US foreign bribery penalties may lack bite

Oct 30 2012, 02:08 IST
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SummaryGlobal drugmakers are paying tens of millions of dollars to settle U.S. allegations that they bribed their way across emerging markets, but harsher penalties may be needed to deter the practice in untapped regions where billions are at stake.

Global drugmakers are paying tens of millions of dollars to settle U.S. allegations that they bribed their way across emerging markets, but harsher penalties may be needed to deter the practice in untapped regions where billions are at stake.

Federal authorities have cast a wide net to weed out suspected gift-giving and kickbacks to foreign doctors and government officials to gain a foothold in burgeoning new markets in Asia, Eastern Europe and Latin America.

At least eight of the world's top 10 drugmakers, including Bristol-Myers Squibb Co, Pfizer Inc and Johnson &, have disclosed U.S. probes under the 1977 Foreign Corrupt Practices Act (FCPA).

Pfizer agreed to pay $60 million this year to settle FCPA charges and J&J reached a $70 million settlement last year.

Pfizer is on track to record $10 billion in sales from emerging markets this year, while J&J said Brazil, Russia, India and China accounted for just under 10 percent of the $65 billion in sales it reported last year.

With so much at stake outside of established markets in the United States and Europe, s ome experts say fines like these are hardly a deterrent.

The $60 million fine for Pfizer to a lay person sounds like quite a bit of money, but in perspective it took less than two days of Lipitor sales during its peak. It's really just chump change for them, said Michael Leibfried, a senior analyst with market research consulting firm GlobalData. The cholesterol pill at its height was a $13 billion a year cash cow for Pfizer.

Kara Brockmeyer, chief of FCPA investigations within the Securities and Exchange Commission's enforcement division, said the SEC and Department of Justice make a considerable effort to ensure penalties are appropriate and a deterrent. And there has yet to be a repeat FCPA prosecution.

The SEC relies on legal provisions that call for disgorgement of profits based on ill-gotten gains plus penalties. Companies that report violations and cooperate with authorities are often rewarded with penalty reductions.

I would hate to think the companies view enforcement actions as the cost of doing business, Brockmeyer told Reuters. If we find that out, it will certainly increase the size of the penalty, she said.

The law firm Shearman & Sterling, which puts out a semi-annual report tracking FCPA enforcement, found that penalties across all industries have averaged less than $20 million.

In 2009 Danish insulin maker Novo Nordisk paid $9 million for FCPA violations, while medical device maker

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