Insights into special areas of interest in corruption investigations for pharmaceutical and medical device companies.

1. ANATOMY OF A CORRUPTION
INVESTIGATION FOR PHARMACEUTICAL
AND MEDICAL DEVICE COMPANIES
LEGAL & COMPLIANCE ISSUES
1
European Healthcare Compliance Certification
Program
20 November 2014
European Healthcare Compliance
Certification Program
November 18, 2015

2. Topics
I. Overview of the Global Bribery Enforcement
Landscape
II. The Seven Steps of US DOJ’s Enforcement
Process
III. Special Areas of Interest
IV. Internal Investigations and Government
Inquiry

3. I. Overview
“[C]orrupt countries are less safe.
Corruption thwarts economic
development, traps entire populations in
poverty, and leaves countries without a
credible justice system. Corrupt officials
who put their personal enrichment
before the benefit of their citizenry
create unstable countries. And as we
have seen time and again, unstable
countries become the breeding grounds
and safe havens for terrorist groups and
other criminals who threaten the
security of the United States.”
Assistant US Attorney General Leslie Caldwell
North Carolina, 23 October 2014

4. I. Overview
“There is, of course, no ‘off the rack’ compliance program that can be
installed at every company. Effective compliance programs must be
tailored to the unique needs and risks faced by each company. But there
are hallmarks of good compliance programs: 1. High-level commitment .
. . ; 2. Written Policies . . . ; 3. Periodic Risk-Based Review . . . ; 4. Proper
Oversight and Independence . . . ; 5. Training and Guidance . . . ; 6.
Internal Reporting . . . ; 7. Investigation . . . ; 8. Enforcement and
Discipline . . . ; 9. Third-Party Relationships . . . ; and 10. Monitoring and
Testing. As I said, there is no ‘one-size fits all’ compliance program. But
these are guideposts that we consider important to the success of a
strong program.”
Assistant US Attorney General Leslie Caldwell
Washington, DC, 1 October 2014

5. Healthcare Industry Initiative
• “The depth of government involvement in foreign health
systems, combined with fierce industry competition
creates risk.”
• Since 2009, DOJ has brought approximately 50 cases.
Exclusive FCPA jurisdiction in Criminal Division, Fraud
Section. (30 prosecutors). FBI created unit of dedicated
agents in NY, DC and LA. SEC dedicated additional
resources to enforcement.
• As of June 2014, over 20% of all known DOJ and SEC
investigations involved pharmaceutical and device
companies.
• US Enforcement Supervisors:
– P. Stokes, DOJ Deputy Chief
o former AUSA from EDVA with over 10 years
prosecutorial experience; and
– K. Brockmeyer, SEC FCPA Chief
o previously handled Siemens AG, Magyar Telekom
and Deutsche Telekom.

6. Healthcare Industry Initiative
“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.”
Former Assistant US Attorney General Lanny
Breuer
Washington, DC, 2009

7. Over 120 Known On-Going FCPA Investigations;
Healthcare Companies Reported by Trace Int’l to be
Under Investigation by US Enforcement as of October 2014
7
1) ABBOT
2) ACTAVIS
3) ASTRAZENECA
4) BAUSCH &
LOMB
5) BAXTER
6) BAYER
7) BIOMET
8) BIOTEST AG
9) BRISTOL-MYERS
SQUIBB
10) DEPUY
11) DERMAPHARM
12) DIAGNOSTIC
PRODUCTS
13) ELI LILLY
14) FRESENIUS
MED
15) GLAXOSMITHKL
INE
16) GRIFOLS S.A.
17) HEALTHSOUTH
18) MEAD
JOHNSON
19) MEDTRONIC
20) NOVARTIS AG
21) NOVO NORDISK
22) ORTHOFIX
23) PFIZER
24) PFIZER-WYETH
25) SCICLONE
26) SMITH &
NEPHEW
27) STRYKER
28) SYNCOR
29) TALECRIS
30) TEVA PHARM
31) WRIGHT
MEDICAL
32) ZIMMER

