The Compliance Defense Around The World

As highlighted in this prior post, numerous FCPA reform bills in the 1980's included a specific defense which stated a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents. An FCPA reform bill containing such a provision did pass the U.S. House, but was not enacted into law.

Amending the FCPA to include a compliance defense is one of the U.S. Chamber's FCPA reform proposals (see here). In November 2010, Andrew Weissman, on behalf of the Chamber, testified in favor of a compliance defense (and other reform proposals) during the Senate's FCPA hearing (see here for the prior post) and during the House hearing earlier this month (see here for the prior post), former Attorney General Michael Mukasey, on behalf of the Chamber, also testified in favor of a compliance defense (and other reform proposals).

During the House hearing, there appeared to be bi-partisan support for consideration of an FCPA compliance defense.

Even so, Greg Andres, testifying on behalf of the DOJ, stated that a potential FCPA compliance defense was "novel and risky" and that the "time is not right to consider it."

Public debate on a potential compliance defense has thus far focused, from a comparative standpoint, on the United Kingdom and Italy.

The purpose of this post is to further inform the public debate on a potential compliance defense by highlighting various compliance-like defenses around the world in other countries that are signatories (like the U.S.) to the OECD Anti-Bribery Convention.

This post is further to my work in progress - Revisiting an FCPA Compliance Defense - and represents hours of research analyzing 38 OECD Country Reports.

The post provides an overview of compliance-like defenses in the following OECD Convention signatory countries: Australia, Chile, Germany, Hungary, Italy, Japan, Korea, Poland, Portugal, Sweden, and Switzerland. [The U.K. Bribery Act, set to go live on July 1st, also contains a compliance-like defense in Section 7].

A first reaction might be - only 12 of the 38 OECD member countries have a compliance-like defense.

However, this number must be viewed against the backdrop of the following dynamics: (i) in many OECD Convention signatory countries, the concept of legal person criminal liability (as opposed to natural person criminal liability) is non-existent; and (ii) in many OECD Convention signatory countries that do have legal person criminal liability, such legal person liability can only result from the actions of high-level executive personnel or other so-called "controlling minds" of the legal person.

Obviously if a foreign country does not provide for legal person liability, there is no need for a compliance defense, and the rationale for a compliance defense is less compelling if legal exposure can result only from the conduct of high-level executive personnel or other "controlling minds."

When properly viewed against these dynamics, a compliance-like defense (whether specifically part of a foreign country's "FCPA-like" law or otherwise generally part of a foreign country's legal principles) is far from a "novel" idea, but rather common among OECD Anti-Bribery Convention signatory countries that - like the U.S. - have legal person criminal liability that can attach based on the conduct of non-executive officers or other "controlling minds."

[The below information is based strictly on OECD country reports and is subject to the qualification that in many instances the most recent information concerning a particular country may be several years old. If anyone has more recent information concerning any particular country, how the compliance defense in a particular country has worked in practice, or any other relevant information, please leave a comment on this site or contact me at mjkoehle@butler.edu]

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Australia

Australian law implementing the OECD Convention entered into force on December 18, 1999.

Thereafter, a section of the Criminal Code on corporate criminal liability came into full force establishing an organizational model for the liability of legal persons. “Bodies corporate” are liable for offences committed by “an employee, agent or officer of a body corporate acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority” where the body corporate “expressly, tacitly, or impliedly authorised or permitted the commission of the offence”.

Pursuant to the Criminal Code, authorisation or permission by the body corporate may be established in the following ways: (1) the board of directors intentionally, knowingly or recklessly carried out the conduct, or expressly, tacitly or impliedly authorised or permitted it to occur; (2) a high managerial agent intentionally, knowingly or recklessly carried out the conduct, or expressly, tacitly or impliedly authorised or permitted it to occur; (3) a corporate culture existed that directed, encouraged, tolerated or led to the offence; or (4) the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.

However, under the Criminal Code, “if a high managerial agent is directly or indirectly involved in the conduct, no offence is committed where the body corporate proves that it “exercised due diligence to prevent the conduct, or the authorisation or permission."

Chile

Chilean law implementing the OECD Convention entered into force on October 8, 2002.

In December 2009, a separate Chilean law entered into force establishing criminal responsibility of legal persons for a limited list of offences including bribery of foreign public officials.

In order for a legal person to be held responsible for a foreign bribery offence, the following “three cumulative requirements” must be satisfied: (1) the offence must be committed by a person acting as a representative, director or manager, a person exercising powers of administration or supervision, or a person under the “direction or supervision” of one of the aforementioned persons; (2) the offence must be committed for the direct and immediate benefit or interest of the legal entity. No offence is committed where the natural person commits the offence exclusively in his/her own interest or in the interest of a third party; and (3) the offence must have been made possible as a consequence of a failure of the legal entity to comply with its duties of management and supervision. An entity will have failed to comply with its duties if it violates the obligation to implement a model for the prevention of offences, or when having implemented the model, it was insufficient."

