On September 4, 2018, the French pharmaceutical company Sanofi S.A. (Sanofi) agreed to pay the US Securities and Exchange Commission (SEC) more than $25 million in penalties, disgorgement, and pre-judgment interest to resolve Foreign Corrupt Practices Act (FCPA) violations. The violations arose out of schemes by Sanofi affiliates to make illegal payments to: (1) government officials in Kazakhstan and Lebanon, to win tenders and boost sales; and (2) healthcare professionals (HCPs) in Bahrain, Kuwait, Qatar, Yemen, Oman, and the United Arab Emirates, to increase the rate at which Sanofi products were prescribed. The resolution, set forth in an SEC cease-and-desist order, follows a Department of Justice (DOJ) declination issued in February 2018.

Factual Allegations

French-based Sanofi is a global pharmaceutical company, and the violations at issue here involved three subsidiaries:

  • Sanofi-Aventis Kazakhstan LLP (Sanofi KZ) in Kazakhstan, where senior managers bribed foreign officials to obtain contracts at public institutions;
  • Sanofi-Aventis Liban S.A.L. (Sanofi Levant) in Lebanon, where employees and agents bribed foreign officials to boost sales of Sanofi products; and
  • Sanofi Aventis Gulf FZE (Sanofi Gulf), in the United Arab Emirates, where sales managers and representatives paid HCPs to increase prescriptions of Sanofi products.

Sanofi KZ

According to the cease-and-desist order, senior managers at Sanofi KZ bribed foreign officials with funds derived from discounts and credit notes factored into the sales prices paid by local distributors. The discounts and credit notes usually totaled 20-30% of the sales price, which the distributors returned in cash to Sanofi KZ senior managers. The senior managers then used these funds to bribe Kazakh officials to ensure that subsequent public tenders at public institutions would be awarded to Sanofi KZ.

Sanofi KZ tracked these transactions internally, and during the scheme’s four-year period from 2007 to 2011, its tender sales increased more than 200%, resulting in more than $11.5 million in increased profit.

Sanofi Levant

The SEC order next notes that, from 2011 to 2013, Sanofi Levant employees and agents paid foreign officials to boost sales of Sanofi products by getting HCPs to increase their Sanofi prescriptions. These payments were made through, among other avenues, sponsorships, gifts, speaker fees, donations, and product samples. For example, in 2012, a large public hospital HCP in Jordan requested product samples of an expensive cancer drug. Sanofi Levant’s local sales representative justified granting this request by noting that the HCP was a “key opinion leader” at the hospital and that the company should provide the samples “as a favor.” Sanofi Levant also paid this HCP more than $160,000 in apparently unearned consulting, speaking, and clinical-trial fees. At one point, this HCP also requested (and Sanofi Levant agreed) that Sanofi pay these fees by check to an unrelated individual. Collectively, Sanofi Levant made unsubstantiated payments to numerous HCPs in the private sector, resulting in $4.2 million in increased profit.

Sanofi Gulf

Finally, the order details that, from 2012 to 2015, sales managers and medical representatives from Sanofi Gulf submitted false travel and entertainment reimbursement claims and then pooled the resulting proceeds to make bribe payments to private sector HCPs, that in turn prescribed increasing amounts of Sanofi products. By one estimate, 70% of the travel and entertainment expense submissions (approximately $4 million) from Sanofi’s Primary Care business unit were fraudulently used to make these bribe payments, which resulted in more than $1.7 million in increased profit.

Sanofi’s Cooperation and the Resolution

The resolution follows Sanofi's self-disclosure to the DOJ and SEC in 2014 of possible FCPA violations alleged by an anonymous whistleblower. During the SEC’s investigation, Sanofi provided regular reports from its internal investigation and produced and highlighted relevant documents. Sanofi also began the process of independently enhancing its compliance programs, for example by implementing policies governing interactions with HCPs and government officials, rolling out anti-corruption training and audits, and monitoring Sanofi-sponsored programs attended by local HCPs. In addition, Sanofi terminated 121 employees, including senior local business managers, accepted the resignations of 14 employees, and disciplined 49 other employees.

The SEC acknowledged Sanofi’s cooperation with its investigation and specifically took into consideration the prompt remedial acts undertaken by Sanofi in agreeing to the resolution. Sanofi agreed to:

  • Pay the SEC approximately $17.5 million in disgorgement, $2.7 million in prejudgment interest, and a $5 million civil penalty;
  • Continue to cooperate by producing all requested, non-privileged documents and using its best efforts to allow the SEC to interview or secure testimony from current or former officers that the SEC might identify in the future;
  • Self-report for two years, during which time the company will provide non-public reports to the SEC on the status of its remediation efforts and the implementation of its compliance programs; and
  • Submit an Initial Self Report within six months and two Follow-up Self Reports that address any comments from the SEC, as well as any issues or concerns identified in the earlier reports.

Take-Aways

Focus on Pharmaceutical Industry

This resolution shows the SEC’s continued focus on FCPA enforcement in the pharmaceutical industry. In announcing the Sanofi resolution, SEC FCPA Unit Chief Charles Cain observed that bribery in connection with pharmaceutical sales “remains as a significant problem . . . more work needs to be done to address the particular risks posed in the pharmaceutical industry.” This follows SEC enforcement actions against, among many others, Teva Pharmaceutical Industries, GlaxoSmithKline, and AstraZeneca for similar schemes.

Internal Controls

This case reaffirms the importance of internal compliance policies and regular audits, especially in higher-risk jurisdictions. The SEC’s investigation highlighted the lack of effective monitoring of the Sanofi-related entities’ activities, including failure to ensure that fee payments were supported and that employee reimbursements were properly tracked and monitored.

Cooperation

Cooperation continues to have value, as evidenced by the relatively low $5 million civil penalty. Sanofi self-disclosed potential FCPA violations to both the DOJ and the SEC, provided regular updates from its comprehensive internal investigation, and proactively engaged in significant remedial efforts, including the revamping of internal controls and procedures, and the termination, resignation, or discipline of almost 200 employees. It is not clear the extent to which Sanofi’s cooperation played a role in the DOJ declination, but it is certainly possible that the company’s early and extensive cooperation was the basis for the declination.

Individual Prosecutions

Finally, the SEC’s cease-and-desist order is notable because it did not involve any US charges brought against individuals involved in the FCPA violations. This continues the recent trend of FCPA resolutions that have not been followed by the announcement of charges against individual defendants, despite the stated intent of Deputy Attorney General Rob Rosenstein to emphasize individual accountability during investigations into corporate FCPA violations. This might be further evidence of the difficulties faced by US investigators in prosecuting high-ranking corporate actors, especially when the relevant conduct occurred primarily abroad and in light of the Second Circuit’s recent decision in U.S. v. Hoskins, No. 16-1010-CR, 2018 WL 4038192, at *24 (2d Cir. Aug. 24, 2018), holding that foreign nationals who act outside of the United States and not on behalf of an American issuer or domestic concern as an officer, director, employee, agent, or stockholder cannot be charged with violating, conspiring to violate, or aiding and abetting an FCPA violation.