As appeared in FDA Webview,6/3/10.

If drug companies and other healthcare entities didn't already have enough trouble with federal officials probing various aspects of their operations, they are now becoming a key target for Justice Department and SEC enforcement of the Foreign Corrupt Practices Act (FCPA). That's the warning from attorney Stuart Gerson (Epstein Becker Green) in an interview with FDA Webview.

The act's section most important to drug companies and other public and nonprofit healthcare entities, he says, is its anti-bribery provision that makes it illegal to pay any foreign official for the purposes of obtaining or retaining business. "It's a classic anti-bribery provision," Gerson tells us, "that is enforced by the Justice Department and the Securities and Exchange Commission." (Although the SEC only covers publicly traded companies, the Justice Department enforces the act's provisions against all types of public, private, for-profit, and non-profit entities.)

Although FCPA has been a law since 1977, it is becoming of increasing interest and concern to healthcare companies now because so many healthcare firms are starting or greatly expanding overseas operations. Gerson points out that most health systems in other countries are national, meaning that their employees are all government workers. And it has been interpreted that even someone like a doctor running a local health clinic is considered a government employee who is not to be bribed.

"Those who are or should be most concerned at this point are drug companies because they do a lot of business overseas and take in a lot of cash," Gerson explains. "Just as they have been the target of False Claims Act cases and other things here, they're now coming within the range of the Justice Department and SEC in this area."

What's important to remember, he says, is that the number of FCPA cases is increasing and that they are the subject of vigorous enforcement activity using traditional techniques such as undercover agents and sting operations. And the number of FBI agents assigned to overseas embassies who have this kind of case as one of their duties has increased.

Marking a change in strategy, there has been an increase in the cases being brought against company employees and not just the corporate entities.

Gerson says the SEC has been under public scrutiny and fire in a number of other arenas and this type of case represents "low-hanging fruit," with a likely public-pleasing win.

Public companies interested in protecting themselves already know what to do, Gerson says, because the FCPA requires the kinds of record-keeping, accounting controls, and compliance that the companies should already be doing. He says that nonprofits should adopt the same practices and controls as the public companies do.

While compliance is extremely important, Gerson says, the most important thing is to do due diligence in hiring people in foreign countries to represent and work with a U.S. firm. "If you hire a corrupt but smart individual, he or she can hurt you for a long time," he warns. "Companies need a system to screen new hires so they can be as sure as possible that they are hiring honest people. Do background investigations, work with law enforcement, and have a serious, enforceable code of conduct."

Copyright Ferdic Inc. Republished with permission from Dickinson's FDA Webview ( June 3, 2010.

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