Teva Hit With Historic Fine in Bribery Case

(CN) – Teva, one the largest generic drug makers in the world, has agreed to pay $519 million to settle criminal and civil charges that it bolstered its business overseas by bribing government officials in Russia, Mexico and Ukraine.

Under the settlement, Teva Pharmaceutical Industries is required to pay a $283 million criminal fine to the U.S. Department of Justice along with $236 million in civil disgorgement and interest to the Securities and Exchange Commission.

The Justice Department  said the criminal fine is the largest ever imposed on a drug company for violations of the Foreign Corrupt Practices Act.

“As demonstrated by this case, the Foreign Corrupt Practices Act has a long reach,” said William Maddalena, a special agent for the FBI’s Miami division. “Teva’s egregious attempt to enrich themselves failed and they will now pay a tough penalty.”

Teva stood accused of delving out a sweetheart distribution deal for its drug Copaxone to a company run by an unnamed high-ranking Russian official, who was expected to use his influence in the Russian government to boost business for Teva.

Teva’s Copaxone sales in Russia were solidified after the politician and his company secured a 2011 contract to supply the Russian government with the drug, the SEC alleged.

Teva’s relationship with the unnamed politician helped Teva rake in $197 million worth of business, according to the SEC. The politician’s company meanwhile earned a $65 million margin attributable to heavy discounts granted to it by Teva, the SEC said.

As the Justice Department framed the allegations, Teva’s “corrupt” payments to the politician were made in the form of “high profit margins” that the politician’s company earned as Teva’s distributor of Copaxone to the Russian Ministry of Health.

According to the SEC, Teva’s due diligence forms on the Copaxone distribution deal failed to disclose that the official “would be hired in part with the expectation that he could influence the decisions of the Ministry of Health (such as obtaining more funding for Copaxone purchases by the state), obtain approval in federal program tenders, obtain faster drug registrations, and increase market access and secure Teva’s market share.”

While both the DOJ’s criminal complaint and the SEC’s civil complaint focus on Teva’s conduct in Russia, the SEC presented additional allegations that Teva gave out bribes in Ukraine and Mexico.

The commission said Teva greased the palms of a prominent Ukrainian politician who was a deputy chairman of the country’s drug-pricing workgroup and was an advisor to the Ukrainian president’s administration from 2005 to 2009.

Teva allegedly paid the Ukrainian politician more $200,000 over a nine-year-period beginning in 2002, and funded his vacations to Israel in exchange for his assistance in advancing Teva’s products.

One Teva payment authorization request supposedly stated that the politician “is helping us very much in advancing Copaxone and Insulins in the Ukrainian market.”

“One of the ways of settling our account with him is funding his trip to Israel once a year,” the request purportedly stated.

In Mexico, the civil complaint alleged, Teva’s subsidiary continued an arrangement to pay off doctors at government hospitals even after Teva had attempted to crack down on the practice.

Teva in 2011 reduced its promotional budget for the Mexican subsidiary, thereby limiting the amount of money that could be given to the doctors, but a manager from the subsidiary circumvented the budget squeeze and arranged for a third-party distributor to pay off the doctors instead, according to the SEC.

The doctors are considered government officials under the Foreign Corrupt Practices Act, since they were employed at state-owned or state-controlled hospitals.

“Teva Mexico through its Copaxone distributor paid the Mexican officials between $9,600 and $30,000 each per year to influence their Copaxone prescription decisions. In 2012, Teva paid Mexican officials approximately $159,000,” the SEC complaint reads.

The Department of Justice said that although Teva delayed the early stages of the bribery investigation by not timely producing documents and by making “vastly overbroad assertions of attorney-client privilege,” the company did receive credit for making employees available for interviews, providing updates to the DOJ regarding Teva’s internal probe and disclosing conduct in Russia and the Ukraine of which the DOJ was “previously unaware.”

According to the DOJ’s deferred prosecution agreement with Teva, at least fifteen employees of the company resigned or were fired in the wake of the scandal.

“While the conduct that resulted in this investigation ended several years ago, it is both regrettable and unacceptable, and we are pleased to finally put this matter behind us,” Teva CEO Erez Vigodman, who took over the company in 2014, said in a press release.

The press release said that after the company learned of the allegations in 2012, it overhauled its corporate governance and named a global head of compliance.

“This resulted in actions including, terminating problematic business relationships with third parties, separating relevant employees from the company, overhauling the management of several subsidiaries, and ceasing operations in several countries. We have also restructured the company through a new global organizational structure and chain of command that reduces risks. In order to institute a culture of compliance throughout the organization, we have also trained tens of thousands of employees on compliance and anti-corruption measures, protocols and best practices,” Teva stated in the release.