On November 15, 2016 Teva announced that it is in “advanced discussions” with the DOJ and the SEC to settle investigations into alleged violations of the Foreign Corrupt Practices Act (the FCPA) and that it set aside a $520 million reserve to cover expected settlement expenses.
This provision of funds relates to conduct that occurred between 2007-2013 in Russia, the Ukraine and Mexico. The conduct was first discovered in 2012 when Teva received subpoenas and informal document requests due to potential FCPA violations in Latin America. These requests triggered an internal investigation which then spread to Russia and other countries.
Teva’s FCPA violations are remarkable for a few reasons. First, Teva may be joining the ranks of Och-Ziff Capital Management Group ($412 million), Embraer ($205 million) and VimpelCom ($795 to US and Dutch authorities) should the ultimate resolution meet the estimate of the financial reserve. This would also be the largest settlement for the Life Sciences industry to date and would be the first Israeli company to appear in the list of the top ten biggest FCPA settlements.
Second, since 2012 Teva has been forthright about their efforts to investigate and remediate issues including statements in SEC disclosures such as anti-bribery and anti-corruption concerns that “likely constitute violations.” More recently, Teva has been vocal about their efforts to comply with the DOJ FCPA enforcement pilot program, emphasizing a compliance program that is “serious, rigorous and comprehensive.”
Under the DOJ’s pilot program, companies are eligible for reduced penalties if they: (1) voluntarily disclose FCPA violations; (2) fully cooperate with the DOJ’s investigation; and (3) implement “appropriate remediation” upon detecting wrongdoing. Regarding voluntary disclosure, Teva publicly admitted wrongdoing in Russia, Mexico and the Ukraine, which indicates cooperation with the DOJ and SEC from an early stage. Teva’s “full cooperation” is not conclusive at this time however. Their internal investigations that date back to 2012 do indicate they have been and continue to be cooperating with the DOJ. Additionally, Teva has been touting their timely and appropriate remediation efforts as they announced a “complete transformation to its governance program and process on every level.” Teva has also stated that it “has a culture of compliance that begins with a strong tone at the top … and underpins every business decision.” Other efforts included termination of employees and certain third-parties, as well as restructuring part of its global operation and ceasing operations in some countries.
Teva has clearly devoted significant resources to voluntarily disclose, cooperate and remediate the alleged FCPA violations. The DOJ has not announced the terms of a settlement so it remains unclear whether Teva’s efforts affected the type of disposition, a reduction in fine or the need for an independent monitor. Given that, there is a need to monitor developments and carefully analyze the terms of the settlement alongside Teva’s efforts, as they will be an example for other Life Sciences companies wishing to obtain credit and soften settlement terms pursuant to the FCPA pilot program.