RF Law on Competition Protection v. FCPA

1. RF Law on Competition Protection v. FCPA Natalya Thotahewage Head of Legal Johnson&Johnson LLC (Russia&CIS) June 24, 2011

2. FCPA requirement related to distributors • Criteria for distributor selection, minimizing the number of distributors to reduce FCPA risks • Due Diligence of Distributors (legal (company’s incorporation, licenses etc, finance and FCPA integrity criteria • Due Diligence for Sub-Distributors: 1) where US subsidiary has a direct involvement in hiring sub-distributor; 2) where sub-distributor distributor perform more than 50 % of distributorship overall business; 3) where sub-distributor performs more than 50 % of distributorship overall business as regards to US subsidiary products; • Distributors shall inform US subsidiaries on appointment of sub-distributors May 19, 2010

3. FCPA requirement related to distributors (cont-d) • Right to audit of the distributors’ activities related to US subsidiaries products specified in the distributorship contracts • FCPA and Healthcare compliance training to distributors and sub-distributors • induction • for all employees involved • Upon request of distributor • Annual FCPA compliance certification of distributors and sub-distributors • Other requirements arising from DOJ May 19, 2010

4. Actions Involving Pharmaceutical Companies in the US • Johnson & Johnson (2011) – pays $48.6million to SEC and $21.4million to DOJ for paying bribes to public doctors and hospital administrators in Greece, Poland, and Romania and paying kickbacks to former Iraqi government. 3-year Defferred Prosecution Agreement. • Novo Nordisk (2009) – pays $9million penalty for illegal kickbacks paid to the former Iraqi government. • AGA Medical Corporation (2008) – pays $2million to DOJ in connection with corrupt payments made to Chinese government officials. • Synocor (2007) – pays $500,000 civil penalty to SEC for violating the anti-bribery, books and records, and internal controls provision of FCPA. • Former chairman paid $75,000 civil penalty to SEC for aiding and abetting Synocor’s FCPA violations. • Immucor (2007) – CEO pays $30,000 civil penalty to SEC for aiding and abetting Immucor’s FCPA violations April 06 2010

5. Increased Prosecution of Individuals • Prosecution of individuals a priority • Indictments against 22 individuals– single largest FCPA prosecution • Senior corporate executives targeted • March 2011: an individual agreed to forfeit record $149 million in connection with bribing Nigerian officials • 2010: longest prison term – 87 months – for an individual for corrupt payments to Panamanian officials • Result of increased individual prosecutions  potential increase in FCPA trials and court challenges April 06 2010

6. RF Law on Competition protection requirements • Distributor selection criteria • Article 421 of RF Civil Code establishes the freedom of contract • no public contract concept applicable as related to trading US sub-subsidiaries • even dominant companies can refuse in supply of products if they have production and economically justified reason to refuse (Art 10, Law on Competition protection) • Can US subsidiary can economically justify the refusal that the possible penalty for non-compliance with FCPA framework leads to significant economic losses? • Please note that there is no FAS guidance for all market players exists to address the issue!!! Clear, fair, equal and verifiable criteria are needed. • Due Diligence (due registration and pharmaceutical license in sufficient) • Other forms of potential dominance abuse like inclusion of foreign law norms into contracts between companies of RF, especially if there is a protocol of disagreement • (Art 10, Law on Competition protection), mandatory trainings and certification • Redundant information on secondary sales (like sub0ditributor shipments, final clients (hospitals), prices for awarded auctions v. regional sales data to remunerate sales force (Art 11 Part 3, Law on Competition protection Coordination of economic activities/concerted actions) • Informing of US subsidiaries about appointment of sub-distributor (Art 11 Part 3, Law on Competition protection Coordination of economic activities/concerted actions) April 06 2010

7. Interim first lessons learnt from Novonordisk case • NovonNodisk is accused for dominance abuse and entlitled to pay turnover penatlty • NovoNordisk has challenged FAS decision in court with the court suspension of penalty payment • Anticipated settlement agreement between NovoNordisk and FAS (as per TimofeyNizhegorodtsev speech of May 17th). • Commercial policy shall be published at NovoNordisk website. It may increase the number of wholesalers rather than distributors and increase operational (logistical cost of the company). • Template contract shall be placed at NovoNordisk website. Shall it become the public contract from civil law perspective or there will be a room for justified supply refusal as specified above? • Criteria for distributor selection with partial implementation of FCPA criteria (to avoid vague ethical reasons) • Fixed reasonable time for Due Diligence of distributors April 06 2010

8. Next steps • Dialog between FAS and DOJ shall be initiated to elaborate common vision and recommendation to prevent US subsidiaries to abide with one laws violating the others • Increase awareness among US subsidiaries of such clashed in laws (AmCham event for all US subsidiary members) • Seeking for general clarification of FAS to Due Dilihence and Distributor selection criteria to be published at FAS webside and at legal databases • Follow-ups on NovoNordisk and other similar cases, even outside the Pharma industry, on big Pharma event ocassions • Same consequences will apply to UK Anti-Bribery Act April 06 2010

9. Questions • Thanks • for the patience and attention! April XX 2010