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 history.
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,” Fox said. “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.”