By Alec Diamond
Novartis AG, a
Swiss pharmaceutical company, recently settled an SEC investigation for $25
million. Novartis was under
investigation for violations of the books and records and internal
accounting provisions of the Foreign Corrupt Practices Act. Two of the
company’s subsidiaries doing business in China used third party vendors like
Chinese travel agencies to set up “educational events” for local healthcare
providers in order to increase generic pharmaceuticals sales. However, there
was little-to-no evidence that many of the educational conferences ever occurred,
while travel fare for officials’ spouses and recreational trips (such as trips
to Niagara Falls) were expensed. This SEC investigation is the twenty-second action
brought against a pharmaceutical company doing business abroad. Companies with
Chinese subsidiaries be warned: rigorous internal accounting procedures may be
necessary to avoid costly settlements.
