Lilly reaches US$29.4 million settlement with SEC over FCPA compliance


Eli Lilly has reached an agreement with the US Securities and Exchange Commission (SEC) to settle issues regarding compliance with the US Foreign Corrupt Practices Act (FCPA). The settlement relates to an investigation by the SEC of certain activities of four Lilly affiliates, Brazil, China, Poland and Russia, from 1994 through 2009. Lilly was first notified of the investigation in August 2003.

The SEC alleged that Lilly's subsidiary in Russia used offshore "marketing agreements" to pay millions of dollars to third parties chosen by government customers or distributors, despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services and, in some instances, were used to funnel money to government officials in order to obtain business for the subsidiary. Transactions with offshore or government-affiliated entities did not receive specialised or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

The SEC alleges that when the company did become aware of possible FCPA violations in Russia, Lilly did not curtail the subsidiary's use of the marketing agreements for more than five years. Lilly subsidiaries in Brazil, China, and Poland also made improper payments to government officials or third-party entities associated with government officials.

Without admitting or denying the allegations, Lilly agreed to pay disgorgement of US$13,955,196, prejudgment interest of US$6,743,538 and a penalty of US$8.7 million, for a total payment of US$29,398,734. Lilly also agreed to have an independent compliance consultant conduct a 60-day review of the company's internal controls and compliance programme related to the FCPA.

The SEC noted that since the time of the conduct alleged in its complaint, Lilly has made improvements to its global anti-corruption compliance programme, including: enhancing anticorruption due diligence requirements for relationships with third parties; implementing compliance monitoring and corporate auditing specifically tailored to anticorruption; enhancing financial controls and governance; and expanding anticorruption training throughout the organisation.