Foreign Corrupt Practices Act (FCPA)

UK-Based biopharmaceutical company AstraZeneca agreed to pay the U.S. Securities and Exchange Commission (SEC) $5.5 million to settle claims that its Chinese and Russian subsidiaries had made improper payments to state-controlled health care providers in violation of the Foreign Corrupt Practices Act (FCPA).

In an order released earlier this week, the SEC outlined both the claims against AstraZeneca and the company’s cooperative and remedial efforts which were taken into account as part of the settlement.

Between 2007 and 2010 in China, sales staff made payments and gave gifts to physicians and administrators to ensure that state-owned health care providers would purchase AstraZeneca products. In one scheme described in the SEC Order, Chinese sales staff paid individuals for their appearance at fabricated speaking engagements. The conduct in Russia occurred between 2005 and 2010 and similarly paid members of state-owned health care providers to use AstraZeneca products.

AstraZeneca did not self-report its violations; however, it was still able to work toward a settlement based on its cooperation with the SEC. The SEC specifically noted that AstraZeneca disclosed documents and information collected during its own internal investigation including translations of key documents. The SEC also cited AstraZeneca’s remedial efforts including creation of a centralized compliance program with key compliance individuals placed in high-risk markets. AstraZeneca also took appropriate steps with regard to the employees involved ranging from trainings and reassignment to lower-risk areas of responsibility to voluntary separations and dismissals.

Yet again, full and complete cooperation appears to be the key to forging settlement of FCPA claims. Even after failing to self-report, the SEC lauded AstraZeneca’s cooperation and the information that the company’s internal investigation provided which would not have been discernable without the company’s assistance. In addition, the SEC recounted the numerous remedial steps that AstraZeneca undertook. If a company does not have the capacity to guide its own internal investigation or plan and implement remedial measures, it should contact a law firm that has the knowledge and resources to help the company make meaningful contributions to the investigation of any claims that arise.

AstraZeneca will pay $5.5M to the Securities and Exchange Commission to settle claims that it violated the Foreign Corrupt Practices Act by making improper payments to state controlled health care providers in China and Russia.


The SEC complaint provides that the staff of AstraZeneca’s foreign
subsidiaries bribed health care providers in China and Russia with cash and 123rf.comgifts to persuade them to purchase products from the company.   In addition, the SEC stated that AstraZeneca lacked proper internal accounting controls over the relations of its China and Russia subsidiaries and government officials and falsely recorded the improper payments as “bona fide business expenses” in its financial statements.  The SEC added that AstraZeneca did not track employee reimbursements or speaker fees, gifts, travel and entertainment, and did not enforce its corporate policy against improper payments to government officials in China and Russia.  It also did not provide adequate FCPA training to sales staff who regularly interacted with local officials in the health care industry, according to the SEC.

The SEC indicates that AstraZeneca has taken steps to become compliant with the Foreign Corrupt Practices Act by providing anti-corruption training and revamping its internal controls and procedures.

Implications for U.S. Companies that do Business Abroad

AstraZeneca’s settlement and the $5.5M payment that it must make emphasizes the importance of FCPA compliance by U.S. companies that do business abroad.  The line between proper and improper payments, gifts, travel and entertainment expenses to foreign officials under the FCPA can be difficult to draw by company staff without proper training.  Doing business in countries where the level of corruption is high, such as Russia and China, can make FCPA compliance especially challenging.

As such, it is key for U.S. companies to have robust FCPA compliance programs and audit testing, to provide careful due diligence for particular transactions and relationships, to keep proper records, and to promptly respond to violations or indications of violations.  Our team of international trade attorneys at Fox Rothschild can assist with any of these matters.

Earlier this year, the US Department of Justice announced a one-year pilot program under which US corporations could mitigate their own liability for violations of the Foreign Corrupt Practices Act (FCPA) by voluntarily self-disclosing FCPA violations within their organization, in addition to fully cooperating with DOJ investigations and taking steps to remediate any misconduct. Skeptics, however, wondered if and when evidence that voluntary self-disclosure was impacting FCPA prosecutions would ever come to light.

The DOJ’s decision not to pursue charges against Johnson Controls, a global conglomerate which produces among other things, automotive parts and large scale HVAC components, may be the bellwether that everyone has been waiting for.

On July 11, 2016, the US Securities and Exchange Commission imposed $14 million in sanctions and served Johnson Controls with a cease-and-desist order regarding certain practices in China. The SEC alleged a scheme in which 16 Johnson Controls employees (including high-level executives of its Chinese subsidiary) created inflated and sham purchase orders and then used the money paid toward these purchase orders to bribe Chinese officials.

Significantly for those watching the DOJ pilot program, while SEC imposed penalties, the DOJ issued a declination letter and closed its investigation without bringing charges against Johnson Controls. The declination letter specifically cited the the DOJ pilot program as part of its basis for not pursuing charges. Further, the declination letter explained the factors leading to its decision, including: Johnson Control’s voluntary self-disclosure of of the matter, the company’s extensive investigation, its cooperation in the investigation, and its remedial steps such as terminating all the individuals involved.

