Pfizer Inc.’s “extraordinary cooperation” in disclosing and dealing with a subsidiary’s improper payments to foreign officials helped the company obtain a deferred prosecution agreement for violations of the Foreign Corrupt Practices Act.

On Aug. 7, Pfizer settled two parallel investigations by the DoJ and the Securities and Exchange Commission for a total of $60 million. It agreed to pay a $15 million penalty to resolve the DoJ investigation and to pay $26.3 million in disgorgement of net profits and prejudgment interest to resolve the SEC probe. Pfizer’s Wyeth subsidiary separately agreed to pay $18.9 million in disgorgement of net profits and prejudgment interest in the SEC case.

The DoJ said its $15 million penalty is a 34% reduction off the bottom of the recommended U.S. sentencing guidelines fine range.

The settlements come eight years after the company voluntarily disclosed misconduct of its subsidiaries to the SEC and DoJ. The agencies noted that the company subsequently took extensive remedial actions, including a comprehensive worldwide review of its compliance program.

“The actions which led to this resolution were disappointing, but the openness and speed with which Pfizer voluntarily disclosed and addressed them reflects our true culture and the real value we place on integrity and meeting commitments,” Pfizer Exec VP and General Counsel Amy Schulman stated in a release.

The DoJ and SEC agreed that it was not necessary for Pfizer to appoint an independent compliance monitor.

Pfizer said that under the deferred prosecution agreement, it will continue to maintain its anti-corruption systems and innovative compliance program, which includes the proactive market reviews and trend analyses it pioneered approximately five years ago.

Pfizer announced in a quarterly SEC filing in November 2011 that it had reached agreements-in-principle with DoJ and SEC staff to resolve FCPA issues.

The Pfizer settlements indicate the level of liability pharmaceutical companies face in FCPA investigations and the benefit of taking preemptive action.

Pfizer Senior Corporate Counsel Karl Buch emphasized the importance of communicating with the government about potential violations at a public meeting last year. He also cited the risk of acquiring FCPA liability with the purchase of other companies, noting that Pfizer gained FCPA problems in six or seven countries when it acquired Wyeth in 2009 Also see "DoJ Bull’s Eye: Off-Label Promotion, Formulary Placements, FCPA Violations Remain Targets" - Pink Sheet, 19 December, 2011..

Pfizer is not the only firm in prosecutorial crosshairs because of this issue. The government initiated an industry-wide probe of pharmaceutical companies for FCPA violations several years ago. Johnson & Johnson reached a similar $70 million settlement with the DoJ and SEC last year. It also entered a deferred prosecution agreement with the DoJ and was recognized by the government for cooperating with the probe Also see "J&J Takes The Lead In Settling SEC/DoJ Foreign Corrupt Practices Act Probe" - Pink Sheet, 8 April, 2011..

Several companies have reported that they are under investigation for FCPA matters, including Merck & Co. Inc., Eli Lilly & Co., Bristol-Myers Squibb Co. and AstraZeneca PLC. Most recently, Teva Pharmaceutical Industries Ltd. noted in an August SEC filing that it had received a subpoena from the SEC in July for documents concerning compliance with the FCPA in Latin America. Teva said it is cooperating with the government and conducting “a voluntary investigation into certain business practices which may have FCPA implications.”

Pfizer Subsidiaries Paid More Than $2 Million In Bribes

As part of its deferred prosecution agreement with Pfizer’s indirect subsidiary Pfizer H.C.P. Corp., the DoJ filed a criminal information complaint against the unit in the U.S. District Court for the District of Columbia. Following Pfizer’s acquisition of Pharmacia Corp. in 2003, Pharmacia’s international operations were combined with Pfizer’s and incorporated into Pfizer H.C.P.

The DoJ settlement covers improper payments Pfizer H.C.P. made in Bulgaria, Croatia, Kazakhstan and Russia. DoJ said the subsidiary admitted that between 1997 and 2006, it paid more than $2 million of bribes to government officials in these countries and as a result of these payments earned more than $7 million.

Examples of improper payments included “incentive trips” to Greece in which Pfizer H.C.P. Bulgaria sales representatives were rewarded for achieving their sales goals and permitted to invite government doctors as guests; consulting agreements with a Croatian official to obtain regulatory approvals; and payments to get pharmaceutical products in tenders or on formulary lists.

Separately, the SEC filed charges against Pfizer and its Wyeth subsidiary alleging that subsidiaries in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia and Serbia made improper payments to foreign officials to obtain regulatory and formulary approvals, sales, and increased prescriptions of the company’s products. The SEC complaint against Pfizer said the misconduct occurred from at least 2001 through 2007.

For example, the complaint says that from February 1997 until May 2003, Pharmacia Croatia made monthly payments of approximately $1,200 per month to the Austrian bank account of a doctor who served as a member of several Croatian government committees that oversaw the registration and reimbursement of pharmaceutical products. The complaint cites a memo of a senior manager of Pharmacia Croatia saying the doctor was expected to ensure that all Pharmacia’s products were approved for registration and reimbursement.

Pfizer China Provided Travel Support To Chinese Doctors

In addition, the complaint states that from at least 2003 through 2007, Pfizer China provided cash payments, hospitality, gifts and support for international travel to doctors employed by Chinese government healthcare institutes to influence them to prescribe Pfizer products, provide hospital formulary listing and otherwise use their influence to give Pfizer China an unfair advantage.

The improper payments cited in the complaint “were made without the knowledge or approval of officers or employees of Pfizer, but the inaccurate books and records of Pfizer’s subsidiaries were consolidated in the financial reports of Pfizer, and Pfizer failed to devise and maintain an appropriate system of internal accounting controls,” the suit states.

However, the complaint says Pfizer made an initial voluntary disclosure of certain of these issues to the Commission and the DoJ in October 2004, “and thereafter diligently and thoroughly undertook a global internal investigation of its operations in no less than 19 countries, which identified additional potential violations, and regularly reported on the results of these investigations and fully cooperated with the staff of the Commission.”

The SEC’s complaint against Wyeth alleges the company’s subsidiaries bribed government doctors in several countries, including Indonesia, Pakistan, and China to recommend the company’s nutritional products, in some cases providing doctors with BlackBerrys and cell phones or travel incentives. The SEC said Wyeth’s subsidiary in Saudi Arabia made an improper cash payment to a customs official to secure the release of a shipment of promotional items.

Pfizer said it identified certain improper payments in China, Saudi Arabia, Indonesia and Pakistan in its post-acquisition due diligence review of Wyeth and voluntarily disclosed them to the government.

Pfizer Settles Foreign Bribery Charges, Wins Deferred Prosecution For Helping Government

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