On December 22, 2016, Teva Pharmaceutical Industries Limited (“Teva”) settled parallel civil and criminal actions brought by the United States Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”). Press Release, DOJ, Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges
, Dec. 22, 2016. The DOJ and SEC alleged that Teva violated the Foreign Corrupt Practices Act (“FCPA”) and reaped $214 million in profits by making illicit payments to government officials in Russia, Ukraine, and Mexico to increase its market share, receive regulatory and formulary approvals, and obtain favorable drug purchase and prescription decisions. Complaint, SEC v. Teva Pharmaceutical Indus. Ltd.
, No. 1:16-cv-25298 (S.D.N.Y. Dec. 22, 2016), ECF No. 1. Under the terms of the settlement, which was the fourth largest FCPA settlement ever, Teva agreed to pay a $283 million criminal fine to the DOJ and $236 million in disgorgement and prejudgment interest to the SEC, for a total of $519 million. Teva also entered into a three-year deferred prosecution agreement with the DOJ that requires the company to retain an independent monitor, and Teva’s Russian subsidiary, Teva LLC, entered a guilty plea to a one-count criminal information.
Teva allegedly conducted a bribery scheme that spanned three countries on two continents and used familiar techniques to make illicit payments. In Russia, for example, Teva allegedly funneled bribes to a government official from 2006 to 2012 through the official’s wholesale company. According to the DOJ and SEC, Teva sold its multiple sclerosis drug, Copaxone, to the wholesale company at a discount. The wholesale company then allegedly sold the drug to the Russian government at full price, and the government official kept the difference for himself in exchange for using his influence to increase sales of Copaxone in annual government drug purchase auctions. In Ukraine, from 2001 to 2011, Teva allegedly made payments to a senior official at the Ukrainian Ministry of Health to influence approvals of drug registrations by retaining the official as a “registration consultant,” paying him a monthly fee, and providing him with travel and other things of value. Finally, in Mexico, Teva’s local subsidiary allegedly made cash payments and provided entertainment directly to government doctors in exchange for prescriptions.
The enforcement action against Teva is notable for more than just its size and scope. In its complaint, the SEC highlighted what it claimed were examples of compliance failures by Teva. For example, the SEC alleged that Teva failed to take reasonable steps to publicize or enforce its “Code of Conduct,” which it instituted in 2006. The SEC also claimed that Teva responded too slowly to known FCPA risks: the company purportedly learned of potential Latin American FCPA violations in 2007, but did not roll out an Anti-Corruption policy in that region until 2009, and only instituted a global Anti-Corruption Policy in 2010. The SEC’s focus on Teva’s compliance deficiencies underscores the agency’s position that companies must take immediate action to institute compliance programs across their entire operations.
For its part, the DOJ criticized Teva for allegedly failing to fully cooperate with the investigation, citing the company’s “vastly overbroad assertions of attorney-client privilege” and failure to produce documents in a timely fashion. At the same time, the DOJ opted to reduce Teva’s penalty by 20 percent—out of a potential 25 percent—due to the Company’s substantial cooperation and remediation efforts. Thus, despite failing to cooperate early in the process, self-report the alleged activities, or provide the government with documents in a timely manner, Teva still received a 20 percent reduction in its potential penalty. But this may have influenced the DOJ’s decision to insist on a guilty plea from Teva’s subsidiary where certain misconduct occurred.
Finally, the settlement with Teva provides another example of the DOJ and SEC’s willingness to rely on the slenderest reed for jurisdiction. In the DOJ’s plea agreement with Teva Russia, the only jurisdictional ground alleged is that “employees and agents of Teva Russia sent emails through the United States.” Similarly, the SEC’s complaint appears to rely on emails from Teva’s Russian and Ukrainian subsidiaries that “were sent through U.S. servers” or payments in U.S. dollars that were allegedly wired through U.S. correspondent banks. (Teva’s Mexican subsidiary, which also allegedly made corrupt payments, was managed in Miami, Florida.)