Novartis Agrees to Pay $25 Million to Settle China Bribery Investigation

Novartis decided to hand over $25 million to settle a Securities and Exchange Commission investigation into bribery claims in China. It’s the most recent example of corruption allegations made against the Switzerland-based Pharma’s operations in Asia.

As per the SEC, Novartis provided Chinese physicians luxurious entertainments which included a trip to Chicago and Niagara Falls–and other incentives to increase prescriptions of its medicines in China.

The claims mirror those against a wide range of other Pharmaceutical companies that have resolved similar investigations by the U.S. government and foreign agencies. The major settlement and most far-reaching example of bribery in China was the $489 million fine charged against GSK in 2014, which capped off an investigation into hundreds of millions in inducements for physicians and other healthcare representatives, many of them reserved as travel and meeting expenses.

As per the SEC, the Chinese units of Novartis and its generics business, Sandoz, reserved illegal expenses as legitimate expenditures. For example, two sales representatives at Sandoz China submitted $8,100 in expenses and it was accepted by a regional sales manager, which covered entertainment and presents for healthcare professionals.

China workers also maintained spreadsheets that provided proof of a quid pro quo setup: A specific cash value to be compensated for a specific number of prescriptions per month, the SEC stated in a cease-and-desist order dated 23rd March 2016.

Novartis was also “unsuccessful in developing and managing an effective program of internal-accounting or an efficient anti-corruption compliance program,” the agency said.

That has now changed according to a Novartis statement. “The issues pointed out by the SEC, which connect to our subsidiaries in China go back as far as 2009 and mostly pre-date many of the compliance associated measures presented by Novartis throughout its global organization in most recent years,” the Novartis said in an email.

In its order, the SEC mentioned that Novartis had introduced an internal evaluation of its Chinese functions in 2013, amid the GSK bribery scandal. It turned up possibly inappropriate activity and overhauled its connections with event planners, among other things. It also enhanced internal controls and dismissed or disciplined “responsible employees,” the SEC said.

The Novartis settlement, ended late Wednesday (23rd March 2016), contained a $21 million disgorgement, $2 million in civil charges and $1.47 million in interest. The organization did not admit wrong-doing as part of the deal, the SEC said.

The agreement follows information of a South Korean kickbacks probe at a Novartis unit there. The Seoul Western District Prosecutor’s Office raided Novartis’ offices there previous month, confiscating records and account books, as reported in local media reports. At problem are “rebates” compensated to local physicians in the form of cash and other benefits that might be considered as unlawful kickbacks developed to increase sales.

Reporting problems have haunted Novartis in Japan also. Previous spring, the Japanese government halted Novartis’ functions, placing the organization’s business on hold for 15 days as punishment for failing to effectively report drug side effects. Novartis sales representatives also were caught running errands in a leukemia drug research, putting that research into doubt. Novartis Pharmaceuticals chief David Epstein has continuously apologized for the scams and the organization cleaned house at the Japan unit, appointing new managers and placing employees through helpful training.