As to the final element, the OECD report states as follows. “The final cumulative requirement for responsibility stresses that the offence must have been made possible as a consequence of the failure of the legal person to comply with its duties of administration and supervision. The entity will have failed to comply with its duties if it violated the obligation to implement a model for the prevention of offences, or when having implemented the model, the latter was insufficient. It shall be considered that the functions of direction and supervision have been met if, before the commission of the offense, the legal person had adopted and implemented organization, administration and supervision models, pursuant to the following article, to prevent such offenses as the one committed.”

The minimum features of a prevention system under the law are as follows: identify the different activities or processes of the entity, whether habitual or sporadic, in whose context the risk of commission of the offences emerges or increases; establish protocols, rules and procedures that permit persons involved in above-mentioned activities or processes to program and implement their tasks or functions in a manner that prevents the commission of the indicated offences; identify procedures for the administration and auditing that allow the entity to impede their use in the listed offences; establish internal administrative sanctions, as well as procedures for reporting or pursuing pecuniary responsibility against persons who violate the prevention system; introduce the above-mentioned duties, prohibitions and sanctions into the internal regulations of the legal person, and ensure that they are known by all persons bound to apply it (workers, employees, and service providers).

The OECD report states - as to the minimum requirements as follows. “It also aims to introduce a system of self-regulation by companies. Having a code of conduct on paper will not be sufficient to avoid responsibility. If prosecutors can prove that the code does not meet the minimum requirements of or that it is not implemented, the company can be responsible for the offence.”

Under Chilean law, “the failure to comply with duties of management and supervision is an element of the offence rather than a defence. Therefore the burden of proof lies on prosecutors, i.e. it will be up to prosecutors to prove that the entity failed to comply with its duties of management and supervision.”

The OECD report notes as follows. “This will require prosecutors to prove that the company failed in the design and/or implementation of the offense prevention model including why, in the circumstances, the prevention model was insufficient. This would appear to also require the prosecutor to establish that this failure made perpetration of the offence possible.”

As noted in the OECD report, the Chilean “standard of liability is inspired from the Italian system of liability of legal persons" (discussed below).

Germany

German law implementing the OECD Convention entered into force on February 15, 1999.

German law establishes the liability of legal persons, including liability for the foreign bribery offence, under an administrative (i.e. non-criminal form) act.

Pursuant to the administrative act, “the liability of legal persons is triggered where any “responsible person” (which includes a broad range of senior managerial stakeholders and not only an authorised representative or manager), acting for the management of the entity commits i) a criminal offence including bribery; or ii) an administrative offence including a violation of supervisory duties which either violates duties of the legal entity, or by which the legal entity gained or was supposed to gain a “profit”.”

As noted in the OECD report, “in other words, Germany enables corporations to be imputed with offences i) by senior managers, and, somewhat indirectly, ii) with offences by lower level personnel which result from a failure by a senior corporate figure to faithfully discharge his/her duties of supervision.”

The OECD report states that the “standards for a violation of supervisory duties include consideration of factors such as whether the company has in place a monitoring system or in-house regulations for employees.”

Hungary

Hungarian law implementing the OECD Convention entered into force on March 1, 1999.

In 2004, a separate law was enacted specifying the individuals whose actions can trigger the liability of the legal person.

The OECD report states as follows. “The specific persons and additional conditions for liability are defined as follows: (i) the bribery is committed by one of the members or officers [of the legal entity] entitled to manage or represent it, or a supervisory board member and/or their representatives acting within the legal scope of activity of the legal person ; (ii) the bribery is committed by one of the members of the legal entity or an employee acting within the legal scope of activity of the legal person provided the bribery could have been prevented by the chief executive fulfilling his supervisory or control obligations; and (iii) the bribery is committed by a third party individual, provided that the legal entity’s member or officer entitled to manage or represent the it had knowledge of the facts.”

According to the OECD report, the relevant law does not provide any guidance as to the necessary degree of supervision to avoid liability for bribery.

Italy

Italian law implementing the OECD Convention entered into force on October 26, 2000.

Under Italian law, “criminal liability cannot be attributed to legal persons” however, “administrative liability may be attributed to legal persons for certain criminal offences (including foreign bribery) committed by a natural person.

The relevant administrative decree provides a “defence of organisational models” to a body which makes reasonable efforts to prevent the commission of an offence.

The OECD report states as follows. “… [A] body is not liable for offences committed by persons in senior positions if it proves the following. First, before the offence was committed, the body’s management had adopted and effectively implemented an appropriate organisational and management model to prevent offences of the kind that has occurred. Second, the body had set up an autonomous organ to supervise, enforce and update the model. Third, this autonomous organ had sufficiently supervised the operation of the model. Fourth, the perpetrator committed the offence by fraudulently evading the operation of the model.” The defence of organisation models operates as a full defence which completely exculpates a legal person.

The relevant administrative decree stipulates the essential elements of an acceptable organisational model described in the OECD report as follows. “First, the model must identify activities which may give rise to offences. Second, the model must define procedures through which the body makes and implements decisions relating to the offences to be prevented. It must also prescribe procedures for managing financial resources to prevent offences from being committed. Third, the model must oblige the internal organ responsible for supervision and enforcement to provide information to the body. Finally, the model must include a disciplinary system for non-compliance.”

