Novartis to Pay $25 Million Neither Admit Nor Deny SEC China FCPA Charges

Novartis will pay $25 million to settle charges that it bribed Chinese health care officials in violation of the Foreign Corrupt Practices Act (FCPA).

Cravath Partner Rachel Skaistis

Cravath Partner
Rachel Skaistis

The company neither admitted nor denied the charges.

Novartis was represented by Rachel Skaistis of Cravath in New York.

The Securities and Exchange Commission (SEC) alleged that certain employees and agents of Novartis subsidiaries conducting business in China engaged in transactions and provided things of value to foreign officials, principally healthcare professionals.

These payments took varied forms and were intended to influence the health care professionals and thereby increase sales of Novartis pharmaceutical products.

Employees and managers in the involved subsidiaries attempted to conceal the true nature of the transactions through the use of complicit third parties and by improperly recording the relevant transactions on the books and records of the respective subsidiaries, which were consolidated in the financial reports of Novartis.

Examples include improperly recording the payments as legitimate expenses for travel and entertainment, conferences, lecture fees, marketing events, educational seminars, and medical studies.

Novartis also failed to devise and maintain an effective system of internal accounting controls or an effective anti-corruption compliance program.

The SEC alleged that as part of its normal business operations, Novartis unit Sandoz China hired local Chinese travel companies to arrange transportation, accommodations, and meals for Chinese officials in connection with education events. However, in many instances, the actual trips did not include an educational purpose or the scientific and educational components were minimal in comparison to the sightseeing or recreational activities, and were instead a method of influencing the Chinese health care professionals.

The SEC alleged that the related expenses were approved and paid with little or no supporting documentation. For example, in 2009, Sandoz China sponsored twenty Chinese HCPs to attend the American College of Surgeons 95th Annual Clinical Congress in Chicago.

While the Clinical Congress was devoted to educational purposes, the professionals were also provided purely sightseeing or recreational activities, such as an excursion to Niagara Falls.

Sandoz China also paid for travel to the U.S. for spouses of the Chinese professionals, $150 in “pocket” or “walking around” money, and cover charges at a strip club.

A senior manager of Sandoz China and other Sandoz China employees accompanied the HCPs to Chicago.

In 2011, a Chinese travel company submitted several invoices totaling approximately $25,000 ostensibly in connection with lectures by one of the Chinese professionals to other professionals.

The invoices were paid and recorded as legitimate expenses despite the lack of any confirmation that the lecture was organized by Sandoz China and held in the venue for which an invoice was submitted and that the lecture was attended by the Chinese professionals.

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