Demonstrating its intensifying enforcement of the Foreign Corrupt Practice Act ("FCPA"),[1] the Department of Justice ("DOJ") recently announced the indictment of 22 executives and employees of companies in the military and law enforcement products industry on charges that they engaged in schemes to bribe foreign government officials to obtain and retain business.[2] These indictments were based on sophisticated undercover stings, and they should serve as an important warning to all companies, but particularly those in health care, which deal with foreign government officials. All such companies have been given a mandate to enhance their compliance efforts.

The Indictments

The indictments are the result of an undercover FBI operation that represents DOJ's single largest FCPA case ever. Assistant Attorney General Lanny A. Breuer of the Criminal Division proclaimed that this case marks "the first large-scale use of undercover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the Justice Department against individuals for FCPA violations."[3] In addition to making 22 arrests, approximately 150 FBI agents executed 14 search warrants in locations across the country.[4]

The FCPA prohibits U.S. persons and companies and foreign persons and companies acting in the United States from bribing foreign government officials for the purpose of obtaining or retaining business.[5] "Corrupt payments to foreign officials to obtain or retain business erode public confidence in our free market system and threaten to undermine foreign governments," said U.S. Attorney Channing Phillips.[6]

The indictments allege that the defendants engaged in a scheme to pay bribes, in the form of a 20 percent "commission" on a proposed multi-million dollar arms transaction, to a sales agent acting on behalf of the minister of defense for a country in Africa. The unknowing defendants were told that half of that "commission" would be paid directly to the minister of defense. In reality, the "sales agent" was an undercover FBI agent.[7]

Assistant Attorney General Breuer reiterated that aggressive FCPA enforcement is now the norm: "From now on, would-be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent."[8] Assistant Director Kevin Perkins of the FBI's Criminal Investigative Division emphasized enhanced FCPA enforcement, saying that "Investigating corruption at all levels is the number one priority of the FBI's Criminal Division."[9]

Implications for Health Care Companies

The health care industry is already in the cross-hairs of FCPA enforcers. Over the past few years, health care companies have increasingly become primary targets of FCPA enforcement activity. DOJ has been able to leverage the expertise of analysts with extensive industry knowledge in its health care fraud group in connection with FCPA investigations to significantly improve its ability to identify corrupt practices and investigate and prosecute complex FCPA cases in the pharmaceutical and device industries.[10] AAG Breuer recently confirmed that DOJ's FCPA unit and health care fraud unit have already begun to work together to investigate FCPA violations in the pharmaceutical and device industries.[11]

A recent example of enforcement in the health care industry is the December, 2008, Siemens AG guilty plea and agreement to pay more than $1.6 billion in fines, penalties and disgorgement of profits in connection with cases brought by DOJ, the Securities Exchange Commission ("SEC"), and the Munich Public Prosecutor's Office. One of the business lines included in the investigation was medical device distribution.[12] In June, 2008, DOJ announced an agreement with AGA Medical Corporation, under which the privately held manufacturer of cardiac medical devices agreed to pay a $2 million criminal penalty for FCPA violations.[13] In addition to these recently settled cases, multiple orthopedic device manufacturers have disclosed DOJ and/or SEC FCPA investigations over the past three years.

These most recent indictments of individuals come less than three months after Assistant Attorney General Breuer said that DOJ "will be intensely focused on rooting out foreign bribery" in the pharmaceutical industry.[14] He went on to say, "we firmly believe that for our enforcement efforts to have real deterrent effect, culpable individuals must be prosecuted and go to jail where the facts and the law warrant."[15] The indictments demonstrate how aggressive DOJ has become with respect to FCPA enforcement[16] and represent just the latest in a growing trend of individual prosecutions.

Health care companies doing business abroad can be uniquely susceptible to the reach of FCPA. Many foreign health systems operate as a part of government health systems, and a broad range of individuals working for or with these systems may qualify as foreign government officials. Accordingly, health care companies doing business with health systems or physicians abroad frequently conduct business with foreign government officials for FCPA purposes.

The recent statements from DOJ, the increased FCPA enforcement within the health care industry, the growing trend of increased individual prosecutions, and now, these indictments, are clear signals from the government to U.S. companies, including U.S. health care companies doing business abroad, that they need to increase their efforts in assuring that a company's policies address FCPA compliance and that employees are trained adequately. Otherwise, such companies increase the likelihood of incurring significant liability under the FCPA.

EpsteinBeckerGreen is uniquely positioned to advise healthcare companies on developing and implementing robust compliance policies and procedures to address FCPA risks. We are able to leverage our extensive experience in advising clients on corporate compliance, with a focus on healthcare compliance issues, to help healthcare companies address the unique and complex industry specific FCPA issues they may face.