8. Pharmaceutical & Medical Device
Enforcement by US Department of Justice
• BioRad agreed to pay US$55 million to settle allegations that company failed to detect $7.5
million in corrupt payments to foreign officials in Russia, Vietnam and Thailand.
• J&J agreed to pay US$78 million to settle allegations that it violated the FCPA related to payments
in Greece, Poland, and Romania.
• Smith & Nephew agreed to pay US$16.8 million to resolve FCPA charges related to improper
payments.
• Biomet Inc. agreed to pay nearly US$22.9 million in criminal penalties to resolve charges that it
paid bribes to health care providers in China and Latin America.
• Orthofix Int’l NV agreed to pay US$7.4 million to settle SEC charges involving alleged bribes paid
in Mexico.
• Pfizer Inc. agreed to pay US$60 million to resolve criminal FCPA charges involving improper
payments to government officials in Bulgaria, Croatia, Kazakhstan, and Russia.
• Teva Pharmaceutical Ltd. announced that DOJ and SEC were conducting an investigation with
respect to alleged FCPA issues in Latin America. Teva is the largest generic drug manufacturer in
the world.

9. DOJ/SEC FCPA Enforcement through 2014

11. US Enforcement Actions

12. US Enforcement Actions Against Individuals

13. Duration of an FCPA Investigation: Historic
13

14. Duration of US Investigations: Average 7+ Years
14
CASE & DOCKET NUMBER
TYPE OF
RESOLUTION
DATE OF LAST
CIMINAL ACT
DATE OF RESOLUTION TIME TO RESOLVE
U.S. v. Weatherford Services, Ltd.:
Docket No. 13-CR-734 (S.D. TX)
DPA 9/2007 11/26/13 6 years
U.S. v. Weatherford International Ltd.:
Docket No. 13-CR-733 (S.D. TX)
PLEA 9/2006 11/26/13 7 years
U.S. v. Bilfinger SE: Docket No. 4-13-CR-745
(S.D. TX)
DPA 6/2005 12/9/13 8.5 years
U.S. v. Alcoa World Alumina LLC: Docket
No. 14-CR-007-DWA (W.D. PA)
PLEA 6/2005 1/19/14 8.5 years
U.S. v. Marubeni Corporation: Docket No.
14-CR-052-JBA (D. Conn)
PLEA 10/2009 3/19/14 4.5 years
U.S. v. ZAO Hewlett-Packard A.O.: Docket
No. CR-14-201-DLJ (N.D. CA) PLEA 12/2003 4/9/14 11 years
U.S. v. Hewlett-Packard Polska, SP. Z O.O.:
Docket No. CR-14-202-EJD (N.D. CA)
DPA 6/2009 4/9/14 5 years
U.S. v. Hewlett-Packard Mexico, S. de R.L.
de C.V. (2014)
NPA 3/2009 4/9/14 5 years
U.S. v. Avon Products, Inc.: Docket No: 14-
CR-828-GBD (S.D. NY)
DPA 6/2008 12/17/14 6.5 years
U.S. v. Avon Products (China) Co. Ltd.:
Docket No: 14-CR-828-GBD (S.D. NY) PLEA 6/2008 12/17/14 6.5 years
U.S. v. Alstom Network Schweiz AG.:
Docket No: 14-CR-245-JBA (D. Conn)
PLEA 5/2007 12/22/14 7.5 years
U.S. v. Alstom S.A., et al.:
Docket No: 14-CR-246-JBA (D. Conn)
PLEA 5/2007 12/22/14 7.5 years
U.S. v. Alstom Grid, Inc.: Docket No: 14-CR-
247-JBA (D. Conn)
DPA 3/2004 12/22/14 10.5 years
U.S. v. Alstom Power, Inc.: Docket No: 14-
CR-248-JBA (D. Conn)
DPA 5/2007 12/22/14 7.5 years

