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Novartis pays $25 million to SEC to resolve China FCPA offenses

Pharma giant Novartis AG agreed Wednesday to pay $25 million to settle charges that it violated the Foreign Corrupt Practices Act when two China-based subsidiaries bribed doctors and others to prescribe its drugs. 

Novartis subsidiaries gave money and gifts to doctors and other health care professionals in China. The bribes led to several million dollars in sales to China state health institutions, the SEC said.

The SEC settled the case through an internal administrative order and didn’t go to court.

Novartis improperly recorded the payments as travel and entertainment, conferences, lecture fees, marketing events, educational seminars, and medical studies.

For example, the SEC order said,

[I]n 2011, two sales representatives submitted fake receipts for approximately $8,100 as part of their employee expense reimbursement requests, which were approved by a regional sales manager. The proceeds were used to entertain and provide gifts to [health care professionals].

Novartis didn’t admit or deny the SEC findings.

It agreed to disgorge $21.5 million and pay $1.5 million in prejudgment interest, and a $2 million penalty.

Novartis AG is based in Basel, Switzerland. It trades on the NYSE under the symbol NVS. It sells its prescription and over-the-counter drugs in 180 countries and has about 120,000 employees.

The China units involved were Shanghai Novartis Trading Ltd (also known as Sandoz China) and Beijing Novartis Pharma Co Ltd.

The SEC said Novartis “failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect and prevent the schemes.”

The SEC said,

In 2009, Sandoz China sponsored twenty Chinese [health care providers] to attend the American College of Surgeons 95th Annual Clinical Congress in Chicago. While the Clinical Congress was devoted to educational purposes, the [health care 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 doctors and gave them $150 in “pocket” or “walking around” money. And it paid cover charges at a strip club, the SEC said.

As part of Wednesday’s resolution, Novartis agreed to provide status reports to the SEC for the next two years on its “remediation and implementation of anti-corruption compliance measures.”

*     *     *

The SEC’s Securities Exchange Act of 1934 Release No. 77431, Accounting and Auditing Enforcement Release No. 3759, and Administrative Proceeding File No. 3-17177 In the Matter of Novartis AG (all dated March 23, 2016) are here (pdf).


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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1 Comment

  1. This is unsurprising when you consider that the Country Chairman publicly blogged about having been out entertaining doctors, acknowledging that he probably wasn't supposed to have done so, before rounding off the blog with the comment: "Fu*k Compliance".

    Needless to say the HQ Comms and Compliance functions made sure the blog was quickly removed, but otherwise no sanction. That sends a very strong message to his China organization…

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