Taking its medicine
Aug 11th 2012 | NEW YORK |
IN AMERICA, it was once common for drug firms to offer doctors “perks” to encourage them to prescribe their pills. Regulators now frown on such iffy sales techniques, and drug firms have more or less stopped using them. But in emerging markets, it is a different story, as a settlement on August 7th between America’s Department of Justice and Pfizer, a big American drug firm, made clear.
Unfortunately for Pfizer, such acts violated the Foreign Corrupt Practices Act (FCPA), an American law that criminalises bribery abroad. Doctors in many of the countries in question are state employees, making the gifts bribes to government officials. This week Pfizer agreed to pay a fine to settle corruption charges and to disgorge related illegally earned profits to the Securities and Exchange Commission. The settlement, which will cost it $60m or so, covers similar offences committed by Wyeth, another drug firm, before it was acquired by Pfizer in 2009.
Johnson & Johnson, another big drugmaker, paid $70m last year to settle civil and criminal bribery charges. On August 6th Teva, an Israeli firm that is the world’s largest generic drugmaker, said it was co-operating with SEC investigators. Indeed, eight of the world’s ten biggest drug firms have warned of potential costs related to charges of corruption in markets abroad, according to Reuters. So Pfizer’s behaviour seems to have been normal for the industry, not an aberration.
Citing the settlement, regulators will crow that the FCPA is being enforced more vigorously than at any time since it became law in 1977. They will also hope that it is evidence that their new carrot-and-stick approach is starting to work. Most successful prosecutions in the past have been the result of whistle-blowing or a lucky break; regulators have long suspected that many companies have publicly supported the law while privately turning a blind eye to dodgy activities abroad, doubtless assuming that they would never be caught. The new approach is designed to encourage companies to police themselves, by punishing them only lightly when they turn themselves in.
The relatively small fine imposed on Pfizer was the Justice Department’s way of showing that firms that co-operate will be treated leniently, says Ben Heineman of Harvard’s Kennedy School of Government. Pfizer has gone out of its way to placate prosecutors: it has been co-operating on the case since 2004, helping to identify illegal practices throughout its industry. It also oversaw the process that uncovered the misbehaviour at Wyeth.
The regulators have accepted Pfizer’s claim that the offences were committed by local staff acting without the knowledge of head office in America. This follows April’s decision by the SEC to charge a senior executive at Morgan Stanley, a bank, with corrupt activity in Shanghai, but not to impose legal penalties on the bank, which tipped off regulators about its rogue employee. A few more examples of such regulatory forbearance and perhaps business will get the message.