Generally, the FCPA’s anti-bribery provisions do not apply to foreign subsidiaries of issuers. However, the U.S. Securities and Exchange Commission’s (“SEC”) resolution with Alexion Pharmaceutical, Inc. (“Alexion”) reflects the degree to which the FCPA’s accounting and record-keeping provisions are used to address foreign bribery on the part of foreign subsidiaries.1 Alexion is a global biopharmaceutical company incorporated in Delaware and based in Boston. Alexion’s wholly-owned subsidiaries in Turkey, Russia, Brazil, and Colombia were involved in making improper inducements to promote and to secure approvals for its pharmaceutical products.
Alexion’s Turkish subsidiary retained a consultant who, in turn, paid government officials and health care providers responsible for approving prescriptions and influencing regulatory actions favorable to the use of Alexion’s products.2 Documentation to support the payments made to the consultant were vague and lacking independent documentation.3 Terms such as “other expenses,” “honoraria,” and “grants” were used.4 The subsidiary’s staff also had limited training in anti-bribery compliance.5
A similar series of events took place with Alexion’s Russian subsidiary. Various forms of improper inducements were made to physicians in positions with Russia’s Ministry of Health to influence the approval and use of Alexion’s products.6 The inducements were improperly identified as honoraria, research, and educational expenses as well as grants.7 In Brazil and Colombia, Alexion’s subsidiaries created inaccurate financial records to conceal improper payments to third parties.8
While it is difficult to discern from the SEC’s order, the recitation of facts suggests that Alexion may have had adequate internal controls at the parent level. For example, to conceal how funds were to be used, grant proposals made to Alexion’s global officials by its Brazilian subsidiary misstated how the funds were to be allocated. Similarly, the Columbian subsidiary misstated the use of funds as “legal services” to avoid a review by Alexion’s global grant process.
For issuers, limiting compliance with the FCPA’s accounting and record-keeping provisions to the parent company is insufficient. Compliance must extend to all of an issuer’s subsidiaries that are consolidated into its financial statements, including subsidiaries that may not otherwise be subject to the FCPA’s anti-bribery provisions.
2Id. at ¶¶ 14-18.
3Id. at ¶ 16.
4Id. at ¶¶ 16-17.
5Id. at ¶ 19.
6Id. at ¶¶ 21-24.
7Id. at ¶ 22.
8Id. at ¶¶ 26-29.