On December 20, 2012, Eli Lilly and Company was charged by the Securities & Exchange Commission with multiple violations of the Foreign Corrupt Practices Act (“FCPA”) for events which occurred over a period of 15 years. The announcement included an agreement with Eli Lilly for payment of more than $29 million in fines to settle the charges. Additional terms will require Eli Lilly to hire an independent consultant to review and make recommendations about its compliance program for foreign corruption policies and procedures.
The Complaint focused on Eli Lilly’s subsidiaries in China, Brazil, Poland, and Russia. All allegations involved the improper transmission of moneys or items of value to persons directly employed by or clearly associated with government officials, particularly those in positions to influence government decisions on drug reimbursement and drug purchases.
Eli Lilly had a compliance program in place, which specifically included contract templates, referred to as “standard Marketing Agreements.” The Complaint alleged that just through its Russian subsidiary, Lilly-Vostok “…entered into over 96 such agreements with over 42 third-party entities…
Beginning in 1994, these contract templates were used in such a manner that two internal reviews conducted in 1999 concluded “raised concerns.” The reports were distributed as high within Eli Lilly as the “Chief Financial Officer, President of Lilly International Operations and General Auditor,” but, as late as 2004, these contract templates were still being used.
Why the problem with using contract templates for marketing agreements? A lack of controls to vet the contracting parties and determine whether actual goods or services were being offered and whether the proposed contract goods and services would violate the FCPA.
The detailed allegations of the SEC Complaint make clear that a compliance program written down on paper is insufficient to provide a defense to allegations of violations of the FCPA. The SEC Complaint and associated Press Release about settlement emphasize an SEC expectation for specialized and heightened review of off-shore transactions for possible FCPA violations.
The quote to take out of the Complaint for your own consideration is this: “In assessing these transactions, the auditors relied upon the standard accounting controls which primarily assured the soundness of the paperwork. There was little done to assess whether, despite the existence of facially acceptable paperwork, the surrounding circumstances or terms of a transaction suggested the possibility of an FCPA violation or bribery.”
In our next blog, we’ll take a look at the remedial efforts initiated by Eli Lilly and required by the SEC as a result of the settlement.