US Government Enforcement: Focus on Asian Life Sciences Companies

August 18, 2023

The US Department of Justice (DOJ) has shown increased interest in enforcing the Foreign Corrupt Practices Act (FCPA) in the life sciences sector. The FCPA prohibits the payment of any kind of bribe, kickback, or thing of value to a foreign government official. DOJ has focused particularly on China, which has seen the highest proportion of enforcement actions since the FCPA’s enactment.

US enforcement authorities, notably DOJ and the Securities and Exchange Commission, continue to focus on charging companies and individual corporate executives, with corruption offenses continuing to be a focal point in this enforcement regime. Other countries, including the United Kingdom, Brazil, France, and Singapore, often investigate similar conduct in parallel with the United States.

Self-Disclosure Policy

DOJ announced a new Voluntary Self-Disclosure Policy on February 22, 2023, standardizing the definition of what it means to voluntarily self-disclose and offering improved consistency and predictability as to the benefits and consequences of self-disclosure. DOJ expects companies to meet a high bar to qualify as having voluntarily self-disclosed misconduct, with the three key aspects including voluntary disclosure, timely disclosure, and substantive disclosure. To earn the benefit of such disclosure, the company must also cooperate with government investigations and fully remediate.

Compensation Clawback

In March 2023, DOJ launched a pilot program whereby every corporate resolution the Criminal Division entered into would require the resolving company to implement employee compensation improvements. Under this new pilot program, companies may be able to reduce criminal fines by attempting to claw back compensation from individual wrongdoers. Even if a company were unsuccessful in recouping these funds, if the company initiated the process to recoup such compensation before the time of resolution, an additional fine reduction may be warranted.

Third Parties

Third parties that may be engaged include consultants, finders, introducers, advisors, agents, joint venture partners, local sales agents, and distributors. Under the FCPA—and many other antibribery regimes—a company may be held liable not only for the corrupt actions of its employees but also for the corrupt actions of a third party acting on the company’s behalf. Before engaging a third party, the best practice is to have established protocols for due diligence.

Companies can mitigate third-party risk by vetting third parties to determine the likelihood they will take corrupt action, monitor for red flags, and escalate and addressing any red flags.

Key Compliance Takeaways From FCPA Resolutions for Asian Life Sciences Companies

  • A problematic corporate culture can undermine otherwise reliable compliance program structures.
  • Acknowledge the need for enterprise-wide policies, processes, and training to be implemented in each business and each country in which the company operates or does business.
  • Failure to integrate subsidiaries or apply values and norms of US based companies poses serious risk, including long-lasting reputational damage.
  • Compliance programs and internal control systems not only need to identify red flags but also ensure that action is taken to address detected issues. Unless a compliance program and its reinforcing controls are reassessed from time to time, they may be allowing problematic transactions to slip through undetected, despite an outward appearance of effectiveness.
  • The biggest transactions deserve the same level of scrutiny and controls, if not more, than more routine transactions.
  • Prompt remediation matters, especially when it comes to monitored risks.
  • Acknowledge the need to demonstrate not just that a compliance program has been implemented, but that it has been tested and is effective.

If you are interested in US Government Enforcement: Recent Developments and Issues in Investigations, part of our Asia Life Sciences Webinar Series 2023, we invite you to subscribe to Morgan Lewis publications to receive updates on trends, legal developments, and other relevant areas.