Lilly Pays $29 Million To SEC For Bribing Foreign Officials

Just last weekend I mentioned in the story related to the Monica Liang Affair how American companies, based on my limited experience working with a business that sought to expand into China, are required to pay bribes or kickbacks to officials within the government as a condition to doing business there. The Monica Liang Affair involved a highly-paid contractual employee working for the Indiana Economic Development Corporation who immigrated to the U.S. from China and had been accused of using her position to solicit bribes from Chinese businessmen while representing the state's economic development agency in discussions regarding investments to be made by Chinese business interests in Indiana. Today we learn that Eli Lilly has agreed to pay a $29 million fine to settle a claim brought by the SEC alleging the company had paid bribes to officials in Brazil, China, Poland and Russia to obtain government contracts in those countries between 1994 to 2009. The IBJ summarizes the agreement reached by the SEC and Lilly:

According to a statement released by the SEC, Lilly paid millions of dollars to government officials or to third-party bank accounts associated with government officials. In the case of Russia, Lilly did not curtail the bribery payments from its subsidiary there until five years after the parent company became aware of them, according to the SEC charges, filed Thursday in federal court in Washington, D.C.

Employees at Lilly’s subsidiary in China falsified expense reports to provide spa treatments, jewelry, and other gifts and cash payments to government-employed physicians, according to the SEC.

“Eli Lilly and its subsidiaries possessed a ‘check the box’ mentality when it came to third-party due diligence,” Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s Foreign Corrupt Practices unit, said in a prepared statement. “Companies can’t simply rely on paper-thin assurances by employees, distributors, or customers. They need to look at the surrounding circumstances of any payment to adequately assess whether it could wind up in a government official’s pocket.”

Lilly paid $14 million in disgorged profits and $6.7 million in interest on those profits. The company also paid a fine of $8.7 million to the SEC.

Anne Nobles, Lilly’s chief ethics and compliance officer, said in a prepared statement, “Since ours is a business based on trust, we strive to conduct ourselves in an ethical way that is beyond reproach. We have cooperated with the U.S. government throughout this investigation and have strengthened our internal controls and compliance program globally, including significant investment in our global anti-corruption program."

Lilly is not alone. Other major pharmaceutical companies, including Johnson & Johnson and Pfizer, have reached similar agreements with the SEC in recent years according to news reports. "Industry experts say it's not unusual for foreign sales representatives to give gifts and payments to government officials, though this practice is not permitted by U.S. law," the IBJ reports. Gov. Mitch Daniels served as a high-ranking executive at Lilly before becoming Indiana's governor, and former Indianapolis Mayor Bart Peterson now holds a similar position with the company.