Japan

Japanese law implementing the OECD Convention entered into force on February 15, 1999 .

“Under Japanese law, criminal responsibility of a legal person is based on the principle that the company did not exercise due care in the supervision, selection, etc. of an officer or employee to prevent the culpable act.

The burden rests on the legal person to prove that due care was exercised. Where a legal person raises the defence, a person must be identified as having exercised due care, etc., and the court must determine whether it was exercised properly having regard to the nature of the legal person and the circumstances of the case.”

Korea

Korean law implementing the OECD Convention entered into force on February 15, 1999.

Korean law establishes the criminal responsibility of legal persons for the bribery of a foreign public official, however, a legal person is exempt from liability where it has paid “due attention” or exercised “proper supervision” to prevent the offence.

The statute itself does not provide information about what constitutes “due attention” or “proper supervision.” A representative of the Supreme Public Prosecutor’s Office informed the OECD that “the exemption is triggered when a director or ‘superior person’ exercises due attention.” The Explanatory Manual published by the Ministry of Justice states that “it is difficult to standardize the extent of attention or supervision in deciding whether a legal person can be exempted from criminal punishment.” The Explanatory Manual further states that whether the exemption applies depends upon “general circumstances such as the motive and background that led to the bribery, intervention of exclusive members of the legal person, whether it was informed earlier, and how much effort was usually made by the corporation to prevent bribery, etc.” and that companies involved in international business must prevent violations of the law by all employees and executives of the company “through sufficient necessary management”.

Poland

Polish law implementing the OECD Convention entered into force on February 4, 2001.

Polish law provides “a noncriminal form of responsibility for collective entities.” Among the requirements for liability is the offence was committed “in the effect of at least absence of due diligence in electing the natural person [committing the act] or of at least the absence of due supervision over this person by an authority or a representative of the collective entity.”

According to the relevant Polish legislative history, “the perpetration of a prohibited act by a natural person will trigger liability of the
collective entity where the act occurred as a result of negligence on the part of the authority or representative of the collective entity.”

Portugal

Portuguese law implementing the OECD Convention entered into force on June 9, 2001.

Under Portuguese law relevant to corruption in international business transactions, legal persons can be liable for conduct committed “on their behalf and in the collective interest by natural persons occupying a leadership position within the legal person structure” or by “whoever acts under the authority” of such natural persons.

However, “[t]he liability of legal persons and equivalent entities is excluded when the actor has acted against the orders or express instructions of the person responsible.”

Sweden

Swedish law implementing the OECD Convention entered into force on July 1, 1999.

Under Swedish Law, only natural persons can commit crimes. However, pursuant to the Swedish Penal Code, a “kind of quasi-criminal liability is applied to an ‘entrepreneur’ (a general term meaning “any natural or legal person that professionally runs a business of an economic nature) for a ‘crime committed in the exercise of business activities.’”

However, one requirement under the Penal Code is that “the entrepreneur has not done what could reasonable be required of him for prevention of the crime.”

Switzerland

Swiss law implementing the OECD Convention entered into force on May 1, 2000.

Article 100quater of the Swiss Criminal Code requires “defective organisation as a condition for corporate criminal liability.”

In order to incur criminal liability, “the enterprise must not have taken all reasonable and necessary organisational measures to prevent the individual from committing the offence.”

Under Swiss law, the burden is on the prosecutor to furnish proof of defective organization and according to Swiss authorities contacted by the OECD “steps should be taken to assess whether employees have been sufficiently informed, supervised and controlled” and “the fact that an enterprise is organised in compliance with international management standards will not be sufficient to rule out all liability on its part; it will be one element to take into consideration among others …”. In the view of Swiss authorities, “ shifting the burden of proof in criminal cases would contravene Article 6 of the European Convention on Human Rights.”

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Johnson & Johnson Enforcement Action Focuses on Health Care Providers As "Foreign Officials"

That was quite the 72-hour period for FCPA enforcement last week. On Wednesday, it was JGC Corporation of Japan ($218.8 million in criminal fines). On Thursday, it was Comverse Technologies ($2.8 million in combined DOJ and SEC fines, penalties, and disgorgement). On Friday, it was Johnson & Johnson ($70 million in combined DOJ and SEC fines, penalties and disgorgement - plus approximately $7.9 million in a related U.K. Serious Fraud Office civil recovery).

This post analyzes the Johnson & Johnson enforcement action. Separate posts regarding the Comverse and JGC Corp. enforcement actions will follow later this week.

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Johnson & Johnson ("J&J), a global pharmaceutical, consumer product, and medical device company, resolved enforcement actions focused on business conduct in Greece, Poland, Romania. The enforcement actions also resolved an investigation of Johnson & Johnson subsidiary companies in the United Nations Oil for Food Program in Iraq.

The J&J enforcement action involved both a DOJ and SEC component. Total settlement amount was $70 million ($21.4 million criminal fine via a DOJ deferred prosecution agreement; $48.6 million in disgorgement and prejudgment interest via a SEC settled complaint).

