WASHINGTON (Legal Newsline) - Teva Pharmaceuticals has agreed to pay the largest-ever
Foreign Corrupt Practices Act related settlement for a pharmaceutical company in U.S. Department of Justice
The deferred prosecution agreement (DPA) was agreed to by the company
to settle the Justice Department’s allegations that it bribed officials in
Russia, the Ukraine and Mexico to increase profits for the company’s generic
pharmaceutical drug. The company has agreed to pay $519 million dollars in penalties and follow a
compliance program laid out by the DOJ.
The Teva pharmaceuticals settlement is the fourth-highest in
history, which may be because of the serious violations of the FCPA that
occurred. There weren’t any individuals charged with criminal wrongdoing. Tom Fox, an expert
in compliance law known as The Compliance Evangelist, explained the likely reasons
behind the multi-billion-dollar settlement agreement.
“The amount of the penalty was significantly higher in this
case… because it’s pretty clear this was a systematic bribery scheme that
everybody knew about, and management either knew about or just closed their
eyes to it,” Fox told Legal Newsline.
The penalty was higher than the other largest pharmaceutical
company settlement on record, but it’s still smaller than what it could have
been. The company received a 20 percent discount on fines for its cooperation with
the Justice Department and implementation of some remedial policies prior to
the settlement. That’s not to say the pharmaceutical giant isn’t still
suffering significant financial impact. Although Teva agreed to a $519 million
settlement, the company will shell out almost twice that much, says Fox, who practices
law in the Houston area.
“Typically, in FCPA cases, the total cost is two to six times
higher than the fines and penalties; and the total cost includes your
pre-settlement investigation, so those costs are huge,” Fox said. “Then there’s the post-resolution cost, so here Teva has a monitor, and those are huge costs. They’re
going to have to implement the entire compliance program that’s laid out in the
DPA, and that will have probably add another $50 million, so it’s conceivable
that they could have had, all in, with their investigation, remediation, fine
and penalty, and post-settlement cost, close to a billion dollars into this.”
Teva, which posted net revenues of $19.7 billion in 2015, won’t
be collapsing under the cost of the settlement, even with the cost of the investigation and bringing the company into compliance. In
fact, the company outlook for 2017 expects even higher earnings. Legal Newsline was unable to reach Teva for
comment on the recent settlement.
The Justice Department has been taking more action in FCPA cases in the past 10 years, a
trend that Fox expects to continue based on a program that rewards companies
for self-disclosure announced last year. Although the department has recently
invested more resources into the investigation of FCPA violations, the high
dollar amounts of corporate settlements aren’t a new development.
“Within the past 18 months they’ve doubled the size of the
FCPA unit at the Department of Justice,”
“They gave more resources to the FBI
(Federal Bureau of Investigations) to do investigations, but the
kind of dramatic growth in FCPA fines is almost 10 years old.”
There are moves that corporations can take to avoid
penalties altogether, which could save them hundreds of millions of dollars in
the event that illegal practices come to light. The Justice Department
has instituted voluntary programs designed to reward corporations for addressing
corruptions in what’s known as self-disclosure.
“Last year, in April, the DOJ announced what they called a
pilot program that gave very significant discounts up to a full ‘get out of
jail card free’ for companies that come in and self-disclose, turn over their
investigation and thoroughly remediate,” Fox explained. “You have a big incentive to basically come in
and get everything with a chance of getting a very large discount I think [high
dollar penalty and settlement amounts] are going to continue.”