Lilly to pay $29.4 million to settle SEC allegations

Eli Lilly & Co. agreed to pay $29.4 million in a settlement of U.S. government allegations that the drug maker's units made improper payments to foreign government officials to win business.

Indianapolis-based Lilly didn't admit or deny the allegations, but agreed to have an outside consultant review the company's internal controls and its measures to comply with the U.S. Foreign Corrupt Practices Act, or FCPA.

U.S. authorities in recent years have stepped up enforcement of the FCPA, which bars U.S. companies from bribing foreign officials to obtain or retain business. Multinational drug and medical-device makers including Pfizer Inc. and Johnson & Johnson have reached FCPA settlements in the past two years, while other drug makers have been probed as well.

What makes the FCPA a minefield for drug companies is that health systems in many countries outside the U.S. are government-run. Thus, drug company employees who provide cash or items of value to doctors and others at various levels of state-run health systems run the risk of violating the FCPA. Violations also would include bribes offered to more obvious targets such as health ministry officials.

The U.S. Securities and Exchange Commission said Thursday it charged Lilly with violations of the FCPA in connection with alleged payments to government officials or third parties with ties to governments in Russia, Brazil, China and Poland between 1994 and 2009.

The SEC said in a civil complaint filed in U.S. District Court for the District of Columbia that employees of Lilly's China unit falsified expense reports to provide spa treatments, jewelry and other gifts and cash payments to government-employed doctors between 2006 and 2009.

The SEC also alleged: Lilly hired a drug distributor in 2007 that paid bribes to health officials in a Brazilian state to facilitate about $1.2 million in sales of a Lilly drug to the state; Lilly's Polish unit paid $39,000 between 2000 and 2003 to a charitable foundation run by the head of a regional government health authority and dedicated to restoring a castle in Chudow, Poland; and that its Russian unit paid millions of dollars between 1994 and 2005 to offshore entities that the SEC said "appear to have been used to funnel money to government officials" to obtain business for the Lilly unit.

The SEC said Lilly didn't curtail the activities of its Russian unit for several years, even after an internal Lilly review raised questions about its use of these offshore arrangements.

"When a parent company learns telltale signs of a bribery scheme involving a subsidiary, it must take immediate action to assure that the FCPA is not being violated," Antonia Chion, associate director in the SEC Enforcement Division, said in an SEC news release.

Without admitting or denying the allegations, Lilly consented to the entry of a final judgment permanently barring the company from violating the antibribery, books and records, and internal controls provisions of the FCPA, according to the SEC.

Lilly also agreed to retain an independent consultant to review and make recommendations about its foreign corruption policies and procedures. The settlement is subject to court approval.

Anne Nobles, Lilly's chief ethics and compliance officer and senior vice president of enterprise risk management, said in a news release the company has cooperated with the investigation, which Lilly has previously disclosed in regulatory filings.

The SEC originally notified Lilly in 2003 it was probing whether the Polish units of certain drug makers including Lilly had violated FCPA. Later, Lilly disclosed that federal authorities had widened the investigation to other countries.

Lilly said it has strengthened its internal controls and compliance programs, including anticorruption due-diligence requirements for relationships with third parties and other measures. The SEC noted Lilly's improvements in its civil complaint.

Lilly shares rose 33 cents to $49.25 in 4 p.m. composite trading Thursday on the New York Stock Exchange.

(Published by WSJ - December 20, 2012)