The FCPA Blog has reported that Novo Nordisk A/S, the Danish healthcare company and diabetes specilist, has agreed a deferred prosecution agreement with a $9million criminal penalty with the DOJ, plus a $3million civil penalty, and $6million disgorgement of profits with the SEC. Apparently no corporate monitor though. The FCPA Blog post can be found here.
Novo Nordisk was supplying insulin and other medicines to the Iraqi ministry of health, under the Oil for Food programme. As is well kown by now, the Oil-for-Food Program was established by the UN to enable Iraq to sell its oil for humanitarian purposes, in the context of an extensive international sanctions regime. The program mandated that the proceeds of oil sales be deposited in a UN escrow account and that those proceeds be used by the Iraqi government only to purchase humanitarian goods and services, such a food and medicine, approved by the UN.
As was common at that time, and beginning in 2000, the former Iraqi government began requiring companies wishing to sell humanitarian goods to government ministries to pay a kickback, often mischaracterized as an “after sales services fee,” to the government in order to be granted a contract. The amount of that fee was usually 10 percent of the contract price.
As set out by the SEC, the scheme operated in a manner fairly typical of that which we are seeing in several compnaies under fire under Oil for Food investigations.
Novo Nordisk engaged its long-time Jordan-based agent to submit bids on Novo Nordisk’s behalf to Kimadia, the Iraq State Company for the Importation and Distribution of Drugs and Medical Appliances, under the Program. Two branches of Novo Nordisk — RONE, based in Athens, Greece, and NEO, based in Amman, Jordan — handled the sales to Iraq and supplied the agent with bid prices for each contract. In late 2000 or early 2001, a Kimadia import manager advised the agent that Kimadia required Novo Nordisk to pay a ten percent kickback in order to obtain a contract under the Program. The Kimadia import manager told the agent that Novo Nordisk should increase its prices by ten percent and pay that amount to Kimadia. By doing so, Novo Nordisk would recover the secret kickback from the U.N. escrow account when the contract, with the inflated price, was subsequently approved for disbursement and paid by the U.N.
A Novo Nordisk officer rejected the request to pay Kimadia a ten percent kickback, and instead suggested that Novo Nordisk find another way. Novo Nordisk offered to reduce the price of its medicines by ten percent, but the Kimadia import manager angrily refused the offer. A Novo Nordisk Senior Vice President, along with RONE and NEO managers authorized the kickbacks to Kimadia despite the other officer’s refusal to do so. On or about April 2001 and August 2001, respectively, Novo Nordisk paid increased commissions to its agent to pay the kickbacks to Kimadia. The agent’s commission was increased under the guise that the payment was used to cover the agent’s increased distribution and marketing costs. Various e-mails discussed the scheme to conceal the conduct, and the U.N. contracts were artificially inflated by ten percent. According to the RONE managers, subsequent kickbacks were also approved by Novo Nordisk. Altogether, Novo Nordisk made a total of $1,437,946 in improper kickback payments on eleven contracts through the agent. Novo Nordisk also agreed to pay approximately $1,315,454 in ASSFs on two additional contracts. Novo Nordisk recorded the kickbacks as legitimate commission payments on its books and records.
The DOJ agreement states that….
Between 2001 and 2003, Novo paid approximately $1.4 million to the former Iraqi government by inflating the price of contracts by 10 percent before submitting the contracts to the United Nations for approval and concealed from the United Nations the fact that the price contained a kickback to the former Iraqi government. Novo also admitted it inaccurately recorded the kickback payments as “commissions” in its books and records.
As an accountant, we like the numbers. So in summary, bribes of $2,753,400 to secure contracts worth EUR 22 million. Novo Nordisk was ordered to disgorge $4,321,523 in profits plus $1,683,556 in pre-judgment interest, and to pay a civil penalty of $3,025,066.
The DOJ complaint is here, the DOJ press release is here, and the SEC press release is here.
Serious Crime Prevention Orders
Richard Alderman, head of the SFO, has stated he wants to make increasing use of a new UK procedure, the ‘Serious Crime Prevention Order’ in his efforts to prosecute international bribery.
In a speech in March he stated:
What is a Serious Crime Prevention Order?
The SCPO was created by Part 1 of the Serious Crime Act 2007. They are civil orders with the civil burden of proof intended for use against those involved in serious crime.
They are made on application to either the High Court or the Crown Court upon conviction, by prosecution authorities, including the SFO.
Breach of the terms of the order is a criminal offence.
An order may contain:
as the court considers appropriate for the purpose of protecting the public by preventing, restricting or disrupting involvement by the person concerned in serious crime in England and Wales. Prohibitions are not limited to England and Wales and can extend outside the jurisdiction, but they must be aimed at preventing, restricting or disrupting involvement in serious crime in England and Wales.
An SCPO can be for a maximum period of 5 years and must state when it starts and ends. However, the court can delay the commencement of the order, e.g. to commence upon release from prison. It can also set different dates for the start and end of different provisions in the order.
They can also be made against companies and partnerships, as well as their individual employees or officers, however it should be noted that the order can only be made against those “having been convicted of a serious offence”. Further information on SCPOs can be found here.
There has been no use of the SCPO orders as yet applied to bribery cases, or as far as we can see, to corporates.
The first reported application was in June 2008 on the application of the Revenue and Customs Prosecutions Office, details here. In this case, the defendants had been found guilty of using a Money Service Bureau to launder £25million during a period of just over 2 years. For 5 years from the day they are released from prison, members of the gang will be at risk of an additional 5 years in prison if they breach the SCPOs which are designed to stop them carrying out activities related to the possession and movement of money. In addition to the sentences, they were given Financial Reporting Orders requiring them to report all their financial details every year and on release every 6 months for 10 years.
The SFO has also reported one success, when it got a “Four year ban for boiler room fraudster”. The defendant here got a ban on conducting any investment and financial management business for four years after his release from prison. He was found guilty of managing a boiler room fraud offering wine investments and for defrauding investors in a frozen meals business. Details here.