In re NOVARTIS AG

 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 89149 / June 25, 2020 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 4150 / June 25, 2020 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-19835 
 
In the Matter of 
 
NOVARTIS AG 
 
Respondent. 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER  
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Novartis AG (“Novartis” or “Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, Respondent admits the Commission’s 
jurisdiction over it and the subject matter of these proceedings, and consents to the entry of this 
Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the Securities 
Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order (“Order”), as 
set forth below. 

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III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that:  
 
Summary 
  
1. These proceedings arise out of improper activities by subsidiaries and affiliates of 
Novartis AG, a global pharmaceutical and healthcare company headquartered in Basel, Switzerland, 
to increase the use of products in several geographic markets between 2012 and 2016.   
 
2. In Korea, Vietnam, and Greece, Novartis or Alcon local subsidiaries and affiliates 
engaged in schemes to make improper payments or to provide benefits to public and private 
healthcare providers (“HCPs”) in exchange for prescribing or using Novartis or Alcon products.  
These schemes varied in method and amount but were known among certain managers of the local 
subsidiaries or affiliates.  Within Novartis’ former Alcon Asia business, internal accounting 
controls weaknesses associated with Equipment Financing Arrangements (“EFAs”) in China from 
2013 to 2015 resulted in forged contracts, missing surgical equipment, as well as a significant EFA 
accounts receivable balance associated with poor performing EFAs, for which Alcon China 
recorded large bad-debt provisions. 
 
3.  False books and records were maintained in connection with the various schemes, 
and Novartis also lacked sufficient internal accounting controls with respect to certain aspects of 
the operations of these subsidiaries and affiliates.  As a result, Novartis violated the books and 
records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 
(the “FCPA”) [15 U.S.C. § 78m], and was unjustly enriched by approximately $92.3 million. 
 
Respondent 
 
4. Novartis AG (“Novartis”) is a global provider of pharmaceutical and healthcare 
products.  Novartis’ products are available in approximately 155 countries and Novartis Group 
companies employ approximately 104,000 individuals.  It is a corporation organized under the 
laws of Switzerland with headquarters in Basel, Switzerland.  During the relevant period, Novartis 
was the sole owner of Alcon Inc., an eye care company, until it was spun off in 2019.  Novartis 
issued and maintains a class of publicly traded securities registered pursuant to Section 12(b) of the 
Exchange Act, which are traded on the New York Stock Exchange under the ticker symbol 
“NVS.“
2
    
 
 
                                                 
1
  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 
 
2
  On March 23, 2016, Novartis settled a FCPA action with the Commission alleging violations arising from 
conduct in China. In the Matter of Novartis AG, Sec. Exch. Act Release No. 77431, available at    
http://www.sec.gov/litigation/admin/2016/34-77431-s.pdf 
 

 3 
Other Relevant Entities 
 
             5. Novartis (Hellas) S.A.C.I. (“Novartis Greece”), a Greek corporation headquartered 
in Athens, Greece, is an indirect wholly-owned subsidiary of Novartis.  Novartis Greece conducts 
sales and marketing activities throughout Greece for Novartis prescription drugs.  Novartis Greece 
financial statements were consolidated with those of Novartis.   
 
             6. Novartis Korea Ltd (“Novartis Korea”) is an indirect majority-owned subsidiary 
of Novartis.  Novartis Korea conducts sales and marketing activities throughout the Republic of 
South Korea with annual sales of between $300 million and $400 million during the relevant 
period.  Novartis Korea financial statements were consolidated with those of Novartis. 
 
7. Alcon, Inc. (“Alcon”) was a multinational eye care company with headquarters in 
Fort Worth, Texas, and was incorporated in Hünenberg, Switzerland.  In or around April 2011, 
Alcon merged with Novartis, after which Alcon became an indirect wholly-owned subsidiary of 
Novartis.  Alcon’s financial statements were consolidated with those of Novartis during the 
relevant period.  Alcon Inc. was spun off of Novartis in 2019 and currently maintains a class of 
publicly traded securities registered pursuant to Section 12(b) of the Exchange Act, which are 
traded on the New York Stock Exchange.  Alcon Inc. is currently the largest eye care company in 
the world with 20,000 employees conducting business in more than 140 countries.   
 
