(Bloomberg) — Novartis AG (NYSE:NVS) said it agreed to pay $25 million to settle a U.S. Securities and Exchange Commission (SEC) case that claimed the Swiss drugmaker paid bribes to health professionals in China to increase sales from 2009 to 2013.
The SEC issued a cease-and-desist order late Wednesday saying Novartis submitted a settlement offer and the agency has accepted it. The company’s payment includes $2 million in a civil penalty and $1.47 million in interest, according to the order posted on the SEC’s website.
“The issues raised by the SEC, which relate to our subsidiaries in China and go back as far as 2009, largely pre-date many of the compliance-related measures introduced by Novartis across its global organization in recent years,” Novartis spokesman Eric Althoff said in an e-mailed statement Thursday.
Novartis’s SEC settlement comes at a time when China’s own crackdown on corruption has ensnared the health care industry, with GlaxoSmithKline Plc’s sales in the country falling 17 percent last year after a government probe crippled its growth since 2013. A state-led campaign to slash drug prices has triggered a further slowdown in China sales growth for global drugmakers.
The SEC detailed a number of Foreign Corrupt Practices Act violations where Novartis employees provided items of value to health care professionals in China, under the supervision of complicit managers. It also cited examples of how the company improperly recorded as legitimate expenses payments employees made for travel and entertainment, conferences, lecture fees, marketing events, educational seminars and medical studies.
Novartis began a review of its relationships with travel and event planning vendors in China “in connection with the SEC staff’s investigation and in response to media reports concerning a competitor in August 2013,” according to the SEC. After Novartis identified weaknesses in its internal controls, it “promptly took remedial steps,” the SEC said.
The majority of health care professionals in China work at government-run public hospitals. In September 2014, a Chinese court fined London-based Glaxo 297 million pounds ($419 million), capping a 15-month investigation into its sales practices in the country, which included allegations that it bribed doctors.