Legal: The Kickback Effect

Pharma tends not to treat relationships with foreign doctors as cautiously as it does those with US physicians. But watch out: Misconduct on the part of your international employees could get kicked back onto your plate.
May 01, 2006


R. Christopher Cook
Financial relationships with physicians outside the United States present a growing compliance risk for pharmaceutical companies. In this country, pharmaceutical manufacturers have been the subject of government enforcement and legislative activity regarding physician relationships for several years. Accordingly, the industry has devoted substantial attention to compliance with the Anti-Kickback Statute and other laws designed to govern its relationships with doctors.


Jesse A. Witten
Recent developments, though, suggest that financial relationships with physicians outside the United States also pose substantial compliance risks, under both American and foreign law. Financial relationships with physicians employed by foreign governments (physicians outside the United States are commonly government employees) are likely to be regulated by the United States Foreign Corrupt Practices Act (FCPA). In addition, foreign countries may have their own laws that limit or prohibit the provision of financial and other benefits to physicians.

Foreign Corrupt Practices Act

The FCPA makes it a crime to pay, offer, authorize, or promise to award anything of value to a foreign government official, in order to assist in obtaining business. Violations of the FCPA are felonies prosecuted by the US Department of Justice (DOJ). The Securities and Exchange Commission (SEC) also has enforcement authority over companies that have issued securities in the United States or that file reports with the SEC.

The anti-bribery provisions of the FCPA apply to a broad range of companies and individuals with ties to the United States, including:

  • Corporations and other business organizations formed under the laws of the United States
  • Individuals who are citizens or residents of the United States
  • Companies and individuals who take any action in furtherance of an FCPA violation in the United States
  • Companies with securities registered in the United States or that otherwise are required to file reports with the SEC.

What some people don't realize, however, is that corporations and individuals who are otherwise subject to the FCPA can be held liable for bribes paid to foreign officials—even if no actions or decisions took place within the United States. At the same time, many non-US corporations are subject to the law if the unlawful activity touches this country, or if they access US capital markets. In other words, the FCPA potentially applies to the entire pharmaceutical industry—worldwide.

In addition, the risk is not limited to US law. An increasing number of countries outside the United States have adopted laws modeled after the FCPA. Thirty-six countries, including the entire European Union, have obligated themselves to enact and enforce similar laws. And China has announced an initiative to crack down on commercial bribery, specifically, identifying corruption in the procurement of medicine and medical equipment.

How do the FCPA and other anti-corruption laws relate to physicians? In many countries, physicians are employed by the government. The DOJ and SEC deem such state-employed physicians foreign officials under the FCPA. When these physicians are in a position to influence government or hospital purchasing decisions, payments from pharma companies intended to influence their judgment may be viewed as unlawful under the FCPA.

Consequences

The criminal penalties for FCPA violations can be substantial. Individuals who violate the statute face up to five years imprisonment, or ten years for certain willful violations. Individuals also can be fined up to $1 million per violation. Business entities may be fined upwards of $2.5 million for each violation, or twice the amount gained as a result of the violation.

In addition to potential criminal liability, civil penalties may be imposed. Depending on the circumstances, the SEC can seek to impose an additional fine of up to either $500,000 per violation or the gain obtained as a result of the violation.

Individuals and corporations that violate the FCPA may suffer collateral consequences, such as exclusion or debarment from certain federal programs, and ineligibility to receive export licenses. Moreover, because an FCPA violation is a predicate act under the Racketeer Influenced and Corrupt Organizations Act (RICO), violators may be subject to additional civil or criminal actions, including a private RICO action by a competitor, or forfeiture proceedings brought by the government.