8. Alcon Pte Ltd (“Alcon Singapore”) was an affiliate of Alcon between 2011 and 
2014.  Among other functions, Alcon Singapore provided management oversight over two Alcon 
representative offices in Vietnam (collectively, “Alcon Vietnam”).  Alcon Singapore’s and Alcon 
Vietnam’s financial statements were consolidated with those of Novartis during the relevant 
period. 
 
FACTS 
 
Conduct Relevant to Greece 
 
9. From approximately 2012 through 2015, Novartis Greece engaged in a scheme to 
corruptly provide improper benefits and things of value to HCPs, including employees of state-
owned and state-controlled hospitals and clinics, to obtain an improper advantage and to increase 
sales of Lucentis in Greece.  In addition, from approximately 2009-2012, Novartis Greece 
conducted certain Phase IV and epidemiological studies that were primarily designed to promote 
sales of Novartis products in Greece, resulting in improper payments to HCPs. 
 
10. The misuse of seemingly legitimate educational and scientific activities for 
improper purposes included the Novartis Greece Ophthalmology franchise (“Ophtha”), and was 
known and approved by Novartis Greece Ophtha managers of various levels, including brand 
managers and sales managers, who provided guidance to subordinate staff on the use of 
“investment” activities.  Novartis Greece improperly recorded the payments related to these 
activities as legitimate advertising and promotion or marketing and sales expenses.   
  

 4 
11. Certain Novartis Greece Ophtha employees ranked HCPs by their prescribing 
product preference and volume and, based upon their likelihood to prescribe, provided them with 
improper inducements as “investments” to increase their use of Novartis products.  This was 
internally described as a return on investment ("ROI"), and sales and marketing staff were 
encouraged to plan their activities so as to maximize ROI.  In strategy planning documents within 
the Ophtha business franchise, sales staff remarked that HCPs were reminded of their investment 
and obligation to prescribe.  If an HCP was not meeting their return on investment, investment 
activities were reduced or eliminated.   
 
12. Novartis Greece’s Ophtha franchise misused international congress sponsorships to 
induce HCPs to write prescriptions for Lucentis, a drug sold by Novartis Greece that was used to 
treat neovascular (wet) age-related macular degeneration, among other indications.  Novartis 
Greece targeted Greek HCPs that it designated Key Opinion Leaders (“KOLs”) and paid their costs 
to attend the congresses, many of which exceeded $5,000 per HCP.  Internal documents written by 
members of Novartis Greece Ophtha franchise and minutes of meetings within the ophthalmology 
business discussed use of international congresses, including to the United States, to “undermine [a 
competitor company’s] aggressive congress policy,” and described the need to increase pressure on 
HCPs to prescribe Lucentis, including stating that HCPs “must understand that their participation 
in [specific congresses in the United States and Europe] will be cancelled if sales performance is 
not improved significantly.”  An internal document went on to describe that Novartis Greece sales 
representatives “must make clear to their [HCP] customers that Lucentis is facing real difficulties 
in the market and for this reason there will be serious consequences.”  In his 2013 Action Plan, the 
Novartis Greece Ophtha KOL manager wrote that he would convey to one ophthalmology KOL, 
“to get you must write.  No presents any more.”   
 
13. In certain instances, sales representatives also demanded that KOLs agree to “NON 
USE of [a competitor’s product and] TOTAL COOPERATION,” in exchange for Novartis Greece 
considering “DOUBLING THE GIFT IN 2014.”  Those Greek HCPs that were perceived to have a 
lower potential to prescribe Novartis drugs, and thus lower potential ROI, were excluded from 
obtaining sponsorships and other ostensibly educational and scientific activities. 
 
14.  Novartis Greece also engaged in improper conduct with respect to Phase IV and 
epidemiological studies.  The Phase IV clinical studies were supposed to be used to assess the 
safety and efficacy of the studied prescription drug with a publication announcing the results of the 
study in order to inform medical decisions.  In a phase IV clinical study, HCPs are selected by 
Novartis’ Medical Affairs group.  However, in certain instances, sales personnel made the selection 
of HCPs to participate in order to inappropriately promote particular products or induce HCPs to 
increase prescription sales.   
 
