was focused only on china’s sales and marketing practices and failed to uncover a range of improper conduct. SciClone did not implement any remedial measures at the end of the 2008 internal investigation.
Reporting and Certification Requirements: The SEC imposed extensive reporting and certification requirements on SciClone and required the company to submit compliance remediation reports every nine months during a three-year oversight period. In addition, the SEC required SciClone to certify as to compliance with the remediation and reporting requirements.