Global Anticorruption Alert: DOJ Targets Pharmaceutical Industry and Individuals for FCPA Enforcement
Enforcement of the Foreign Corrupt Practices Act ("FCPA") continued to grow last week. On Thursday, November 12, a senior Department of Justice ("DOJ") official predicted increased scrutiny of the pharmaceutical industry under the FCPA. A day later, prosecutors obtained a 13-year sentence for a former U.S. Congressman convicted of conspiring to violate the law. These and other developments highlight important questions regarding the standard by which knowledge under the FCPA will be measured. If the DOJ continues to take the position that a mere failure to investigate possible bribery can give rise to FCPA liability, then businesses will face heightened risks in their overseas operations.
DOJ Warns the Pharmaceutical Industry
The Assistant Attorney General for the DOJ's Criminal Division warned pharmaceutical industry executives to expect an increase in FCPA investigations and prosecutions. Lanny Breuer stated during a speech to the Pharmaceutical Regulatory and Compliance Congress:
Consider the possible range of "foreign officials" who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a "foreign official" within the meaning of the FCPA.
Breuer indicated that prosecutors and agents responsible for investigating health care fraud and the FCPA would be combining forces to crack down on bribery in the pharmaceutical industry overseas, and that senior executives would not be immune from such prosecution. Breuer's announcement appears consistent with the DOJ's ongoing effort to target individuals. Just last September, the prosecutor in charge of FCPA prosecutions at the DOJ told the Corporate Crime Reporter that the recent rise in individual prosecutions reflects an intentional effort on the part of the government to develop a "credible deterrent effect" under the FCPA.
While the resources and prosecutorial efforts announced by Breuer are noteworthy, the government's focus on the pharmaceutical and health care business is not surprising. In recent years, U.S. enforcement authorities have been approaching FCPA prosecutions on an industry-by-industry basis, as demonstrated by the series of investigations and prosecutions relating to oil exploration and related services in recent years. As to the pharmaceutical industry in particular, the FCPA risks associated with overseas sales are well known. See C. Cook and J. Leiken, "Legal: Foreign Policy -- Drug Companies Doing Business Abroad," Pharmaceutical Executive (June 2007); C. Cook and J. Witten, "Pharma Companies Face Scrutiny Over Foreign Physician Relationships," Pharmaceutical Executive (May 2006).
Former U.S. Representative William Jefferson Sentenced to 13 Years' Incarceration
One individual prosecution came to a close on Friday, November 13, 2009, when a federal judge sentenced former U.S. Representative William Jefferson to 13 years in prison. The government had sought a sentence of 27 to 33 years.
Jefferson was convicted in August of conspiring to solicit bribes, deprive citizens of his honest services, and violate the FCPA. He was acquitted on the substantive counts of violating the FCPA and obstructing justice. The charges against Jefferson arose from allegations that he paid bribes to Nigerian officials in order to secure business contracts for certain American companies. In 2005, government agents raided Jefferson's house and discovered $90,000 hidden in his freezer. Jefferson is the first and only United States public official to have been convicted of charges relating to the FCPA.
The FCPA's "Willful Blindness" Standard
The deliberate effort to prosecute more individuals under the FCPA brings to the forefront the question of how much knowledge is necessary for an individual to be held responsible for a bribe that was paid by someone else. That is, what constitutes "willful blindness" in the face of evidence suggesting that bribes are being paid? The answer will determine the level of risk that executives and companies face when doing business overseas.
Although the FCPA prohibits only knowing violations of the law, knowledge can be proven by evidence of "willful blindness." As Congress indicated when it amended the statute in 1988, the FCPA is intended to prohibit actions that "demonstrate evidence of a conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to high probability of violations of the Act."
The DOJ appears to take an expansive view of "willful blindness." For example, prosecutors in the case of United States v. Green took the position in proposed jury instructions that a person acts knowingly under the FCPA if he is aware of a high probability that a bribe will be paid and "fails to take action to determine whether it is true or not." A narrower interpretation of the statute would impose liability only if a person took deliberate steps to avoid learning that a bribe would be paid. The latter reading of the statute arguably would be more consistent with Congress's apparent intent when it clarified the standard in 1988, making clear that "simple negligence" or "mere foolishness" should not violate the FCPA.
Because the precise knowledge standard under the FCPA remains in doubt, companies operating overseas would be well advised to take a conservative approach when gauging risk. All such companies should be aware that the DOJ may seek to impose liability for a failure to investigate evidence that a bribe will be paid. Regardless of whether that is the appropriate legal standard under the FCPA, the risk of investigation suggests that compliance policies be crafted around the lower standard of knowledge advocated by the DOJ.
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