15. As described in a 2012 Novartis Internal Audit review of the phase IV studies 
conducted by Novartis Greece, there was a lack of transparency outside of the Medical Affairs 
function in the planning, design, and execution of clinical studies in Greece, and it determined that 
weaknesses in process and control design in execution did not ensure that the studies were of a 
non-promotional nature.  The review identified numerous control deficiencies surrounding Phase 
IV studies conducted in Greece, including (1) unsupported medical or scientific rationale to 

 5 
perform the studies; and (2) indications the studies were promotional and designed to achieve 
commercial advantage.  Internal audit also found controls weaknesses in the collection of data and 
publication of study results.  In response to the internal audit review, Novartis Greece agreed to 
engage in a remediation plan, and to improve the Finance Department’s oversight of clinical 
studies.   
 
16. Internal audit reported its findings to Novartis corporate security, which conducted 
its own review in 2012.  Among the studies that Novartis corporate security reviewed were 
EXACTLY related to the products Diovan, Exforge, and Rasilez; OBVIOUS related to product 
Aclasta; and REGINA related to product Xolair.  Novartis corporate security had similar findings.  
In summary, corporate security found weak scientific rationales for several clinical studies, 
suggesting that some clinical studies were used primarily, and inappropriately, as a marketing tool 
to increase sales of Novartis products.  Corporate security also found control weaknesses that made 
it difficult to ensure that HCPs were paid the correct amounts for their participation in the clinical 
studies.  For example, in the EXACTLY study, approximately four times as many HCP names 
were submitted to the local health authority than actually received payments.  Additionally, some 
payments were made to HCPs using a vendor named “dummy vendor.” 
 
17. Of the patient medical information submitted on 42,000 clinical research forms, 
25,500 forms had mistakes.  Further, an audio recording of a debrief following the EXACTLY 
study showed that some Novartis Greece employees were aware that some HCPs who participated 
in EXACTLY believed that they were obtaining payments in return for their prescriptions of 
Novartis products and not for their role in the study.  For instance: 
 
 “you all know this very well, I just repeat, that the doctor believes that he/she 
participates in a study and gets paid for what he prescribes in reality and not for 
what he/she write in the study...” 
 “To be honest, the studies were conducted in a similar way in the past as well; they 
were conducted as marketing projects.  That’s within quotation markes.  Between 
us.” 
 
18. From the perspective of Novartis Greece’s Finance Department, clinical studies 
were a “black box,” in that the Finance Department lacked visibility into clinical study budgets and 
due to a lack of internal accounting controls there was no proper reconciliation between budget and 
actual spend.  Moreover, in some instances, because of deficiencies in Novartis Greece’s internal 
accounting and supplier management controls, Novartis Greece used “dummy vendors” to try to 
track which HCPs were paid for which studies and to monitor payments relative to the approved 
budget.  Some HCPs received approximately 60 euros (then approximately $83 USD) per patient 
clinical form and some received as much as 38,000 euros (then approximately $52,820 USD) for 
completing clinical forms.  A follow-up Internal Audit review in 2013 concluded that Novartis 
Greece addressed many of the deficiencies identified in the 2012 review.  Over the next several 
years, Novartis Greece reduced the number of local Phase IV studies it performed and eventually 
stopped conducting them altogether. 
 

 6 
19. As described in a 2013 Novartis Internal Audit review, Novartis Greece also lacked 
sufficient controls around grants provided to HCPs, and they were sometimes provided without 
complete due diligence of the recipient, without clear details regarding the use of the funds, and in 
circumstances where there was an improper connection to sales strategies.  In response to the 
internal audit review, Novartis Greece agreed to improve internal controls over the grant approval 
and governance processes. 
 
20. During the relevant period, Novartis was unjustly enriched byover $70.1 million 
from sales in Greece of Lucentis and products related to the OBVIOUS and REGINA studies. 
 
Conduct Relevant to Alcon Vietnam 
 
21. Alcon conducted its business operations in Vietnam through two representative 
offices (collectively “Alcon Vietnam”).  Alcon Vietnam’s management and financial reporting  
were overseen by the regional management team of Alcon Singapore, which was an indirect 
wholly-owned subsidiary of Novartis.  In light of local laws, Alcon Vietnam conducted all sales 
and marketing activities of Alcon surgical equipment (e.g., phacoemulsification and refractive 
surgery lasers) and consumables (e.g., intraocular lenses (“IOLs”)) through a Vietnamese 
distributor (“Distributor Company”).  Under a 2006 distributorship agreement, the Distributor 
Company was guaranteed a margin of 24.7% for “importation, technical service, product 
registration, and distribution services.”   
 