15. 15
Yates Memo: DOJ Focus on Individual Targets
• OUTLINES 6 Requirements of Corporate Resolutions:
• 1. MUST ID Responsible Individuals
• 2. Crim and Civ Investigators Must Focus on Individuals
• 3. Crim and Civ Investigators Must Coordinate
• 4. Individuals will NOT be released from liability
• 5. No corporate resolutions without "clear plan" to
charge responsible individuals
• 6. Civ Attorneys should focus on and bring suit against
individuals regardless of their ability to pay
• Consequences:
• Investigations will take longer
• Individual cooperation in internal investigation dicey
• Communication with Prosecutors Key

16. II. U.S. Department of Justice Investigatory Process in (7 Steps)
1. Receipt of Information by US (FBI, DOJ, SEC)
2. DOJ and FBI access ability to access witnesses, documents and data (May
confer with Foreign prosecutors and agents)
3. FBI confirms or refutes information
4. DOJ sends inquiry to company or declines
5. DOJ requests company analyze conduct and disclose
6. FBI compares disclosed materials to investigatory findings
7. Resolution decisions (Declination, Agreed Terms, or Indictment)

17. Step 1: FBI Receives Information
Step 1: FBI Receives Information
• Where do the cases come
from?
• Whistleblowers
• Voluntary Self-Reporting
• Cooperating Individuals or
Companies
• News Media

18. Step 2: DOJ and FBI Confer with
Foreign Prosecutors and Agents
regarding Access to Witnesses,
Documents and Data Regarding ess
to Witnesses, Documents and Data
• How do the authorities keep in
touch?
• Who takes the lead?
• How do they coordinate?

19. S
Step 3: FBI Confirms or Refutes
Information 3: FBI Confirms or Refutes
Information
• What are the sources of information used
to confirm or refute the allegations?
• How does the government investigate?
– Documents and other records,
witnesses, surveillance, search
warrants, etc?

20. Step 4: DOJ Decides to Send Inquiry to Company or Decline
• What form does an inquiry to the
company take?
•To whom is it addressed?
• What factors are weighed by DOJ to
pursue or decline?

21. Step 5: DOJ requests company to analyze, conduct investigation,
and disclose
• What records, witnesses or other
information are requested?
• Who should conduct the company’s
investigation?
– The company itself?
– Outside counsel?
– Forensic accounting firm or other
experts?
• What are the roles of the company’s
business representatives, lawyers,
compliance staff?

22. Step 6: FBI Compares Disclosed Materials to Investigatory Findings
• What is the relationship between the FBI,
DOJ and SEC?
• What factors are important to the FBI?
• What role does a the apparent
effectiveness of company’s compliance
program play?
• If misconduct is confirmed…
– What difference is there between a
situation where the company knew or
should of known of the misconduct and
the situation where fraud on the
company funded fraud on the
government?

23. Step 7: Resolution decisions (Declination, Agreed Terms or Indictment)
• How do matters come to
resolution?
• What are the considerations?
• What factors are essential to
– DOJ, SEC, Foreign
Authorities?
• What do recent FCPA
settlements look like?
- Deferred Prosecution
Agreement
- Corporate Monitor

24. III. Special Areas of Interest
• Value Exchanges
• Clinical Trials
• Third Parties
• Friends and Family

25. Special Areas of Interest – Value Exchanges
• Consulting arrangements
• Product development agreements
• Educational grants
• Research grants
• Support for medical congress attendance
• Product training
• Gifts
• Travel, lodging, meals
• Samples, free goods
• Third party intermediaries
• Compliance considerations
– Legitimate, documented business need
– Selection based on qualifications,
– Documented due diligence
– Compensation at fair market value
– Payment or funding not contingent on purchasing
or recommendations
– Travel lodging and meal expenses reasonable,
modest, documented, in line with company policies,
industry standards
– Locations conducive to the exchange of business or
scientific information
– Recreation, entertainment, attendance at sporting
events generally prohibited
– Proper documentation has sufficient detail to
enable proper recordkeeping

