Summary: In late August, a federal district court approved the SEC's settlements with Pfizer and Wyeth in a long-running FCPA investigation; weeks earlier, one of Pfizer's subsidiaries settled parallel FCPA charges with the DOJ. The settlements are noteworthy among FCPA settlements given their unique charges, jurisdictional hook, and settlement terms. Accordingly, this client alert provides our perspectives on the significance of these settlements. The alert also provides an overview of other recent anti-corruption developments, namely Transparency International's report on global enforcement of the OECD Anti-Bribery Convention and the SEC's final rule requiring that resource extraction issuers disclose in SEC filings certain payments to US or foreign governments.
The DOJ and SEC recently settled a trilogy of FCPA cases with Pfizer Inc. (which is a publicly traded "issuer"), Pfizer H.C.P. Corporation (one of Pfizer's US subsidiaries), and Wyeth LLC (an issuer which Pfizer acquired in 2009).1 Collectively, the cases settled for $60 million: the DOJ settlement involved a $15 million DOJ criminal fine against Pfizer H.C.P., and the SEC settlements involved $45.2 million in disgorgement of ill-gotten gains and prejudgment interest against Pfizer Inc. and Wyeth LLC.2 The collective sum places the settlement as the largest in 2012 to date.
The DOJ's charges against Pfizer H.C.P. alleged bribes in Bulgaria, Croatia, Kazakhstan, and Russia that were of two varieties: (1) payments to physicians and other healthcare practitioners at government-owned hospitals to improperly influence prescription practices, and (2) payments to officials of government healthcare committees to improperly secure drug-related approvals or placement on hospital formularies. The DOJ alleged that the bribes spanned nine years; totaled approximately $2 million; were made directly or via third-party intermediaries; and took the form of cash, gifts, entertainment, and support for domestic and international travel. Many of the bribes involved relatively small sums, with the more sizeable payment centered on an exclusive distribution contract, valued at $500,000, that Pfizer H.C.P. allegedly entered while knowing that all or part of the contract's value would be provided to a high-level Kazakh official involved in granting product registrations to Pfizer. Based on all the alleged bribes, the DOJ charged Pfizer H.C.P. with conspiracy to violate the FCPA's accounting and anti-bribery provisions and a substantive violation of the anti-bribery provisions.3
The SEC, whose jurisdiction generally is limited to issuers, charged Pfizer Inc. as the issuer/parent of Pfizer H.C.P. The SEC's charges against Pfizer Inc. were narrower than the DOJ's charges in that the SEC civilly alleged violations only of the FCPA's accounting provisions. Absent from the SEC's charges were alleged violations of the anti-bribery provisions, likely because, as the SEC's charging papers state, there was no evidence that anyone at Pfizer Inc. knew of the alleged bribes (to bring anti-bribery charges, the SEC must allege the issuer had knowledge of the corrupt payments, whereas no knowledge requirement exists for civil charges under the accounting provisions). In another respect the SEC's charging papers were more expansive than the DOJ's papers in that the SEC explicitly discussed the conduct in the countries cited in the DOJ's charges, as well as bribes in China, the Czech Republic, Italy, and Serbia. The SEC also brought charges for inadequate internal controls.4 As for Wyeth, the SEC alleged that its corporate books and records misrecorded bribes in China, India, Pakistan, and Saudi Arabia, and that Wyeth maintained inadequate internal controls.5
In sum, the DOJ and SEC settlements were based on a range of payments in 11 countries that have been perennial FCPA hotspots.6 The charges against Pfizer therefore serve as a reminder of the FCPA risks confronted by companies operating in reputedly corrupt countries. The Pfizer settlement also involved the following notable developments:
Books & Records-Related Charge Against Subsidiary of an Issuer: As a general principle, the FCPA's accounting provisions impose criminal and civil liability only against issuers that fail to maintain accurate books and records and/or adequate internal controls.7 In the criminal settlement, however, the DOJ bootstrapped a conspiracy charge to allege that Pfizer H.C.P. (a non-issuer) conspired to violate the books and records requirement.8 The DOJ's theory was that Pfizer H.C.P. conspired with its employees and agents to knowingly misrecord bribes on its corporate books, which when consolidated with Pfizer Inc.'s books, caused misrecordings on the books of Pfizer Inc.9 The DOJ's charge parallels the SEC's efforts where the SEC has civilly charged non-issuers (e.g., Panalpina, KBR, and Snamprogetti) for aiding-and-abetting and causing violations of the FCPA's books and records provision.10 The Pfizer DOJ settlement, coupled with those SEC settlements in other contexts, demonstrate the creeping ways that the DOJ and SEC may pursue a non-issuer in connection with violations of the FCPA books and records provision.
The DOJ's Use of Alternative Jurisdiction: The Pfizer settlement marks what appears to be the first instance where the DOJ invoked the alternative jurisdiction provision against a US company.11 The provision, which was added to the FCPA anti-bribery section in 1998, expands the DOJ's jurisdiction over US companies and individuals by imposing potential liability absent any US territorial nexus; in other words, jurisdiction can be premised merely on a company's or individual's status as a US national. For Pfizer H.C.P., the DOJ's charging papers allege no corrupt conduct within the United States, and accordingly the DOJ explicitly invoked its alternative jurisdiction authority. The Pfizer settlement is the rare instance where a US company was prosecuted under the FCPA's anti-bribery provisions for a bribe to a foreign official that lacked any territorial connection to the United States.
Implications of Representative Office Status: The charges against Pfizer H.C.P. demonstrate how corporate structure and form can impact liability under the anti-bribery provisions. Specifically, the DOJ charged Pfizer H.C.P. because the bribes were paid by its representative offices in Bulgaria, Croatia, and Kazakhstan.12 In contrast, had the representative offices been organized as freestanding foreign subsidiaries, Pfizer H.C.P. would have been deemed a corporate body independent of those subsidiaries and therefore may well have avoided FCPA charges altogether. In addition, the alternative jurisdiction provision just discussed extends only to US...