This post summarizes the DOJ, SEC and SFO enforcement actions.

DOJ

The DOJ enforcement action involved a criminal information (here) against DePuy Inc. (a wholly-owned subsidiary of J&J and a global manufacturer and supplier of orthopedic medical devices) resolved through a deferred prosecution agreement (here).

Criminal Information

The background section of the information begins as follows. "Greece has a national healthcare system wherein most Greek hospitals are publicly owned and operated. Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their official capacities. Therefore, such HCPs in Greece are “foreign officials” as that term is defined in the FCPA."

The conduct at issue focuses on Depuy International. In 1998, J&J acquired DePuy, including its subsidiary Deputy International (a U.K. company).

According to the information, between 1998 through 2006, DePuy and others conspired to "secure lucrative business with hospitals in the Greek public health care system by making and promising to make corrupt payments of money and things of value to publicly-employed Greek HCPs."

The information alleges that "DePuy, its executives, employees, and subsidiaries agreed to sell products to Company X [an agent and distributor for DePuy and its subsidiaries in Greece until 2001 when it was acquired by DePuy and named DePuy Medec and later renamed DePuy Hellas] at a 35% discount, then paid 35% of sales by Company X to an off-shore account of Company Y [based in the Isle of Man and a consultant for DePuy International in Greece until 1999] in order to provide off-the-books funds to Agent A [a Greek national who was the beneficial owners of both Company X and Y] for the payment of cash incentives and other things of value to publicly-employed Greek HCPs to induce the purchase of DePuy products, while concealing the payments."

The information further alleges that "DePuy, its executives, employees, and subsidiaries agreed to pay Agent A and Agent B [a Greek national who acted as a consultant to DePuy International and DePuy Hellas] a percentage of the value of sales of DePuy products in Greece in order to provide funds to Agent A and Agent B for the payment of cash incentives and other things of value to publicly-employed Greek HCPs to induce the purchase of DePuy products, while concealing the payments."

The information further alleges that between 2002 and 2006 "approximately £500,000 was withdrawn by DePuy Hellas MD [a Greek National who was an employee of Company X until it was acquired by J&J when she became the Managing Director of DePuy Hellas] and others and used to cover payments owed to HCPs by the agents but not yet paid."

The information charges as follows. "In total, from 1998 to 2006, defendant DePuy, DePuy International, and their related subsidiaries and employees, authorized the payment, directly or indirectly, of approximately $16.4 million in cash incentives to publicly-employed Greek HCPs to induce the purchase of DePuy products. In order to conceal the payments, DePuy Hellas and DePuy International falsely recorded the payments in their books and records as “commissions.”"

As to a U.S. nexus, the information describes the following: certain phone calls made to Executive B (a U.S. citizen and officer and senior executive of DePuy) in Indiana to discuss the Company X acquisition and due diligence on Greek Agent A; e-mails sent to Executive B in Indiana regarding Agent A or Greek business in general; e-mails Executive A (a British citizen who was an officer and senior executive in charge of DePuy at the time it was purchased by J&J and who retained that position until 1999 when he became a senior executive at J&J retaining control of DePuy and its related operating companies) sent or received in New Jersey regarding Agent A.

Based on the above allegations, the information charges: (i) a conspiracy to violate the FCPA's anti-bribery and books and records provisions; and (ii) a substantive FCPA anti-bribery violation.

DPA

The DOJ's charges against DePuy were resolved via a deferred prosecution agreement (dated January 14, 2011) between the DOJ and J&J, its subsidiaries, and its operating companies "relating to illegal conduct committed by certain J&J operating companies and subsidiaries." In addition to DePuy Inc., other operating companies named are Cilag AG International and Janssen Pharmaceutica N.V.

Pursuant to the DPA, J&J admitted, accepted and acknowledged "that it is responsible for the acts of its officers, employees, and agents, and wholly-owned subsidiaries and operating companies" as set forth in a Statement of Facts attached to the DPA.

The term of the DPA is three years and it states that the DOJ entered into the agreement based on the following factors.

(a) J&J voluntarily and timely disclosed the majority of the misconduct described in the Information and Statement of Facts [Note - the Iraq Oil for Food conduct was not voluntarily disclosed];

(b) J&J conducted a thorough internal investigation of that misconduct;

(c) J&J reported all of its findings to the Department;

(d) J&J cooperated fully with the Department’s investigation of this matter;

(e) J&J has undertaken substantial remedial measures as contemplated by [the DPA];

(f) J&J has agreed to continue to cooperate with the Department in any investigation of the conduct of J&J and its directors, officers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to violations of the FCPA and related statutes;

(g) J&J has cooperated and agreed to continue to cooperate with the SEC and, at the direction of the Department, foreign authorities investigating the conduct of J&J and its directors, officers, employees, agents, consultants, subsidiaries, contractors, and subcontractors relating to corrupt payments;

(h) J&J has cooperated and agreed to continue to cooperate with the
Department in the Department’s investigations of other companies and individuals in connection with business practices overseas in various markets;

"(i) J&J has also agreed to resolve related cases being investigated by the SEC and the United Kingdom Serious Fraud Office (the “SFO”); and

(j) Were the Department to initiate a prosecution of J&J or one of its operating companies and obtain a conviction, instead of entering into this Agreement to defer prosecution, J&J could be subject to exclusion from participation in federal health care programs pursuant to 42 U.S.C. § 1320a-7(a).