22. Beginning in approximately 2007 and continuing into 2014, Alcon Vietnam and 
Distributor Company engaged in a scheme to make improper payments to HCPs, both private and 
publicly employed at Vietnam state-owned and state-controlled hospitals and clinics, to increase 
the sale of Alcon’s IOLs.  In connection with the scheme, from 2008 to late 2011, the Distributor 
Company implemented a “consultancy program” through which it paid bribes to HCPs in 
exchange for their agreement to recommend the benefits of Alcon products to patients and thereby 
increase sales of Alcon products.  Distributor Company made the improper payments directly to 
the HCPs with the approval of Alcon Vietnam managers and employees, who reimbursed 
Distributor Company for up to 50 percent of the costs associated with the payments through the 
use of credit notes.  
 
23. Alcon Vietnam personnel and Distributor Company coordinated the amounts of the 
improper payments to HCPs through the consultancy program and also coordinated which types of 
doctors to target for the payments.  For example, in July 2008 the Distributor Company proposed 
payments to, “Doctor in consult[ation] room,” “Doctor in the exam room,” “Nurse in 
consult[ation] room,” “and the “Chief of [Operating Room] in certain eye hospitals in Vietnam.  
Other communications made clear that the purpose of the payments was to “encourage[] doctors to 
introduce and use Alcon’s IOLs and ... speed up IOLs sales.”   
 
24. Following the 2011 merger of Novartis and Alcon, Novartis failed to take sufficient 
steps to ensure the improper payments to HCPs halted.  After 2011, the program was instead 
revised and referred to by different names (e.g., “patient education”), and Distributor Company’s 
payments to HCPs continued.  For example, a profit-and-loss statement provided by the Distributor 

 7 
Company to Alcon Vietnam Representative Office personnel in June 2014 showed a line item for 
“[c]onsultant cost” through mid-2014.  Despite awareness by some personnel at the representative 
offices of ongoing payments to HCPs by Distributor Company, Alcon Vietnam approved 
Distributor Company’s inflated requests to Alcon Vietnam for reimbursement for marketing, 
human resources, and margin reconciliation funds. 
 
25. Up until June 2014, Alcon Vietnam allowed for the Distributor Company to be paid 
annually as partial reimbursement for payments that it made to HCPs (for instance, reimbursing up 
to approximately $180,000 in 2010, and up to $100,000 in 2013 and 2014), pursuant to the 
consultancy program and the post-2011 variations of the program. 
 
26. During a phone call in or around late summer 2014, a Distributor Company 
executive told an Alcon Singapore executive that it had used up all of its funds to pay for Alcon 
surgical equipment and could no longer pay the “usual considerations” to HCPs to ensure they 
purchased Alcon products.  A former Alcon Singapore executive who was aware of the improper 
payments signed and transmitted two false Sarbanes-Oxley sub-certification letters to Alcon’s 
Chief Executive Officer and Chief Financial Officer in which the executive did not  identify the 
improper reimbursements to the Distributor Company.  The payments were falsely recorded as 
legitimate consultant payments in the consolidated books and records of Novartis.  
 
27. During the relevant period, Novartis was unjustly enriched by approximately $8.4 
million as a result of improper conduct in Vietnam. 
 
Conduct Relevant to Korea 
 
28. Between 2011 and August, 2016, Novartis Korea employees made corrupt 
payments to HCPs to increase prescriptions and sales of Novartis products over that of its 
competitors.  These payments were made through one of several means, and each of which was 
improperly recorded in Novartis’ consolidated books and records.  One scheme to make improper 
payments to HCPs was disguised as payments made for ostensible medical journal activities 
organized by a third party vendor.  Under local law, pharmaceutical companies are prohibited from 
making any type of payment directly to HCPs for the purpose of promoting sales.  One intent of 
the local restriction was to discourage pharmaceutical companies from concentrating more on 
marketing and promotional activities towards HCPs rather than on competition based on product 
quality through research and development.   
 
