Novartis AG (ADR) (NYSE:NVS) has reached an agreement with US authorities over bribery allegations in China. The drug maker is to pay $25 million to settle the civil charges.
The fine covers allegations that the company paid healthcare professionals to help boost sales. The SEC says Novartis’s Chinese units tried to mask bribes by recording them as legitimate expenses.
In one case, the agency details how sales representatives submitted receipts of about $8,100 for expense reimbursements. Once reimbursed the officials used the funds to bribe doctors. The bribes sought to encourage doctors to prescribe the company’s drugs. The SEC says most of the funds reimbursed went to entertain and issue gifts.
Novartis went as far as hiring Chinese travel companies to arrange trips, meals, and accommodations for the healthcare professionals. Unknown to many, most of these events were recreational, designed to gain favor for improved sales.
Novartis Quick Response
The SEC says Novartis began reviewing its relationship with travel and event planning vendors in the wake of the allegations. Having identified weaknesses as alleged, the company responded promptly with necessary actions.
The company also found itself in hot water for failing to devise and maintain an effective internal accounting control system. Even though Novartis has settled the charges, it did not admit or deny any wrongdoing. In a statement, the company says it has already put measures in place to prevent similar incidents in future.
The settlement comes at a time of increased crackdown on corruption-related activities in China. The crackdown has had its fair share of impact on the health care industry. Such probes have all but crippled growth for many multinationals
Last year GlaxoSmithKline plc (ADR) (NYSE:GSK) posted a 17% drop in sales as a state-led campaign on drug prices affected returns. The British Company was also fined $419 million over allegations it bribed doctors. It is still unclear whether Chinese authorities will penalize Novartis over the bribery allegations.