Kickbacks through shell companies, cash in envelopes and health officials - in documents from the American investigation into the criminal activities of Pfizer Russia

On August 7, 2012, the world's largest pharmaceutical company Pfizer (manufacturer of Viagra, Diflucan, etc.) announced the conclusion of a settlement agreement with the US Department of Justice and the Securities and Exchange Commission (SEC), which accused its subsidiary of violating the anti-corruption law for abroad (FCPA). Pfizer will pay $15 million in the Justice Department's criminal complaint and $26 million in the SEC's civil lawsuit (namely, $16 million in ill-gotten gains and $10.3 million in penalties for the use of illegally obtained funds).

On August 7, the SEC published an investigation into Pfizer, which details how the company spent more than $2 million on bribes to officials in Russia, Bulgaria, Croatia and Kazakhstan between 1997 and 2006. According to SEC documents, the illegal actions allowed Pfizer to make an additional $7 million in profits. With the help of bribes, the pharmaceutical manufacturer stimulated government purchases of its own drugs, customs clearance, and prescription drug dispensing.

Doctors took cash

As an SEC investigation found (information contained in the commission's published lawsuit against Pfizer), from the mid-1990s to 2005, the company implemented a marketing program to stimulate drug purchases by hospitals, under which 5% of the cost of Pfizer drugs purchased by medical institutions was transferred to doctors (who made decisions on purchase) in cash. Employees of Pfizer's Russian subsidiary (Pfizer CJSC, also known as Pfizer Russia) received cash for bribes from shell companies that issued false invoices.

All payments under the “hospital program” were reflected in the accounting statements of Pfizer’s Russian subsidiary in two accounts, through which $820,000 passed in 2004-2005 alone. Information on specific clinics, companies and persons under the terms of the agreement between Pfizer and the SEC is not disclosed.

Sponsorship of officials

On November 19, 2003, an employee of Pfizer Russia submitted an invoice for payment to the company’s accounting department for expenses for the foreign trip of the “first deputy minister of health,” the document says, without specifying whether the federal or regional department is being discussed. When asked by Forbes, the company also refused to clarify what structure was being discussed in this account.

In the accompanying letter, the employee said that payment of these expenses “will contribute to the inclusion of the company’s drugs in the list of preferential drugs,” that is, those drugs that are provided to patients at the expense of the budget.

At that time, the position of first deputy head of the Ministry of Health and Social Development was held by Gennady Onishchenko (now the chief sanitary doctor of Russia). It was not possible to obtain a comment from the ministry or Onishchenko himself at the time of submission of the material.

On December 2, 2004, a Pfizer employee presented an invoice for “sponsorship” of an official from the Moscow Department of Health; the cover letter stated that he was taking part in compiling a list of antibiotics purchased by one of the capital’s children’s clinics. The civil servant, in exchange for financial compensation, agreed to add the company's drugs to this list.

On June 27, 2005, a Pfizer employee asked to pay for a Russian official’s trip to a conference in exchange for his assistance in increasing the purchase of the company’s drugs to $100,000. The document does not specify the official’s status, he is called a “government doctor.”

Customs is given the go-ahead

In 2005, Russia introduced mandatory certification of imported drugs in accordance with the requirements of the Ministry of Health. Without a certificate, customs clearance of drugs was prohibited. Certification was carried out by a state-authorized Certification Center.

Pfizer's products, as follows from SEC documents, did not fully meet the criteria required to obtain a certificate, so the company experienced difficulties importing them into Russia. In October 2005, an employee of the Certification Center offered assistance in obtaining certificates in exchange for a monthly payment of $3,000. From October to December 2005, with the consent of the head of the Pfizer representative office in Russia (according to SPARK-Interfax, the only subsidiary of the concern in Russia in 2005 was headed by Robert Marshall), the company paid the said official through an intermediary structure $13,000.

The company into whose account the money was received, according to the SEC, was controlled by employees of the Certification Center, and the difficulties with importing products into Russia disappeared.

Problems resurfaced in 2006 after the company stopped making monthly payments due to an internal audit of its Russian subsidiary, the documents say.

Kickbacks for winning government tenders

On April 7, 2004, in a cover letter for payment of two invoices, a Pfizer employee explained that the money was intended for an official of the Samara Department of Health for assistance in winning government tenders.

The first invoice was dated March 2004 for $3,800. The money was intended directly to the official “for payment for services for the purchase of medicines by the region” (his name was not given). The second invoice for $4,500 was dated April 2004, and the money was transferred to the account of an intermediary company that the company used to make questionable payments to officials.

No consequences

This is not the first time that the application of the American anti-corruption law (the rules allow companies trading on American public platforms to be held accountable for corruption crimes in third countries) has led to the media and the general public becoming aware of the scale of bribes and kickbacks in the Russian executive branch. However, all these scandals did not lead to a single anti-corruption investigation in Russia.

In 2010, Daimler Corporation, as part of a similar investigation, admitted to paying kickbacks to officials in dozens of countries during government procurement of Mercedes-Benz cars. Episodes of Russian kickbacks concerned the period 2000-2005. The total amount of corruption payments by the German auto giant in Russia, according to SEC documents, was estimated at €5 million.

The cars were purchased by the Special Purpose Garage of the FSO, the Ministry of Internal Affairs, the Ministry of Defense, and the mayor's offices of Moscow, Ufa and Novy Urengoy, but cases in Russia were initiated only in relation to purchases by the Ministry of Internal Affairs and the FSO. Soon, the investigation into the case in Russia stalled, and State Duma deputy Sergei Petrov made a request to the Investigative Committee about its progress. According to the official response of the Investigative Committee, published by Petrov in early 2012, the committee identified and interrogated suspects in this crime. As stated in the committee’s response, two cases are currently being investigated under Part 4 of Art. 159 (fraud): one is about kickbacks in the purchase of cars for the FSO, and the second is for the Ministry of Internal Affairs and its regional divisions. Requests for international assistance in the case have been sent to the United States, Germany and Latvia, but no names have been provided.

Deputy Petrov believes that the question of the need to investigate Pfizer bribes in Russia can only arise in our country or in states that are not far behind us in the Transparency International ranking. Fighting the corruption that is corroding the country is the main responsibility of law enforcement agencies, however, in the current conditions, the question of investigating kickbacks of the pharmaceutical giant in Russia is becoming rhetorical, the parliamentarian states.

How Pfizer corrupted Russian officials