If the pilot program is extended, and voluntary self-disclosure is the new cost of admission to meaningful mitigation of corporate liability for FCPA violations, then internal monitoring, auditing, and investigation of such activities are more valuable than ever. Further, training employees to identify potential FCPA violations and creating mechanisms through which they can report suspicious conduct internally is also critical because it gives the company an opportunity to investigate and self-disclose, ideally, before the conduct has become a target of US authorities.

The Louis Berger Group, Inc., a subsidiary of global engineering and construction company, Berger Group Holdings, Inc., recently brought an action against former executive Richard J. Hirsch who pled guilty to violations of the Foreign Corrupt Practices Act (FCPA) in 2015.

The suit raises breach of fiduciary duty claims against Hirsch stemming from his involvement with the payment of over a half-million dollars in bribes to Vietnamese officials between 1999 and 2004. In 2015, after a four year investigation by the Department of Justice, following a voluntary disclosure by Louis Berger, Hirsh pled guilty to violations of the FCPA and Luis Berger agreed to pay a $17.1 million penalty. Louis Berger now seeks to recoup not only its $17 million penalty and $50,000 in legal fees, but an undisclosed amount for loss of reputation and other injuries to the company.

The stakes continue to rise for individuals who violate the FCPA. Not only has the Department of Justice announced a new focus on individual liability, this recent action demonstrates that executives may be personally liable to the companies who defend them throughout their criminal proceedings. For individuals and companies a like, meaningful FCPA policies which include strong personal educational components remain an absolute necessity as liability continues to increase.

On April 5, 2016, the U.S. Department of Justice announced a significant increase in its efforts to enforce the Foreign Corrupt Practices Act (FCPA).

The DOJ’s three-step plan increases personnel dedicated to investigating FCPA violations, fosters international cooperation and coordination in ongoing investigations and further incentivizes companies to self-disclose FCPA issues.

We invite you to read this recent article (PDF) by Fox attorneys Patrick Egan and Ryan Becker, which details the increased enforcement measures.

Reproduced with permission from Corporate Accountability Report, 79 CARE, 4/25/16. Copyright 2016 by The Bureau of National Affairs, Inc. (800-372-1033) <>

Copyright: ricochet64 / 123RF Stock Photo
Copyright: ricochet64 / 123RF Stock Photo

On Monday, May 9, a large collection of data behind the Panama Papers was released by the International Consortium of Investigative Journalists (ICIJ).  The ICIJ published a searchable database that strips away the secrecy of more than 200,000 offshore entities created in 21 jurisdictions ranging from Hong Kong to the British Islands.

The ICIJ first announced that it had obtained over 11 million documents from a source connected with Mossack Fonseca & Co. that detailed how the firm helped clients set up offshore or shell companies, but until Monday only a portion of the data had been made public through news reports.

The release of this data is the largest release of offshore entities’ data, and it could spark a multitude of Foreign Corrupt Practices Act (FCPA) investigations. The leaked documents reveal how wealthy individuals, including politicians, world leaders and movie stars, keep their personal financial information and money tied to offshore business entities.  The use of offshore business entities is not per se illegal, but reporters have found that these offshore businesses have often been used for illegal purposes.  Such illegal purposes include tax evasion, fraud, hiding proceeds of bribery or criminal activity, and evading international sanctions.

The release comes after that the U.S. Department of Justice (DOJ) doubled its number of prosecutors in its FCPA unit. The DOJ also recently announced a new pilot program aimed at increasing cooperation between companies and the DOJ.  The one-year pilot program lays out specific perks for companies that self-report and fix criminal violations of the FCPA, including reduced sanctions or even escaping criminal prosecution altogether.  The pilot program follows, and is intended to compliment, the Yates Memorandum, and reflects an increased U.S. effort to combat foreign bribery.

Given the large amount of information available and the increased resources in place to combat foreign corrupt practices, we will likely see an increase in FCPA investigations and the opening of old probes.  While information regarding large corporations will likely be targeted first, companies should conduct internal investigations regarding whether third parties with whom they are doing business are named in the Panama Papers.  Going forward, companies should include investigation into their business partners’ connections to offshore entities as part of their due diligence process.

The U.S. Securities and Exchange Commission has agreed to a $28 million settlement with software producer PTC, Inc. following allegations of bribes paid to Chinese officials between 2006 and 2011 in violation of the Foreign Corrupt Practice Act (FCPA).

In the administrative proceeding (No. 3-17118), the SEC alleged that two of PTC’s Chinese subsidiaries bribed Chinese officials by paying for trips to the United States.  Although the trips were ostensibly for training purposes, nearly $1.5 million dollars were spent on trips which included touring and golfing across the United States.

The settlement represents $14.5 million in fines and $13.6 million in disgorgement ($11.8 million plus $1.8 million in interest) to be paid by PTC.  Although the penalty is significant, the toll may have been much greater.  Significantly, PTC publicly reported the potential FCPA violations in 2011 and, since then, has cooperated with investigators and made significant improvements to its own compliance protocols.