With respect to the corporate compliance reporting obligations imposed on J&J by the DPA, the agreement states as follows.

(i) J&J has already engaged in significant remediation of the misconduct described in the Statement of Facts and reviewed and improved its compliance program and implementation thereof;

(ii) J&J conducted an extensive, global review of all of its operations to determine if there were problems elsewhere and has reported on any areas of concerns to the Department and the SEC;

(iii) J&J has and will undertake enhanced compliance obligations
described in [the DPA];

(iv) J&J’s cooperation during this investigation and its substantial assistance in investigations of others has been extraordinary; and

(v) J&J had a pre-existing compliance and ethics program that was effective and the majority of problematic operations globally resulted from insufficient implementation of the J&J compliance and ethics program in acquired companies."

As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $28.5 million to $57 million. Pursuant to the DPA, J&J agreed to pay a monetary penalty of $21.4 million (25% below the minimum amount suggested by the guidelines). The DPA states as follows. "J&J and the Department agree that this fine is appropriate given J&J’s voluntary and thorough disclosure of the misconduct at issue, the nature and extent of J&J’s cooperation in this matter, penalties related to the same conduct in the United Kingdom and Greece, J&J’s cooperation in the Department’s investigation of other companies, and J&J’s extraordinary remediation."

Pursuant to the DPA, J&J agreed to self-report to the DOJ "periodically, at no less than six-month intervals" during the term of the DPA "regarding remediation and implementation of the compliance measures" described in the DPA.

As is standard in FCPA DPAs, J&J agreed not to make any public statement "contradicting the acceptance of responsibility" by J&J as set forth in the DPA.

The Statement of Facts attached to the DPA include, in addition to the Greece conduct described above, conduct relating to Poland, Romania and in connection with the U.N. Oil for Food Program in Iraq.

Poland

As to Poland, the DPA states, in summary fashion as follows.

"Poland has a national healthcare system. Most Polish hospitals are owned and operated by the government and most Polish HCPs [health care providers] are government employees providing health care services in their official capacities. Therefore, most HCPs in Poland are “foreign officials” as defined by the FCPA."

"Polish hospitals purchase their medical products through a tender process, whereby suppliers of medical products compete for business by submitting bids to tender committees. Each tender committee may be associated with one or more hospitals."

"In general, the tender committees evaluate the competitive bids and select the winning supplier for each purchase. Because most Polish hospitals are government owned, the tender committees effectively determine, on behalf of the government, from whom the government will purchase medical products."

"J&J Poland [a wholly owned subsidiary of J&J] made payments and provided things of value to publicly-employed Polish HCPs, in the form of “civil contracts,” travel sponsorships, and donations of cash and equipment, to corruptly influence the decisions of HCPs on tender committees to purchase medical products from J&J Poland."

As to civil contracts, the DPA states as follows.

"J&J Poland engaged in professional services contracts with publicly-employed Polish HCPs, known as “civil contracts.” The contracts were purportedly for professional services including lecturing, leading workshops, and conducting clinical trials."

"J&J Poland did not require that its sales representatives provide proof that the work, for which payment had been made, was actually ever performed."

"From January 2000 until June 2006, J&J Poland awarded civil contracts to publicly-employed Polish HCPs to corruptly influence them, in their official capacities as members of tender committees, in order to induce those HCPs to select, or favorably influence the selection of, J&J Poland as the winning supplier in tender processes."

As to travel, the DPA states as follows.

"J&J Poland sponsored some publicly-employed Polish HCPs to attend conferences in order to corruptly influence them, in their official capacities as members of tender committees, in order to induce the HCPs to select, or favorably influence the selection of, J&J Poland as the winning supplier in tender processes."

As to "Total Improper Payments in Poland," the DPA states as follows.

"In total, from in or around 2000 to in or around 2007, J&J Poland and its employees authorized the payment, directly or indirectly, of approximately $775,000 in improper payments, including direct payments and travel, to publicly-employed Polish HCPs to induce the purchase of J&J products."

Romania

As to Romania, the DPA states as follows.

"The national healthcare system in Romania is almost entirely state-run. The healthcare system is funded by the National Health Care Insurance Fund (“CNAS”), to which employers and employees make mandatory contributions. Most Romanian hospitals are owned and operated by the government and most HCPs in Romania are government employees. Therefore, most HCPs in Romania are “foreign officials” as defined by the FCPA."

"From in or around 2005 through in or around 2008, J&J Romania [a wholly owned subsidary] employees made arrangements with J&J Romania distributors for the distributors, on behalf of J&J Romania, to provide cash payments and gifts to publicly-employed Romanian HCPs in exchange for prescribing certain pharmaceuticals manufactured by J&J subsidiaries and operating companies."