29. In an effort to circumvent local law, certain employees of Novartis Korea made the 
improper payments to HCPs via certain third-party medical journals that forwarded the payments 
to the HCPs for participating in roundtable meetings organized by the medical journal.  Novartis 
Korea sales personnel selected HCPs to participate in editorial and roundtable meetings, at some of 
which Novartis Korea sales representatives marketed Novartis products, and some meetings were 
followed by recreational activities with the HCPs.   
 
30. HCPs who participated in the round-table meetings received honoraria in amounts 
ranging from $268 to $447 USD per event, and the amount of fees paid to HCPs averaged $2550 

 8 
USD per journal.  The honoraria came from advertising fees Novartis Korea paid to the medical 
journals and were improperly recorded in the books and records as such.  Novartis Korea paid the 
medical journals over $16.3 million between 2011 and 2015, some of which was improperly 
passed on to HCPs as honoraria.  As these events were conducted through a vendor, they were not 
subjected to compliance review as otherwise required by Novartis’ policies.   
 
31. For the conduct described above, the Korean Ministry of Health and Welfare and 
the Korean Ministry of Food and Drug Safety imposed in 2017 civil administrative fines totaling 
approximately $50.3 million USD on Novartis Korea and suspended sales and reimbursements of  
certain Novartis products for 3-6 months.  In 2020, criminal proceedings by the South Korean 
authorities against Novartis Korea and several former Novartis Korea employees found Novartis 
Korea and one of its former sales staff guilty for the same conduct, and Novartis Korea was fined 
approximately $35,000 USD. 
 
32. In another scheme, Novartis Korea sales managers and employees organized the 
sponsorship of HCPs to international medical conferences as an inducement for HCPs to increase 
their prescriptions of Novartis products.  Between 2011 and August 2016, Novartis Korea provided 
funding for 2,032 HCPs to attend 381 international conferences at a combined cost of 
approximately $7 million.  Of those conferences, 645 HCPs attended 112 conferences in the 
United States at a cost of approximately $2.5 million.  The types of conferences varied across 
therapeutic area, including oncology, cardiometabolic, neuroscience, and ophthalmology.  As a 
result of internal accounting controls weaknesses, certain of these ostensibly legitimate congress 
sponsorship fees were used to improperly influence HCPs.  In connection with some congresses, 
Novartis Korea employees took into account the prescription sales activities of certain HCPs when 
targeting them for sponsorships in an effort to encourage the HCPs to increase their prescriptions.   
 
33. Novartis Korea incorrectly recorded the improper payments on its books and 
records as legitimate advertising and promotional fees.  Novartis Korea failed to have in place a 
control system reasonably designed to ensure that its sales staff were not using sponsorships as 
improper inducements.  Novartis Korea also failed to have adequate internal accounting controls 
over its payments for these trips.  In June 2017, Novartis Korea was charged and fined 
approximately $446,000 by the Korea Fair Trade Commission with unfair trade practices for the 
conduct described above.   
 
34. In yet a third scheme, Novartis Korea employees in the neuroscience business unit 
devised a local non-interventional clinical study with 17 pre-selected HCPs to improve 
relationships with those HCPs.  The study was organized in May 2013 through a local medical 
journal with Novartis Korea providing the list of HCPs to participate and the $100,000 funding 
necessary to complete the study.  Novartis Korea recorded the funding to complete the study as 
advertising expenses and failed to have the study reviewed and approved by medical affairs as 
required by internal procedures.   
 
35. Over the relevant time period, Novartis was unjustly enriched  by over $13.8 
million from the improper conduct in Korea. 
 

 9 
Conduct Relevant to Alcon Asia 
 
36. In 2011, Novartis merged with Alcon, which until that time had publicly traded 
securities in the United States.  After the merger, Novartis operated Alcon as a separate reporting 
segment through which it sold vision care equipment and other products, such as IOLs and other 
consumables.  
 
37.  From 2013 to 2015, within Novartis’ Alcon Asia business, including its  operations 
in China, employees placed Alcon surgical equipment at hospitals or clinics for no or little money 
down in exchange for contractual assurances that those hospitals or clinics would either pay for the 
equipment directly or finance it over several years through payments associated with the purchase 
of Alcon’s IOLs and consumables during the contract’s term.  
 
