Right before the holiday weekend, news broke that Teva Pharmaceutical Industries had come to an agreement to pay $519 million in a deferred prosecution agreement (DPA) and civil settlement, and a subsidiary will plead guilty after the pharma giant admitted it paid bribes to government officials in Russia, Ukraine, and Mexico.
The settlement money is split between a criminal penalty of $283 million and an additional $236 million to settle civil charges. According to Assistant Attorney General Leslie R. Caldwell, “Teva and its subsidiaries paid millions of dollars in bribes to government officials in various countries, and intentionally failed to implement a system of internal controls that would prevent bribery. Companies that compete fairly, ethically and honestly deserve a level playing field, and we will continue to prosecute those who undermine that goal.”
According to the companies’ admissions, Teva executives and Teva Russia employees paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of Teva’s multiple sclerosis drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry of Health. The arrangement took place at the same time the Russian government was seeking to reduce the amount spent on costly foreign pharmaceutical products, such as Copaxone. Between 2010 and 2012 (possibly even later), pursuant to an agreement with a repackaging and distribution company owned by the Russian government official, Teva earned more than $200 million in profits on Copaxone sales to the Russian government. Additionally, the Russian official earned roughly $65 million in corrupt profits through inflated profit margins granted to the official’s company.
Teva also admitted to paying bribes to a senior government official within the Ukrainian Ministry of Health to influence the Ukrainian government’s approval of Teva drug registrations, which were necessary for the company to market and sell its products in the country. From 2001 to 2011, Teva paid the official a monthly fee as a “registration consultant,” also paying for travel and other things of value totaling approximately $200,000.00. In exchange for the benefits received from Teva, the official used his position and influence within the Ukrainian government to influence the registration in Ukraine of Teva products, including Copaxone.
In Mexico, Teva admitted that it failed to implement an adequate system of internal accounting controls and failed to enforce the controls it had in place at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to doctors employed by the Mexican government. Teva’s Mexican subsidiary had been bribing these doctors to prescribe Copaxone since at least 2005. While Teva executives in Israel were responsible for the development of the company’s anti-corruption compliance program, they were also aware of the bribes paid to government doctors in Mexico. Nevertheless, Teva executives approved policies and procedures that they knew were not sufficient to meet the risks posed by Teva’s business and were not adequate to prevent or detect payments to foreign officials. Teva also admitted that its executives put in place managers to oversee the compliance function, but those executives were unable or unwilling to enforce the anti-corruption policies that had been put in place.
Criminal Information and Charges
Teva entered into a DPA in connection with a criminal information filed in the Southern District of Florida on December 22, 2016. The information charged the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of failing to implement adequate internal controls. The DPA also included a provision requiring Teva to pay a criminal penalty in the amount of $283,177,348. Teva also agreed to continue to cooperate with any ongoing DOJ investigations, enhance its compliance program, implement rigorous controls and retain an independent corporate compliance monitor for three years.
Teva Russia signed a plea agreement (subject to court approval), agreeing to plead guilty to a one-count criminal information, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. The case has been assigned U.S. District Judge Kathleen M. Williams and Teva Russia’s initial court appearance is scheduled for January 12, 2017.
Securities and Exchange Commission
The United States Securities and Exchange Commission (SEC) filed a cease and desist order against Teva, whereby the company agreed by pay roughly $236 million in disgorgement of profits to the SEC, including prejudgment interest. The SEC’s complaint alleges that the company made more than $214 million in illicit profits by making the influential payments to increase its market share and obtain regulatory and formulary approvals as well as favorable drug purchase and prescription decisions.
Conclusion
The Criminal Division’s Fraud Section reached the resolution based on a variety of factors, including that Teva did not timely voluntarily self-disclose the conduct, but did cooperate with the department’s investigation after the SEC served it with a subpoena. Teva received a twenty percent discount off the low end of the United States Sentencing Guidelines fine range because of substantial cooperation and remediation. The company did not receive full cooperation credit, because, according to the DOJ, there were several issues that resulted in delays in the early stages of the investigation, including vastly overbroad attorney-client privilege assertions and failure to timely produce relevant documents.
However, the announcement by the DOJ made no mention of any resolution of bribery probes that Teva had previously acknowledged in Argentina and Romania. According to Teva, the Argentina internal review has been closed, but still no mention of a resolution involving Romania.
The Teva settlement at $519 million joins the ranks of Seimens ($800 million), Alstrom ($772 million), and KBR/Halliburton ($579 Million) as number five in the largest FCPA settlements in history.