As to "Total Improper Payments in Romania," the DPA states as follows.

"In total, from in or around July 2005 to in or around mid-2008, J&J Romania and its employees authorized the payment, directly or indirectly, of approximately $140,000 in incentives to publicly-employed Romanian HCPs to induce the purchase of pharmaceuticals manufactured by J&J subsidiaries and operating companies."

Oil for Food Program

As to the U.N. Oil for Food Program, the DPA states as follows.

"Between in or around December 2000 and in or around March 2003, Janssen [a wholly-owned subsidiary of J&J headquarted in Belgium] and Cilag [a wholly-owned subsidiary of J&J headquartered in Switzerland] were awarded 18 contracts for the sale of pharmaceuticals to the Iraqi Ministry of Health State Company for Marketing Drugs and Medical Appliances (“Kimadia”) under the [Oil for Food Program], with a total contract value of approximately $9.9 million, which generated approximately $6.1 million in profits. Janssen and Cilag secured these contracts through the payment of approximately $857,387 in kickbacks to the government of Iraq."

"The kickbacks were paid to the government of Iraq through JC-Lebanon Agent [a Lebanese citizen who was an agent for both Janssen and Cilag in Iraq]. The kickbacks were concealed from the United Nations by inflating Janssen and Cilag’s contract prices by 10%."

The DPA concludes with a section titled "Books and Records" that states as follows.

"In order to conceal the payments to the Greek, Polish, and Romanian HCPs on the books and records of J&J and its subsidiaries, the payments were misrepresented as, among other things, “commissions,” “civil contracts,” “travel,” “donations,” and “discounts.”"

"In order to conceal the kickback payments made to the Iraqi government through JC-Lebanon Agent for contracts under the OFFP on the books and records of Janssen and Cilag, the payments were misrepresented as “commissions.”"

"At the end of J&J’s fiscal year from in or around 1998 to in or around 2007, the books and records of DePuy International, DePuy Hellas, J&J Poland, J&J Romania, Janssen, and Cilag, including those containing false characterizations of kickback and bribe payments given to the Iraqi government and Greek, Polish, and Romanian officials, were incorporated into the books and records of J&J for purposes of preparing J&J’s year-end financial statements, which were filed with the Securities and Exchange Commission."

The DOJ's release (here) states as follows.

"Johnson & Johnson has admitted that its subsidiaries, employees and agents paid bribes to publicly-employed health care providers in Greece, Poland and Romania, and that kickbacks were paid on behalf of Johnson & Johnson subsidiary companies to the former government of Iraq under the United Nations Oil for Food program. Johnson & Johnson, however, has also cooperated extensively with the government and, as a result, has played an important role in identifying improper practices in the life sciences industry. As [the DPA] reflects, we are committed to holding corporations accountable for bribing foreign officials while, at the same time, giving meaningful credit to companies that self-report and cooperate with our investigations." "The agreement recognizes J&J’s timely voluntary disclosure, and thorough and wide-reaching self-investigation of the underlying conduct; the extraordinary cooperation provided by the company to the department, the SEC and multiple foreign enforcement authorities, including significant assistance in the industry-wide investigation; and the extensive remedial efforts and compliance improvements undertaken by the company. In addition, J&J received a reduction in its criminal fine as a result of its cooperation in the ongoing investigation of other companies and individuals, as outlined in the U.S. Sentencing Guidelines. J&J’s fine was also reduced in light of its anticipated resolution in the United Kingdom. Due to J&J’s pre-existing compliance and ethics programs, extensive remediation, and improvement of its compliance systems and internal controls, as well as the enhanced compliance undertakings included in the agreement, J&J was not required to retain a corporate monitor, but it must report to the department on implementation of its remediation and enhanced compliance efforts every six months for the duration of the agreement."

SEC

The SEC's civil complaint (here) is based on the same core set of facts contained in the above DPA and alleges, in summary, as follows.

"This matter concerns violations of the Foreign Conupt Practices Act by J&J as a result of the acts of its subsidiaries to obtain business for J&J's medical device and pharmaceutical segments."

"Since at least 1998 and continuing to early 2006, J&J's subsidiaries, employees and agents paid bribes to public doctors in Greece who selected J&J surgical implants for their patients. Further, J&J's subsidiaries and agents paid bribes to doctors
and public hospital administrators in Poland who awarded tenders to J&J from 2000 to 2006. J&J's subsidiaries and agents also paid bribes to public doctors in Romania to prescribe J&J pharmaceutical products from 2002 to 2007. Finally, J&J's subsidiaries and agent paid kickbacks to Iraq in order to obtain contracts under the United Nations Oil for Food Program ("Program") from 2000 to 2003."

As to Greece, the SEC complaint alleges as follows.

"One of J&J's product lines is surgical implants such as artificial knees, hips and other products that surgeons implant into patients. Surgical implants are a lucrative, but competitive business. In many countries, orthopedic surgeons control which implants they use."

