Justice Department, SEC Seek Information From Companies on Payments to Overseas Officials

Wall Street Journal, October 5, 2010

by Michael Rothfeld

Federal investigators are looking at ways that drug makers could be paying bribes overseas to boost sales and speed approvals, according to letters sent to the companies and people close to the matter.

Big companies—including Merck & Co., AstraZeneca PLC, Bristol-Myers Squibb Co. and GlaxoSmithKline PLC—in recent months have disclosed they are being investigated for possible violations of a 1977 law that makes it illegal for companies whose stock is traded in the U.S. to bribe government officials in other countries to get business.

The companies said they are cooperating with the government, with several adding that the investigation is industry-wide and broader than their companies specifically. Many said they have policies meant to ensure compliance with the Foreign Corrupt Practices Act.

So far, none of the companies has been accused of wrongdoing, and the investigation ultimately may not result in charges.

The Justice Department and the Securities and Exchange Commission requested that companies voluntarily report any violations of the FCPA. Some companies, including SciClone Pharmaceuticals Inc. and Eli Lilly & Co., disclosed receiving subpoenas from the SEC. Baxter International Inc. also has said it is being investigated.

The investigation is targeting transactions in Brazil, China, Germany, Italy, Poland, Russia and Saudi Arabia, people familiar with the matter said.

The Justice Department and the SEC declined to comment.

Such requests from the government typically kick off internal investigations at companies, which generally comply with the requests in order to win leniency from the government if a violation is found.

A lawyer for one drug company said the industry has been vexed because the recent requests were so broad and because the investigations, across operations in several countries, can cost millions of dollars.

“If you don’t have any specifics, a lot of this is just guesswork,” the lawyer said. “Everyone was running around to get in the door to meet with the government so they can better understand what the issues are.”

Letters from the government to one of the companies, which were reviewed by The Wall Street Journal, identified four types of possible violations: bribing government-employed doctors to purchase drugs; paying company sales agents commissions that are passed along to government doctors; paying hospital committees to approve drug purchases; and paying regulators to win drug approvals.

People familiar with the situation said the other companies received similar letters.

The requests are similar to the government’s actions in an older bribery probe involving medical devices. In that investigation, settlement talks are ongoing with several companies, according to a person familiar with the matter.

Representatives for Merck, AstraZeneca, Bristol-Myers, Glaxo and Baxter declined to comment on the probe beyond saying they were cooperating fully with the government.

A SciClone spokeswoman declined to comment beyond the company’s SEC filings, in which it said it was subpoenaed for documents relating to its practices in China. A Lilly spokesman referred to an SEC filing in which the company said the U.S. government expanded to other countries an investigation of its Polish subsidiaries that began in 2003.

U.S. officials and European regulators have become increasingly aggressive in investigating foreign bribery cases in recent years. U.S. officials recently have threatened to file charges against executives and not just their companies.

The pharmaceutical industry is particularly vulnerable because government plays a bigger role in administering medicine in many foreign countries than it does in the U.S. and drugs are highly regulated, which creates contact with public officials. Doctors and hospital administrators often are government employees overseas.

Some of the alleged bribes could involve payments to doctors to influence drug trials, people familiar with the situation said. Justice Department officials have said publicly that drug companies also could face charges if they bribe government officials in the guise of payment for travel, meals, entertainment or speaking fees.

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