The Foreign Corrupt Practices Act

Medmarc Insurance Group

What is the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act (FCPA) is a federal law that makes it illegal for companies to make payments to foreign government officials to assist in obtaining or retaining business. It applies to U.S. citizens and entities doing business outside of the United States, to foreign citizens and entities doing business that includes a transaction that in any way touches the United States, and to companies that are listed on the U.S. stock exchange.

The FCPA also prohibits companies, under threat of criminal penalties, from intentionally creating a system of record keeping that makes it difficult to determine where its money and other assets are going.

What are some of the unique challenges facing life sciences companies with regards to the FCPA?

One of the challenges facing life sciences companies regarding FCPA compliance is that they operate in a heavily regulated industry in which government officials are actively involved in many transactions associated with bringing a life sciences product to market. Accordingly, there are many “touch points” in which life sciences companies interact with government officials. For example, government officials oversee the importation process and select which products will be eligible for reimbursement. With these and numerous other interactions with government officials, life sciences companies run a risk of advertently or inadvertently violating the FCPA.

In addition, when doing business overseas, many companies do not realize that doctors and other health care professionals that work for state hospitals are likely considered government officials for FCPA purposes. In many countries, hospitals are owned or operated by the government. Payments or incentive discounts to doctors or hospital officials in exchange for bulk purchases or incentive discounts could lead to criminal or civil liability under the FCPA. Therefore, company representatives need to be very clear on the types of benefits they can provide to these individuals. 

What are some common mistakes that life sciences companies make concerning the FCPA?

Many companies mistakenly think that the FCPA only applies to cash payments. They fail to understand that illegal “payments” under the act also include offering anything of value, such as gifts, travel, and even charitable contributions. For example, companies will sometimes donate items such as computers to a hospital, without realizing the donation was a violation of the FCPA.

Companies also mistakenly think that the FCPA only applies to direct payments and does not apply to payments made through intermediaries or third party representatives, such as agents, consultants, distributors, and joint venture partners. The actions of such persons can result in FCPA liability to a parent company or the entity engaging the third party.

Finally, companies sometimes make the mistake of thinking that the FCPA only applies to public companies. The FCPA includes any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship with a principal place of business in the United States or organized under U.S. law. Thus, the FCPA applies to the international business activities of private companies as well.

This article is not intended as legal advice and does not constitute legal advice. It does not create an attorney/client relationship and is intended to provide only general, educational, non-specific legal information. It is not intended to cover all the issues related to the topic discussed. The specific facts that apply to various situations may make the outcome different than would be initially anticipated. You should consult with an attorney familiar with the issues and laws of your state and country, if you have any legal questions or concerns.

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