"In 1998, J&J acquired another medical device company, DePuy Inc., a NYSE company. A top DePuy executive then went on to become a top J&J executive in the United States in J&J's medical device and diagnostics business ("Executive A"). At the time of the acquisition, DePuy was engaged in a widespread bribery scheme in Greece to sell its implants. Executive A and DPI executives knowingly continued that scheme. From 1998 to 2006, J&J earned $24,258,072 in profits on sales obtained through bribery."

The SEC complaint alleges that "J&J's internal audit group discovered the payments to Greek doctors in early 2006 after receiving a whistleblower complaint." According to the complaint, "the issue of payments to surgeons had been previously raised in an anonymous 2003 letter to a different internal audit team concerning a related J&J subsidiary in Greece ... however, that team concentrated their investigation on allegations about a possible conflict ofinterest by local management and J&J did not fully investigate the alleged payments to doctors."

As to Poland, the SEC complaint alleges as follows.

"Employees of ... a J&J subsidiary, bribed publicly-employed doctors and hospital administrators to obtain business. [Subsidiary] executives running three business lines oversaw the creation of sham contracts and travel documents and also the creation of slush funds as a means to funnel bribe payments to doctors and
administrators. From 2000 to 2006, J&J earned $4,348,000 in profit from its sales through the bribery."

"The bribery appears to have stopped when Polish prosecutors began to investigate payments to doctors."

As to travel issues, the SEC complaint alleges as follows.

"[Subsidiary] also paid for public doctors and hospital administrators to travel to medical conventions in Poland and abroad in order to influence tender committee decisions in their favor. Sponsored doctors were taken on trips in exchange for influencing the doctors' decisions to purchase J&J's medical products or to award hospital tenders to J&J. Some of the trips were to the United States for conferences. Some of the trips were to tourists areas in Europe, and some included spouses and family members to what amounted to vacations."

As to Romania, the SEC complaint alleges as follows.

"Employees of ... a J&J subsidiary, bribed publicly-employed doctors and pharmacists to prescribe J&J products that the company was actively promoting. The employees worked with [the subsidiary's] local distributors to deliver cash to publicly-employed doctors who ordered J&J drugs for their patients. [The subsidiary] also provided travel to certain doctors who agreed to prescribe J&J products. From 2000 to 2007, J&J earned $3,515,500 in profit from its sales through the bribery."

As to Iraq Oil for Food conduct, the SEC complaint alleges as follows.

"J&J participated in the Program through two of its subsidiaries, Cilag AG International and Janssen Pharmaceutica N.V. (collectively "Janssen-Cilag"). During the program, Janssen-Cilag sold pharmaceuticals to an arm of the Iraqi Ministry of Health known as Kimadia. Janssen-Cilag conducted business with Kimadia in Iraq through a Lebanese agent (the "Agent"). The Agent's primary contact with the J&J companies was an area director at Janssen-Cilag's office in Lebanon."

"In total, secret kickback payments of approximately $857,387 were made in connection with nineteen Oil for Food contracts. The payments were made through the Agent to Iraqi controlled accounts in order to avoid detection by the U.N. The fee was effectively a bribe paid to the Iraqi regime, which were disguised on J&J's books and records by mischaracterizing the bribes as legitimate commissions."

"In order to generate funds to pay the bribes and to conceal those payments, Janssen-Cilag and its agent inflated the price of the contracts by at least ten percent before submitting them to the U.N. for approval. J&J's total profits on the contracts were $6,106,255."

Under the heading "Anti-Bribery Violations" the complaint alleges as follows.

"J&J, through its subsidiaries and agents, knowingly allowed its employees and third parties to pay Greek and Polish public doctors and public hospital administrators for the purpose of obtaining or retaining business."

"Executive A, a U.S. resident and a senior executive at J&J, approved the arrangements with the Greek Agent in Greece. Executive A and DPI executives knew that the Greek Agent was bribing Greek doctors. In addition, Polish doctors were bribed to use J&J products in return for trips. Use of the mails and interstate commerce was also used to facilitate the bribery schemes in both Greece and Poland."

Under the hearing "Failure to Maintain Its Books and Records" the complaint alleges as follows.

"J&J's subsidiaries made numerous illicit payments for the purpose of obtaining contracts in Iraq, Romania, Greece, and Poland. J&J's books and records did not reflect the true nature of those payments. For example, they did not record that a portion of its payments to the Greek and Iraqi agents constituted reimbursements for bribes, and they did not record the true terms of the civil contract payments to Polish doctors. Efforts were made to obscure the purpose of trips to the United States and abroad. Certain J&J subsidiaries created false contracts, invoices, and other documents to conceal the true business arrangement it had with its consultants and distributors to pay bribes. False travel documents were created, and petty cash was used to pay bribes. United Nations contracts were also falsified."

Under the heading "Failure to Maintain Adequate Internal Controls," the complaint alleges as follows.

"J&J failed to implement internal controls to detect or prevent bribery. The conduct was widespread in various markets, Greece, Poland, Romania, and Iraq. The conduct involved employees and managers of all levels. False documents were routinely created to conceal the bribery in each country."