38. This business model was in place both before and after Novartis merged with 
Alcon, and it facilitated long-term relationships between Alcon and its customers.  Beginning in 
2013, Alcon called these agreements “equipment financing arrangements” (i.e., EFAs).  Certain 
Alcon Asia managers used aggressive sales techniques and employees in China at times falsified 
documents in order to enter into these EFAs. Novartis lacked adequate internal accounting controls 
to ensure the appropriate accounting treatment for the arrangements and to appropriately record the 
transactions in its books and records. 
    
39. Before 2013, Novartis generally accounted for Alcon’s equipment placement 
agreements as operating leases, and recognized associated revenue as payment was received, 
whether on the equipment or on associated sales of Alcon IOLs and/or consumables.  In 2013, 
Novartis generally started accounting for Alcon’s EFAs as finance leases or sales, recognizing 
revenue up front at the time of placement (after installation and training). 
 
40. Novartis lacked sufficient internal accounting controls needed in light of the 
degree of accounting, contractual, and financial complexity presented by EFAs.  For 
example, in connection with Alcon EFA’s in China, Novartis lacked appropriate internal 
accounting controls to ensure that a written instrument reflected the terms negotiated with a 
hospital, that agreements were signed or “chopped” by the counterparty hospital, and that 
agreements contained the price of consumables to be purchased or the premium to be paid.  
Other controls issues existed with respect to Alcon China’s credit assessments of 
counterparty hospitals, allowances for bad debt established at inception, compliance billing, 
equipment repossession, proof of delivery or installation and completion of required 
training associated with EFAs.   
 
41. Particularly in markets such as China, where the customer base of Alcon’s 
local subsidiary (“Alcon China”) was dominated by public hospitals and state HCPs, EFAs 
presented issues of validity, profitability, and misaligned incentives.  A significant portion 
of Alcon’s surgical sales in China were derived from EFAs  with state HCPs.     
 
42. After the switch to finance lease accounting, sales personnel – who until mid-2015 
were compensated, in part, based upon the amount of equipment placed under EFAs rather than 

 10 
upon how EFAs ultimately performed – entered into certain EFAs that did not satisfy relevant 
revenue recognition criteria or that inaccurately projected future IOL and/or consumable purchases.  
Despite knowing that customers’ “compliance rates” with respect to EFA contractual purchase 
obligations were sometimes very low, Alcon China continued entering into certain EFAs that 
lacked adequate profitability safeguards. 
   
43. In late 2015, a new management team of Alcon China initiated a 
comprehensive review of most equipment placed in hospitals and clinics and the associated 
contractual paperwork.  The on-site check was completed in the summer of 2016 and 
revealed that of the 1348 pieces of equipment in scope (with about 700 customers) that 844 
pieces of equipment had been placed pursuant to 466 contracts, with which Alcon China 
had identified potential issues.  Nearly half of the 844 pieces of equipment in question had 
been placed pursuant to contracts that lacked a formal hospital “chop” but had been 
validated by the hospital; the remaining pieces of equipment either could not be located, 
had been moved to other hospitals, or were obtained pursuant to forged or unverified  
contracts.  Group, Division, region, and local management became aware of the controls 
deficiencies through various internal audit reports, remediation exercises, and local 
financial certifications, including the 2016 internal audit of Alcon China, which resulted in 
a “Needs Major Improvement” rating for the second consecutive audit. 
 
44. Over time, efforts to ensure that EFAs in China were properly executed and 
recorded were unsuccessful, and Novartis management became aware of EFA-related controls 
deficiencies.  As described by a senior Alcon executive in a letter to several senior Novartis 
executives in response to a 2016 internal audit,  
 
A historically high pressure sales culture that prioritized meeting sales targets over 
compliance and a high tolerance of unacceptable risks still persists residually in the 
organization.  A very poorly executed legal EFA remediation exercise characterized 
by high pressure and coercion to obtain remediated contracts resulted in a large 
number of fraudulent, falsified, invalid and unenforceable contracts.  This resulted 
in a number of non-performing EFAs that are difficult to remediate commercially 
as the underlying agreement itself is in question. 
 
The letter observed that “[d]eveloping a strong compliance culture requires a 
comprehensive program and holistic approach with clear commitment from senior management” 
and then laid out the specific actions that Alcon’s new management team intended to take in late 
2016 to implement enhanced compliance processes to address the historical issues.   
 
