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Novartis, Units Admit Violating Bribery Law Bashed by Trump

David Voreacos and Tom Schoenberg

(Bloomberg) -- The Swiss drugmaker Novartis AG and two subsidiaries admitted to overseas bribery schemes and agreed to pay about $347 million to settle U.S. investigations under a law that President Donald Trump has criticized as unfair.

A Novartis unit in Greece bribed doctors and hospitals to prescribe its products, and Alcon, a unit that Novartis sold last year, kept false records to cover bribes paid to advance its business in Vietnam, according to U.S. authorities.

“Novartis AG’s subsidiaries profited from bribes that induced medical professionals, hospitals, and clinics to prescribe Novartis-branded pharmaceuticals and use Alcon surgical products, and they falsified their books and records to conceal those bribes,” Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division said Thursday in a written statement.

Novartis Chief Executive Officer Vas Narasimhan set out to rebuild the company’s reputation after revelations that it paid $1.2 million to Trump’s former lawyer, Michael Cohen, as well as earlier allegations of improperly paying thousands of doctors.

Narasimhan took steps to raise standards and manage risk while also naming a new ethics chief. He said the company made a mistake in signing up Cohen, which came before he took over in 2018.

Novartis shares rose less than 1% to $89.54 in New York, joining a late rally among U.S. stocks.

Investigations under the U.S. Foreign Corrupt Practices Act have slowed since the 2016 election of Trump, who has called it a “horrible law.” In a 2017 Oval Office meeting, Trump ordered Secretary of State Rex Tillerson to abolish the law, according to a book by Washington Post reporters.

“It’s just so unfair that American companies aren’t allowed to pay bribes to get business overseas,” Trump said, according to “A Very Stable Genius” by the reporters Philip Rucker and Carol D. Leonnig.

In the deal announced on Thursday, Novartis Hellas S.A.C.I., the Greek unit, agreed to pay a criminal penalty of $225 million. Novartis AG will pay $112.8 million to the Securities and Exchange Commission. Alcon Pte Ltd., a former Novartis subsidiary, will pay a criminal fine of $8.9 million.

Both the Greek unit and Alcon were charged with crimes in federal court in New Jersey, but prosecutors agreed to defer prosecution in exchange for commitments by the companies to reform their practices. The companies are cooperating with authorities. The conduct described by authorities dates back more than a decade.

“We are pleased that all outstanding FCPA investigations into the company are now closed,” Shannon Thyme Klinger, Novartis’s group general counsel, said in a written statement. “Today’s settlements represent another milestone in our commitment to resolving legacy compliance issues and ensuring that Novartis truly lives its values.”

Still, the drugmaker’s U.S. legal problems aren’t over. The U.S. sued the company seven years ago, joining in a case filed by a former sales representative who accused the company of using its speakers programs to pay kickbacks to doctors who prescribed its drugs.

The lawsuit claims that Novartis paid thousands of doctors with speaking fees, fishing trips and even outings at Hooters restaurants to boost sales of hypertension drugs Lotrel and Valturna, along with the diabetes medication Starlix.

Last year, the company set aside about $700 million for a potential settlement. The case is still pending.

The settlements on Thursday were unrelated to the money paid to Cohen to enhance its understanding of and access to the Trump administration after his inauguration in January 2017. Novartis said it determined early on that Cohen wouldn’t be able to help with heath care policy matters, but it continued to make payments until the contract expired because it couldn’t be terminated for cause.

Cohen pleaded guilty last year to tax evasion, making false statements to a bank, lying to Congress and violating campaign-finance law. He was sentenced to three years in prison and was recently released to his New York home because of the coronavirus pandemic.

As part of the settlements on Thursday, prosecutors outlined a range of Novartis misdeeds.

For instance, Novartis bribed eye doctors in Greece by paying for international conference sponsorships from 2012 to 2015 to boost sales of Lucentis, a drug to treat macular degeneration, according to an SEC order. The cost to attend these conferences often exceeded $5,000 per doctor. The company tied such payments to prescriptions and warned that trips would “be canceled if sales performance is not improved significantly.”

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(Updates with Novartis shares in the sixth paragraph)

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