"Rather than cease the bribery that was happening at DePuy prior to J&J's acquisition, J&J through its subsidiaries, employees and agents allowed the bribery to continue. They created sham businesses and entered into contracts that were merely
conduits to allow the bribery to flourish. They failed to conduct due diligence on the Greek Distributor. The Company also paid its consultant outside of Greece to avoid detection of bribery. The Company had two different J&J corporate entities make
payments to the Greek Agent to conceal the amount of money that was being funneled to
doctors as bribes."

"[Polish subsidiary] entered into fake civil contracts with Polish doctors and J&J also created false travel arrangements in Poland and Romania to create slush funds."

"Cilag and Janssen paid bribes to Iraq despite the fact that trade sanctions were in place against doing business in Iraq. Cilag and Janssen falsified their contracts with the United Nations to conceal the kickbacks being paid to Iraq."

Based on the above allegations, the SEC charged J&J with FCPA anti-bribery violations and FCPA books and records and internal control violations.

Without admitting or denying the SEC's allegations, J&J agreed to an injunction prohibiting future FCPA violations and agreed to pay $38,227,826 in disgorgement and $10,438,490 in prejudgment interest.

The SEC's release (here) contains the following statement from Robert Kuzami (Director of the SEC's Division of Enforcement): “The message in this and the SEC’s other FCPA cases is plain – any competitive advantage gained through corruption is a mirage. J&J chose profit margins over compliance with the law by acquiring a private company for the purpose of paying bribes, and using sham contracts, off-shore companies, and slush funds to cover its tracks.” In the release, Cheryl Scarboro (Chief of the SEC Enforcement Divisions FCPA Unit) stated as follows. “Bribes to public doctors can have a detrimental effect on the public health care systems that potentially pay more for products procured through greed and corruption.”

The SEC release states as follows.

"J&J voluntarily disclosed some of the violations by its employees and conducted a thorough internal investigation to determine the scope of the bribery and other violations, including proactive investigations in more than a dozen countries by both its internal auditors and outside counsel. J&J’s internal investigation and its ongoing compliance programs were essential in gathering facts regarding the full extent of J&J’s FCPA violations."

SFO

On the same day as the above U.S. enforcement actions, the U.K. SFO announced (here) a Civil Recovery Order against DePuy International Limited "in which DePuy International Limited will pay £4.829 million [approximately $7.9 million], plus prosecution costs, in recognition of unlawful conduct relating to the sale of orthopaedic products in Greece between 1998 and 2006."

According to the SFO release, the SFO "launched an investigation into the activities of DePuy International Limited in October 2007 following a referral from the DOJ." Richard Alderman, Director of the SFO, stated as follows. "When Johnson & Johnson reported the DePuy corruption, the DOJ informed the SFO of issues within our jurisdiction. We worked with the DOJ to find a solution that served both the interests of justice and the company's desire to put illegal activity behind it and move on. I believe the order approved [...] will illustrate to other companies how the SFO works closely with organisations across the world in enforcing the highest ethical standards, but is willing to engage and listen to companies that come to us with problems and help them find solutions."

The SFO release further states as follows. "On the facts of this case, criminal sanction of the Greek conduct has been achieved by the conclusion of a Deferred Prosecution Agreement with DePuy International Limited's parent company and the DOJ. The Director of the Serious Fraud Office has concluded that a prosecution was therefore prevented in this jurisdiction by the principles of double jeopardy. The underlying purpose of the rule against double jeopardy is to stop a defendant from being prosecuted twice for the same offence in different jurisdictions. The DOJ Deferred Prosecution Agreement has the legal character of a formally concluded prosecution and punishes the same conduct in Greece that had formed the basis of the Serious Fraud Office investigation. [...] Consequently the Serious Fraud office is satisfied that the most appropriate sanction is a Civil Recovery Order, under the Proceeds of Crime Act 2002."

As highlighted in this prior post, in April 2010, former DePuy executive Robert Dougall pleaded guilty to conspiring with others "to make corrupt payments and/or give other inducements" to "medical professionals within the Greek state health care system" contrary to Section 1 of the UK Prevention of Corruption Act of 1906.

*****

Eric Dubelier (Reed Smith - see here - a former DOJ enforcement attorney) represented J&J.

J&J's press release (here) notes as follows. "In 2007, Johnson & Johnson voluntarily disclosed to the DOJ and the SEC that subsidiaries outside the United States were believed to have made improper payments in connection with the sale of medical devices. In the course of comprehensive compliance efforts and reports into the Company, similar issues in additional markets and businesses were identified and brought to the attention of the agencies." William Weldon, Chairman and Chief Executive Officer of J&J stated as follows. "More than four years ago, we went to the government to report improper payments and have taken full responsibility for these actions. We are deeply disappointed by the unacceptable conduct that led to these violations. We have undertaken significant changes since then to improve our compliance efforts, and we are committed to doing everything we can to ensure this does not occur again. I know that these actions are not representative of Johnson & Johnson employees around the world who do what is honest and right every day, in the conduct of our business and in service to patients and customers worldwide. We will continue to demonstrate that Johnson & Johnson is a company that embraces responsible corporate behavior."

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