26. Special Areas of Interest – Clinical Trials
• “Red Flags”
– Clinical trial coordinators and teams chosen by marketing personnel instead of by medical/research staff
– Other evidence that prescribing behaviour is taken into account when decision is made to engage the investigator
– Local market personnel can sponsor trials or studies (either pre-approval or post-marketing) without notice to or approval by
parent company headquarters medical staff
– Inadequate or weak due diligence and visibility into role of clinical trial investigators in official/governmental roles
– Payments to individual investigators instead of institutions
– Lack of approvals by local hospital, university, peer review or other applicable Independent review boards
– Lack of fair-market value analysis for payments
– Payments through intermediaries that provide no distinct value add or other legitimate role in the transaction
– Lack of publishable data arising out of the study
– Other grounds for concern,
• Requests by an official exercising discretionary authority in one realm to be hired or to have others hired for clinical trial
work
• “Parceling” payments to avoid limits of authority,
• Payments routed through bank secrecy jurisdictions
• Payments to investigators in high-risk jurisdictions

27. Special Areas of Interest – Third Parties
• Companies often liable for acts of
3rd Parties
– "Third-Party Intermediary”
• Individual who or entity that a
company engages to provide
goods or services to or on
behalf of a company
• What can we learn about 3rd
party due diligence from
recent Deferred Prosecution
Agreements?
Key Areas:
• Payments to intermediary must meet
legitimate business need, services must be
performed, payment at fair market value
• Payments should not be in cash
• No “slush funds”
• Payments should not conceal identity of
ultimate beneficiary
• Payments should be in US or local currency
to local bank
• Travel and hospitality expenses of third party
– Require documentation
– Consider requiring advance approval in
appropriate circumstances

28. 28
Special Areas of Interest: Friends and Family
• BNY Mellon : SEC 8/15 Enforcement Action
as company provided "valuable student
internships to family members of [Middle
Eastern] foreign government officials."
• JP Morgan Chase: According to NY Times
bank under FCPA investigation for hiring
children of Chinese government officials

29. IV. Internal
Investigations and Government Inquiry
• Understand enforcement landscape
– Key players and issues
• Identify and correct potential violations
• Institute global compliance
• If contacted
– Establish and maintain credibility with key players
– Thorough investigation and comprehensive disclosure
– Answer questions that are asked
– Assure one-time global resolution

30. • Institute global compliance
– The world is a big place…
Customs, practices, understanding and
enforcement vary.
How can you implement “global
compliance” in view of these
differences?
Internal Investigations and Government Inquiry

31. Internal Investigations and Government Inquiry
• If contacted
– Have an Action Plan in place
– Establish and maintain credibility with
key players
– Thorough investigation and
comprehensive disclosure
– Answer questions that are asked
– Assure one time global resolution

32. Internal Investigations and Government Inquiry
• Identify and correct potential
violations
– What are the indicia of a comprehensive
investigation and thorough disclosure?
o Ringfence
o Remediation
o Wrongdoers
– What is the “dynamic” between the
government and the company?
o Defense counsel?
o In-house counsel?
o Business leaders?
o Compliance staff?
and Government Inquiry

33. Key Take-Aways
I. US Law enforcement continues to increase focus on healthcare;
II. US DOJ process is thorough and deliberate, but generally based on law firm
internal investigation and extent of cooperation;
III. Compliance department effectiveness can be key factor in driving outcome;
IV. Compliance should be aware of issues relating to competitors;
V. Focus compliance on Value Exchanges, Clinical Trials, and Third Party
Intermediaries;
VI. During Internal Investigations
A. Understand the landscape
B. Assure effective compliance program
C. Maintain credibility with key players

34. Discussion -- Case Scenario:
• The company has engaged a clinical research organization (CRO) to
undertake studies necessary for licensing authorizations. The CRO is also is
responsible for engaging institutions and investigators. The payment to the
CRO consists of a large up-front payment as well as “pass through”
payments for expenses. A relative of the Prime Minister is hired to
administer the pass through payments.
• What risk does this arrangement present to the company engaging the CRO?
• What steps should that company take to minimize those risks?
• What should you do if CRO declines request for on-site audit as required by
contract?

35. 35
Questions?
•Paul E. Pelletier
•Mintz Levin
•pepelletier@mintz.com
•202-434-7490