Chinese pharmaceutical company Sinovac Biotech disclosed that it is investigating possible violations of the U.S. Foreign Corrupt Practices Act (FCPA). The disclosure is noteworthy because none of the possible violations are believed to have occurred in the United States nor is the company based here. Federal law, however, extends the enforcement reach of the SEC and Justice Department to any company that lists it shares of stock on a U.S. exchange. Sinovac Biotech shares are available through Nasdaq.
Sinovac Biotech Faces Heat both in the US and China.
This month the company issued a press release acknowledging that several of its sales reps were being investigated for bribery of public officials. According to the release,
“In June 2017, the Company became aware of certain judgments based on bribery charges issued by Chinese courts in four provinces against various officials of the Chinese Center for Disease Control (the “CDC”). While these judgments appear to reflect an industrywide investigation focused on CDC officials, they also referenced eight of the Company’s former and current salespersons.”
Neither the company nor any of its officers and directors were named in the Chinese prosecution.
Prior to the press release, the company notified the SEC in May of this year that it could not complete its 2016 annual report because of an internal audit believed related to the corruption probe. After Sinovac publicly announcing the bribery investigation, the SEC issued a subpoena to the company.
Jurisdiction under the Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act allows prosecutors to punish companies and individuals that solicit, accept, offer or pay bribes to foreign government officials. Most US laws can only be enforced if a violation takes place in the United States. The FCPA, however, extends that jurisdiction in several unique ways.
In the case of Sinovac Biotech, it does not matter where the illegal behavior took place. The SEC’s jurisdiction in this case is based on the company’s securities which are available on a US stock exchange. Foreign companies that sell shares here are required to register and file with the SEC. That gives the government jurisdiction to investigate and prosecute events that take place outside the country.
American companies are also subject to the Act, again without regard to where the violations take place.
Finally, a foreign company with no securities sold in the U.S. could also be prosecuted here if any portion of the crime took place here.
The United States is not alone in its desire to stamp out corruption. Most developed nations have similar laws. It is not uncommon for several countries to prosecute foreign corruption cases simultaneously.
Elements of an FCPA Violation
The common thread in all FCPA cases is the bribery or attempted bribery of a foreign government official. In this case, the apparent bribery of Chinese Center for Disease Control (CDC) employees.
Because many hospital officials in China are public employees, we have seen similar cases involving pharma companies bribing hospital officials. Those cases usually involve attempts to get a hospital to use a certain drug instead of one offered by a competitor. Sometimes, however, the intent of the bribery is more sinister. We are aware of one case where the bribes were made to get hospital officials to fudge the results of clinical trials.
Many believe that the government should not meddle in affairs that take place outside the U.S. and that don’t involve U.S. companies. Foreign corruption, however, hurts legitimate companies who are trying to compete on an uneven playing field. When drug trials are involved, it can also put patient safety at risk.
Sinovac Biotech, Big Pharma, Whistleblower Awards and Foreign Bribery
The FCPA investigation against Sinovac Biotech is not the first time that big pharma has found itself being investigated for foreign corruption.
Last December, Teva Pharmaceuticals agreed to pay $519 million to settle charges that the company bribed government officials in Mexico, Ukraine and Russia. Last year also saw several other FCPA cases against pharmaceutical companies including:
- September 2016 GlaxoSmithKline $20 million – Chinese officials
- August 2016 AstraZeneca $5 million – China and Russia
- March 2016 Novartis $25 million – China
- March 2016 Nordion – Russia
- February 2016 SciClone Pharmaceuticals – China
The pharmaceutical industry has a sordid reputation when it comes to bribery and corruption. Considering the public safety risks, the sheer number of corruption probes involving big pharma is alarming.
Standing up to big pharma’s insatiable greed is the SEC and Justice Department. Unfortunately, catching bribes is a very difficult task. That is why whistleblowers are so important.
Most cases for accounting improprieties and foreign bribery schemes comes to light because of concerned employees – whistleblowers. The SEC’s whistleblower program provides cash incentives to these company insiders that come forward and report foreign bribery incidents.
The awards vary between 10% and 30% of whatever the government collects from wrongdoers. Considering that the average FCPA fine is in the millions or tens of millions of dollars, the awards can be huge. Some penalties have exceeded $100 million dollars!
We are often asked, “Do I need to live in the U.S. or be a U.S. citizen to collect an award”? The good news is “no.” With most pharmaceuticals being manufactured in China and India, there is no problem in paying whistleblowers anywhere in the world.
The one limitation on awards is that the whistleblower must not be the leader of the bribery scheme. You can’t break the law, bribe a foreign official and then be awarded by the SEC for turning yourself in!
While no whistleblower program comes with a 100% guarantee of confidentiality, the SEC has a phenomenal track record of keeping the identity of whistleblowers secret. Should one’s identity become known, the SEC’s whistleblower program has powerful anti-retaliation rules. Although a U.S. court can’t order a foreign company in a foreign country to reinstate employees, courts and the SEC do have some ability to force these companies to pay retaliation damage awards and legal fees to victims of illegal retaliation.
Want more information? Visit our FCPA Foreign Bribery information page. You can also contact us directly to see if you have a case. The author of this post, attorney Brian Mahany, can be reached at or by phone at (direct).
Whistleblowers with information about cGMP violations, pay to delay off label use violations may be entitled to even larger awards. We encourage anyone with inside information about these schemes to call. Your confidentiality is protected by the attorney – client privilege.