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.