The SEC has also agreed to defer the prosecution of Yu Kai Yuan, a former employee of one of PTC’s Chinese subsidiaries, based on his cooperation in the investigation.  This is potentially significant in light of the recent memorandum of Assistant Attorney General Sally Quillian Yates (the “Yates Memo“), which announced a new focus among federal agencies on holding individuals accountable for corporate acts.  Following the Yates Memo, there has been concern that individuals would be unable to avoid personal liability as part of a large-scale corporate settlement.  The SEC’s agreement with Mr. Yuan may signify that personal cooperation may still help individuals avoid the full measure of potential penalties.

Nevertheless, the penalties PTC is to pay are significant and come despite its efforts to cooperate with the investigation and improve their own compliance protocols.  Compliance programs that engage not only U.S.-based employees but also foreign subsidiaries are an absolute necessity for any company dealing in foreign markets.  Moreover, FCPA compliance programs must be tailored to anticipate the social and cultural norms in a company’s target market and, perhaps most significantly, must be meaningfully implemented across your organization.


SCS Corporation, Ltd. (SCS), a unit of Houston oil and gas drilling company Hyperdynamics Corporation (“Hyperdynamics”), has filed parallel actions in the Southern District of Texas (4:16-cv-00076) and before the American Arbitration Association against two partners who SCS alleges used an FCPA investigation into Hyperdynamics as a pretext for breaching their joint exploration agreement.

SCS and its partners, Tullow Guinea Ltd. (“Tullow”) and Dana Petroleum (E&P) Limited (“Dana”), have been engaged under a joint operating agreement to explore deposits off the coast of Guinea.  In 2013, the U.S. Securities and Exchange Commission began an FCPA investigation into Hyperdynamics, which was eventually settled in the fall of 2015.  Nevertheless, in 2014, while the FCPA investigation was open, Tullow declared force majeure and halted all work on the exploration project. Tullow eventually withdrew its declaration of force majure, but, according to SCS, has not resumed sufficient activity to meet the drilling timelines required by the Guinean government which expire in the fall of 2016.  The Complaint alleges that Tullow does not have the funds to fulfil its portion of the exploration and that its declaration of force majure and subsequent delays are merely a diversion designed to stall the enterprise. Dana is similarly alleged to have undertaken a dilatory course of conduct.

The parallel actions seek (1) a determination that Tullow and Dana are in breach of the joint operating agreement, (2) orders requiring Tullow and Dana to move forward with their exploration and drilling activities, and (3) damages stemming from the delays.

According to the Complaint, Tullow had ulterior motives when it declared force majure based on the ongoing FCPA investigation.  If Tullow truly believed that force majure applied, however, then its declaration may have bell that could not be unrung.  Although Tullow eventually withdrew its declaration, it has, at least by SCS’s account, not commenced work since the declaration and may now be in breach of contract.

Of course, corporations must be concerned when their partners become the subject of FCPA investigations. They should not, however, take any unnecessarily drastic steps.  Independent counsel can investigate and assess a corporation’s potential liability for the acts of its partner and should be consulted whenever a concern arises. Taking the time to evaluate one’s own potential liability may save the working relationship and avoid litigation tangential such as this.

Although the number of FCPA enforcement actions by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) are down in 2015, a recent report indicates the the third quarter saw twice as many FCPA claims resolved as the first two quarters of 2015 combined.

There does not appear to be a clear single cause for the recent uptick; however, the new enforcement priorities articulated in the Yates Memo (released on September 9, 2015) are likely a factor in the sudden increase.  A hallmark of the Yates Memo is a new focus on holding individual directors and officers liable for their actions on behalf of a company.  Therefore, if individual liability is indeed driving FCPA enforcement to higher levels, companies — and now the individual directors and officers — must should take stock of their anti-corruption policies as a new wave of enforcement may be fast approaching.

In September 2015, Avon Products, Inc. reached a $62 million settlement in a class action brought by investors alleging securities fraud.  Specifically, the investors claimed that Avon intentionally mislead investors about the company’s compliance with the Foreign Corrupt Practices Act which, in turn, artificially inflated Avon’s stock price.

The class action followed Avon’s payment of $135 million in fines to the Securities and Exchange Commission and Department of Justice in December 2014 for violations of the FCPA including bribes paid to Chinese government officials.  With little work required of the class after the SEC and DOJ completed their investigation, similar lawsuits following FCPA violations are almost a certainty.

Significantly, Avon had anti-corruption compliance programs in place but failed to follow through with a full investigation when initial internal reports uncovered potential violations.  This opened Avon up not only to Government prosecution, but teed up the derivative suit because those in charge were aware of potential violations but not make them known to investors or the general public.

While in the past establishing anti-corruption policies may have been sufficient to insulate an entity from certain FCPA violations.  Avon’s liability to both the Government and to its shareholders demonstrates that anti-corruption practices must remain effective and fully implemented if they are to offer any protection to the corporation.   U.S. corporations must be sure that their FCPA compliance programs are up-to-date, effectively disseminated to branches and subsidiaries, and, perhaps most importantly, expressly followed when issues arise.