On February 28, an Ohio-based pharmaceutical company agreed to pay over $8.8 million to settle SEC claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the pharmaceutical company’s former Chinese subsidiary maintained and operated marketing accounts for a European dermocosmetic company, and was the exclusive product distributor for the company in China. The SEC alleged that the dermocosmetic company directed the day-to-day activities of former subsidiary employees who “used the marketing account funds to promote the dermocosmetic company's products” and “directed payments to government-employed healthcare professionals and to employees of state-owned retail companies who had influence over purchasing decisions.” The pharmaceutical company also allegedly received a percentage of profits from sales derived from the improper payments through a profit-sharing agreement.
While the pharmaceutical company “determined that other marketing accounts should be terminated because of their significant FCPA-related compliance risks,” the SEC alleged that the pharmaceutical company “inaccurately assessed the risks of the arrangements with the dermocosmetic company as minimal” and failed to apply its full internal accounting controls to these accounts. The SEC alleged that as a result, the former subsidiary routinely authorized and made payments from the marketing accounts without being able “to provide reasonable assurance that the transactions were executed in accordance with management’s general or specific authorization, and failed accurately to record on its books and records payments made from the accounts.”
In entering into the administrative order, the SEC considered the pharmaceutical company’s self-disclosure, cooperation, and remedial efforts. Without admitting or denying wrongdoing, the pharmaceutical company consented to a cease and desist order, and agreed to pay a $2.5 million civil money penalty and approximately $6.3 million in disgorgement and pre-judgment interest.