Novartis settles for $340m – Greek subsidiary violated the FCPA

Author: Stavroula Verda

Yet another bribery case violating the FCPA has been resolved through a Deferred Prosecution Agreement; Novartis Hellas S.A.C.I., a Greek subsidiary of Novartis A.G., has settled to avoid any further prosecution relevant to its illegal practices involving corrupt payments and their concealment. Another success to detect or failure to prevent corruption?

Novartis Hellas has agreed to a criminal fine of $225 million for violations of the Foreign Corrupt Practices Act of 1977, in a settlement concluded on June 25, 2020. The company admitted the anti-bribery as well as the books and records provisions violation of the FCPA between “in or about 2012 and in or about 2015”. While not a defendant in this matter, the parent company, Novartis A.G., agreed to pay $92.3 million in disgorgement and a prejudgement interest of $20.5 million, amounting to a settlement of $337.8 million in total. In settling with the US Department of Justice and the US Securities and Exchange Commission, Novartis Hellas has accepted and taken responsibility for all allegations described in the Statement of Facts as accurate. At the same time, this settlement prevents any further case, civil or criminal, against Novartis A.G. and/or its subsidiaries, in relation to these acts. Nonetheless, it does not provide protection to individuals and any potential prosecution against them, regardless of their affiliation to the company. In short, the matter is now considered resolved and Novartis A.G. can no longer be prosecuted as an entity; however, individuals involved in the case could be further prosecuted despite the settlement.

Who exposed the corrupt acts of Novartis Hellas?

Novartis Hellas did not voluntarily self-disclose and, therefore, did not receive a voluntarily disclosure credit. The case was brought forward in 2016 and 2017 when three Greek citizens, and ex-employees of Novartis Hellas, blew the whistle and reported wrongdoing within their workplace including, among others, corrupt payments made to healthcare providers in both state-owned and private institutions.

What did Novartis Hellas do?

According to the settlement, Novartis Hellas has agreed to take responsibility for violating:

  • the anti-bribery provisions of the FCPA, as amended, Title 15, United States Code, Section 78dd-3, through making and/or promising to make corrupt payments to foreign officials with the purpose to influence their acts, have them violate their duties and exercise their influence on foreign governments in favour of Novartis Hellas businesses.
  • the books and records provision of the FCPA, as amended, Title 15, United States Code, Sections 78m(b)(2)(A), 78m(b)(5), and 78ff(a), through knowingly falsifying records, and falsely recording corrupt payments as legitimate advertising and promotion expenses in Novartis Hellas’s internal accounting records, concealing their true nature.

Namely, Novartis Hellas employees approached and made corrupt payments to healthcare practitioners in order to increase prescriptions of Novartis branded drugs (such as Lucentis) and, therefore, Novartis’s sales. As mentioned earlier, healthcare practitioners accepting bribes were either working at state-owned or private hospitals. In reference to the Greek Health Care System and state-owned and/or state-controlled hospitals, any individual employed by these institutions is a “foreign official” within the meaning of the FCPA 5 U.S.C. § 78dd-3(f)(2)(A).

Were Greek government officials involved in the Novartis Hellas scandal?

In late 2016, Greek authorities begun an investigation into the accusations made against Novartis Hellas, notwithstanding the allegations involving several members of the Greek parliament in the bribery scheme between 2012 and 2015, when Nea Dimokratia was the governing party. Following these allegations, Nea Dimokratia, now as the opposition party in 2016, described the matter as a conspiracy and denied any involvement in the scheme. In 2017, Chief Corruption Prosecutor, Mrs. Eleni Raikou, resigns amidst the investigation and after claiming that she has been targeted by “unofficial power centres” while been offered insufficient “institutional protection” in her role. Investigations with reference to the involvement of Greek politicians continued up until late 2019, and the cases against certain Nea Dimokratia party members were archived in the beginning of 2020. Being an opposition party between 2015 and mid 2019, Nea Dimokratia was re-elected as the governing party in July 2019.

Even though Novartis has released a public statement, following the published DPA, according to which “today’s resolutions contain no allegations relating to any bribery of Greek politicians, which is consistent with what Novartis found in its own internal investigation”, neither the DOJ nor the SEC have provided input on this as such input would be outside their jurisdiction. Therefore, the settlement provides us with facts in relation to Novartis Hellas violating the FCPA provisions as those were described above; it neither identifies nor rejects any political involvement in the bribery scheme.

And now what?

According to the settlement, Novartis Hellas, as well as Novartis A.G., showcased that they have implemented a compliance and ethics programme, and they have also agreed to continuously enhance such programmes and internal controls aiming at the prevention and detection of further violations of the FCPA and/or other anti-corruption laws, as required by the Foreign Corrupt Practices Act of 1977 in all similar settlements and DPAs. The same was supported in Novartis’s statement as the company stated that it “has strengthened its governance by adopting principles-based compliance policies, reinforced its speak-up culture so associates can more effectively raise concerns about potential misconduct, and combined its risk management and compliance functions to enable more effective risk management and mitigation efforts”.

Stavroula Verda is an MSc student in Counter Fraud and Counter Corruption at the University of Portsmouth and a junior researcher with a great interest in the areas of compliance, corruption, fraud, and anti-money laundering.