Eli Lilly
In December 2012, Eli Lilly settled the SEC's FCPA allegations into its Russian, Polish, Chinese, and Brazilian operations for $29.4 million, including $14 million in disgorged profits, $6.7 million in prejudgment interest, and an $8.7 million civil penalty. Eli Lilly must also obtain an independent consultant to review its anti-bribery policies and provide recommendations. The DOJ has, at least so far, refrained from bringing any related charges against the company.
The SEC alleged that Lilly-Vostok, Eli Lilly's Russian subsidiary, engaged in FCPA anti-bribery violations from 1994 through 2005, using offshore marketing agreements to make payments to third parties chosen by government customers or distributors. Senior management employees in Lilly-Vostok's Moscow branch assisted in the negotiation of these agreements, and they frequently knew little or nothing about such third parties, aside from their offshore addresses and bank account information. The SEC complaint further alleged that Lilly-Vostok employees "viewed the payments as necessary to obtain the business from the distributor or government entity, and not as payment for legitimate services." Not surprisingly, the off-shore entities rarely provided the services specified in the contract. Moreover, for years, Lilly-Vostok allegedly made proposals to government officials about "donating to" or otherwise supporting various projects affiliated with Russian government officials. Perhaps most importantly, Lilly-Vostok did not discontinue such practices for five years after it became aware that they may violate the FCPA. In fact, during the 2000-2004 period Lilly-Vostok entered into its three most expensive off-shore arrangements.
Pfizer
In August 2012, Pfizer entered into settlements with the SEC and the DOJ, agreeing to pay over $60 million in penalties, including disgorgement of fees and prejudgment interest, for its violations in Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan, Russia, and Serbia. As part of the settlement, Pfizer is required to improve its compliance programs, as well as ensure proper training for its employees, executives, and third parties acting on Pfizer's behalf. Pfizer entered into a two-year DPA with the DOJ, on the charges of conspiracy to violate the FCPA and a violation of the FCPA's anti-bribery provisions. The DOJ has agreed to drop all charges after two years if Pfizer makes all necessary changes and continues to cooperate with the agency.
From 2000 through 2005, Pfizer Russia provided cash payments, gifts, support for domestic and international travel, and donations to doctors employed by the Russian government and other government officials. Such payments of cash and other benefits were aimed to obtain regulatory approval of Pfizer products, to bypass delays and penalties associated with the importation of certain Pfizer products, and to influence the doctors to prescribe Pfizer products. Further, under the Pfizer "Hospital Program," Pfizer employees made payments to individual Russian doctors to reward past purchases and prescriptions and to induce future purchases and prescriptions of Pfizer products. Some payments were made through intermediary companies. Cash for Hospital Program payments was sometimes obtained with the assistance of collusive vendors who received payment on the basis of false invoices. Then-finance director of Pfizer Russia created two account codes in the company's General Ledger and instructed employees to book all their Hospital Program payments to this account, including improper payments. In December 2003 through 2005, Pfizer Russia booked approximately $820,000 in transactions to the two Hospital Program account codes. The SEC also cited Pfizer's Russian subsidiary with making payments to obtain importation certificates in the customs process (and other customs-related payments), distributor discount payments, and improper travel.
Panalpina
In 2010, Panalpina, a Swiss supply chain solutions provider, faced investigations by both the SEC and the DOJ. Both investigations concerned Panalpina's global operations, including its Russian subsidiary, Panalpina World Transport Limited (Russia). Panalpina paid a total settlement of approximately $82 million, consisting of a $71 million criminal fine from the DOJ and $11 million in disgorgement of fees from the SEC settled complaint. DOJ's criminal charges against Panalpina were resolved via a DPA, whereby Panalpina admitted that it was responsible for the acts of its directors, officers, employees, subsidiaries, agents, and consultants. Panalpina further admitted that its Russian subsidiary paid over $7 million in bribes to Russian government officials responsible for assessing and collecting duties on imported goods between 2002 and 2007. The company admitted making "special prevention" payments in Russia to avoid delays, administrative fines, and other legal actions resulting from missing or erroneous documentation, sometimes also aiming to altogether bypass the customs process. The DOJ set the term of the DPA to three years and seven months, stating that Panalpina's cooperation and remediation in the investigation have been exemplary.
Conclusion
In light of the DOJ's and the SEC's continuing commitment to FCPA enforcement in Russia, the upcoming 2014 Olympics in Sochi, and Russia's newly enacted anti-bribery law, all companies with operations in Russia must re-visit their compliance programs to ensure the adequacy of their provisions. Significantly, all compliance programs must now satisfy the standards of Russia's Article 13.3, such as the requirements to have compliance personnel and a clear mechanism for internal investigations. All personnel should also be properly trained and fully aware of their on-going obligations to investigate and promptly report all suspicious behavior. Businesses should remain especially vigilant in customs transactions and importation of goods, as these two sectors are especially susceptible to bribery in Russia.
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