U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21033 / May 11, 2009
Securities & Exchange Commission v. Novo Nordisk A/S, Civil Action No. 1:09-CV-00862 (D.D.C.) (EGS)
SEC Files Settled Books and Records and Internal Controls Charges Against Novo Nordisk for Improper Payments to Iraq Under the U.N. Oil for Food Program
Novo Nordisk Agrees to Pay Over $10 Million in Disgorgement, Interest, and Penalties
The Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against Novo Nordisk in the U.S. District Court for the District of Columbia. Novo Nordisk A/S, a Danish company, specializes in the manufacture and development of pharmaceutical products and is a leading supplier of insulin worldwide. The Commission's complaint alleges that from 2000 through 2003, Novo Nordisk paid $1,437,946 in kickbacks and agreed to pay an additional $1,315,454 in kickbacks in connection with its sale of humanitarian goods to Iraq under the United Nations Oil for Food Program (the "Program"). The kickbacks were characterized as "after-sales service fees" ("ASSFs"), but no bona fide services were performed. The Program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions. The Program required the Iraqi government to purchase humanitarian goods through a U.N. escrow account. The kickbacks paid by Novo Nordisk diverted funds out of the escrow account and into Iraqi-controlled accounts at banks in countries such as Jordan.
According to the Commission's Complaint:
Novo Nordisk engaged its long-time Jordan-based agent to submit bids on Novo Nordisk's behalf to Kimadia, the Iraq State Company for the Importation and Distribution of Drugs and Medical Appliances, under the Program. Two branches of Novo Nordisk — RONE, based in Athens, Greece, and NEO, based in Amman, Jordan — handled the sales to Iraq and supplied the agent with bid prices for each contract. In late 2000 or early 2001, a Kimadia import manager advised the agent that Kimadia required Novo Nordisk to pay a ten percent kickback in order to obtain a contract under the Program. The Kimadia import manager told the agent that Novo Nordisk should increase its prices by ten percent and pay that amount to Kimadia. By doing so, Novo Nordisk would recover the secret kickback from the U.N. escrow account when the contract, with the inflated price, was subsequently approved for disbursement and paid by the U.N.
A Novo Nordisk officer rejected the request to pay Kimadia a ten percent kickback, and instead suggested that Novo Nordisk find another way. Novo Nordisk offered to reduce the price of its medicines by ten percent, but the Kimadia import manager angrily refused the offer. A Novo Nordisk Senior Vice President, along with RONE and NEO managers authorized the kickbacks to Kimadia despite the other officer's refusal to do so. On or about April 2001 and August 2001, respectively, Novo Nordisk paid increased commissions to its agent to pay the kickbacks to Kimadia. The agent's commission was increased under the guise that the payment was used to cover the agent's increased distribution and marketing costs. Various e-mails discussed the scheme to conceal the conduct, and the U.N. contracts were artificially inflated by ten percent. According to the RONE managers, subsequent kickbacks were also approved by Novo Nordisk. Altogether, Novo Nordisk made a total of $1,437,946 in improper kickback payments on eleven contracts through the agent. Novo Nordisk also agreed to pay approximately $1,315,454 in ASSFs on two additional contracts. Novo Nordisk recorded the kickbacks as legitimate commission payments on its books and records.
Novo Nordisk failed to maintain adequate systems of internal controls to detect and prevent the payments and their accounting for these transactions failed properly to record the nature of the payments. Novo Nordisk, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and ordering Novo Nordisk to disgorge $4,321,523 in profits plus $1,683,556 in pre-judgment interest, and a civil penalty of $3,025,066. Novo Nordisk will also pay a $9,000,000 penalty pursuant to a deferred prosecution agreement with the U.S. Department of Justice, Fraud Section. The Commission considered remedial acts promptly undertaken by Novo Nordisk and the cooperation the company afforded the Commission staff in its investigation.
The Commission's monetary relief in its Oil for Food investigation is now over $135 million. The investigation is continuing. The Commission acknowledges the assistance of the Department of Justice, Fraud Section and the United Nations Independent Inquiry Committee.