The SEC announced on March 23, 2016 that it settled FCPA allegations with Switzerland-based pharmaceutical company Novartis AG, via a cease and desist order finding that Novartis violated the FCPA’s book and records and internal controls provisions related to activities in China. The SEC found that employees of two Novartis Chinese subsidiaries gave money and gifts to Chinese health care providers at state-owned hospitals in order to boost sales. In some cases, the order found, Novartis employees created spreadsheets that linked payments to individual Chinese health care providers to increased sales of certain drugs and created a ranking system for the health care providers.
SEC’s order found that Novartis recorded the payments as lecture fees, conferences, seminars, medical studies, and travel and entertainment. The SEC further found that Novartis failed to devise and implement a sufficient system of internal accounting controls to detect the improper payments, and lacked an effective anti-corruption compliance program. The order did not say whether Novartis self-disclosed the involved conduct, but the order notes the company’s cooperation and states that the company began an internal investigation after news reports surfaced that a competitor was investigating similar FCPA concerns in its Chinese subsidiaries.
Novartis consented to the SEC’s order without admitting or denying the charges and agreed to pay $25 million to resolve the case, including a $2 million penalty, disgorgement of $21.5 million in profits, and $1.5 million in prejudgment interest. Novartis will also provide status reports to the SEC for the next two years regarding remediation efforts and new anti-corruption compliance measures.