Life Sciences Firms Get ‘No Relief’ On Overseas Risk, Volkov Writes

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New regulatory guidelines highlight feds’ tough stance on the overseas business practices of medical-device makers and pharmaceutical companies, writes LeClairRyan attorney in Law360 column.

Michael Volkov

When the government published its long-awaited guidance on the Foreign Corrupt Practices Act (FCPA) back in November, leaders in the pharmaceutical and medical device industries finally got more clarity on the risks associated with doing business overseas. Beyond this, however, publication of the guidance hardly amounted to good news for these heavily regulated businesses, writes LeClairRyan attorney Michael Volkov, in the Dec. 14 edition of Law360.com.

“The FPCA guidance provides important information for compliance, due diligence and other relevant issues,” writes the former federal prosecutor, a shareholder in the national law firm’s Alexandria, Va., office. “Unfortunately for the pharmaceutical and medical device industries, the FCPA guidance only confirmed what they already knew—they operate in a high-risk industry, in high-risk countries, where foreign doctors and others can quickly lead a company into FCPA hot water.”

Titled A Resource Guide to the U.S. Foreign Corrupt Practices Act, the guidance by the Department of Justice and the Securities and Exchange Commission aims, in the government’s words, “to provide helpful information to enterprises of all shapes and sizes—from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world.”

In the column (“The FCPA Guide’s Lessons For Life Sciences Companies”), Volkov acknowledges that having more clarity about the government’s views on this landmark anti-corruption act is indeed helpful for U.S. businesses. However, he also outlines how several of the administration’s current interpretations of the act will continue to make life difficult for pharmaceutical and medical device companies operating overseas.

The guidance, for example, underscores that DOJ and the SEC will continue to regard foreign doctors, medical institutions and clinical trials as all falling within the “foreign official” definition of the FCPA—an expansive interpretation that raises risk for U.S. companies. “There is nothing in the FCPA guidance that indicates that the DOJ or the SEC intends to back down from its interpretation of these terms,” Volkov writes.

Pharmaceutical and medical device companies tend to rely on extensive networks of distributors and sub-distributors to sell their products overseas, but the guidance makes clear that companies are indeed liable for the conduct of these third-party intermediaries. “In fact, the FCPA guidance cites several times how companies can be liable for the conduct of their distributors when they provide distributors significant discounts or rebates that are not justified by the nature of the services being provided by the distributor,” the attorney explains.

Pharmaceutical and medical device companies need to redouble their efforts in conducting due diligence, reviewing financial terms and scrutinizing their relationships with distributors and sub-distributors, he adds. “The DOJ and the SEC have cited the risks created by these arrangements,” Volkov writes. “Companies need to build this into their compliance programs.”

Finally, the guidance sends another clear message to these sectors—namely, they should be wary of the risks associated with medical conferences and sponsorships. Indeed, the FCPA guidance reaffirms some of the government’s concerns about gifts, meals, travel, entertainment and lodging expenses that are neither reasonable nor directly related to the promotion of a particular product or service, Volkov writes in the column. “The FCPA guidance focuses on the lines between proper and improper gifts, travel, entertainment and meals,” he writes. “Pharmaceutical and medical device companies have already reined in payments to U.S. doctors and healthcare providers for attendance at industry conferences. The same effort needs to be made with respect to foreign doctors, providers and officials.”

The column is available to Law360 subscribers at:
http://www.law360.com/articles/399472/fcpa-guide-s-lessons-for-life-sciences-companies

About LeClairRyan
LeClairRyan provides business counsel and client representation in corporate law and litigation. With offices in California, Connecticut, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C., the firm has approximately 350 attorneys representing a wide variety of clients throughout the nation. For more information about LeClairRyan, visit http://www.leclairryan.com.
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Press Contacts: At Parness & Associates Public Relations, Marty Gitlin (631) 765-8519, or Bill Parness, (732) 290-0121, parnespr(at)optonline(dot)net

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