45. During the relevant period, Novartis and Alcon attempted to strengthen controls to 
address these issues through various remediation exercises.  Novartis and Alcon ultimately 
abandoned the EFA business model for surgical sales in China and moved to a cash-sale business 
model beginning in late 2016.  The lack of appropriate internal accounting controls throughout the 
relevant period contributed to Novartis and Alcon ultimately provisioning over $50M in bad debt 
due to the poor performance of its EFAs in China. 
 

 11 
Legal Standards and Violations 
 
           46. Under Section 21C of the Exchange Act, the Commission may impose a cease-and-
desist order upon any person who is violating, has violated, or is about to violate any provision of 
the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, or 
would be a cause of the violation, due to an act or omission the person knew or should have known 
would contribute to such violation. 
 
         47. As a result of the conduct described above, Novartis violated Section 13(b)(2)(A) of 
the Exchange Act, which requires issuers that have a class of securities registered pursuant to 
Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) of 
the Exchange Act to make and keep books, records, and accounts which, in reasonable detail, 
accurately and fairly reflect their transactions and disposition of their assets.  [15 U.S.C. § 
78m(b)(2)(A)]. 
 
48. As a result of the conduct described above Novartis violated Section 13(b)(2)(B) of 
the Exchange Act, which requires issuers that have a class of securities registered pursuant to 
Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) of 
the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 
provide reasonable assurances that (i) transactions are executed in accordance with management’s 
general or specific authorization; (ii) transactions are recorded as necessary (I) to permit 
preparation of financial statements in conformity with generally accepted accounting principles or 
any other criteria applicable to such statements, and (II) to maintain accountability for assets; (iii) 
access to assets is permitted only in accordance with management’s general or specific 
authorization; and (iv) the recorded accountability for assets is compared with the existing assets at 
reasonable intervals and appropriate action is taken with respect to any differences.  [15 U.S.C. § 
78m(b)(2)(B)]. 
 
Cooperation and Remediation 
  
49. In determining to accept the Offer, the Commission considered remedial acts 
promptly undertaken by Respondent and cooperation afforded the Commission staff.  Novartis’ 
cooperation included providing translations of certain relevant documents, making current or 
former employees available to the Commission staff, and timely providing facts developed during 
the course of its own internal investigation.  Novartis’ remediation included the termination of 
select personnel and third-party entities involved in the misconduct and certain additions to and 
strengthening of its internal accounting controls.  Novartis also retained a dedicated chief 
compliance officer, improved its due diligence and business justification process for third parties, 
and enhanced training provided to employees. 
 
Undertakings 
  
50. Respondent shall report to the Commission staff periodically during a three-year 
term, the status of its remediation and implementation of compliance measures, particularly as to 
the areas of due diligence on prospective and existing third-party consultants and vendors, FCPA 

 12 
training and the testing of relevant controls including the collection and analysis of compliance 
data. During this period, should Respondent discover credible evidence, not already reported to 
Commission staff, that questionable or corrupt payments or questionable or corrupt transfers of 
value may have been offered, promised, paid, or authorized by Respondent, or any entity or person 
acting on behalf of Respondent, or that related false books and records have been maintained, 
Respondent shall promptly report such conduct to the Commission staff.  During this three-year 
period, Respondent shall: (1) conduct an initial review and submit an initial report and (2) conduct 
and prepare two follow-up reviews and reports, as described below: 
 
a. Respondent shall submit to the Commission staff a written report within 360  
calendar days of the entry of this Order setting forth a complete description of its 
FCPA and anti-corruption related remediation efforts to date, its proposals 
reasonably designed to improve the policies and procedures of Respondent for 
ensuring compliance with the FCPA and other applicable anticorruption laws, and 
the parameters of the subsequent review (the “Initial Report”). The Initial Report 
shall be transmitted to Tracy L. Price, Deputy Chief, FCPA Unit, Division of 
Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, 
DC 20549-5631.  Respondent may extend the time period for issuance of the Initial 
Report with prior written approval of the Commission staff. 
 
b. Respondent shall undertake two follow-up reviews, incorporating any comments 
provided by the Commission staff on the previous report, to further monitor and 
assess whether the policies and procedures of Respondent are reasonably designed 
to detect and prevent violations of the FCPA and other applicable anti-corruption 
laws (the “Follow-Up Reports”). 
 
c. The Follow-up Report shall be completed by no later than 720  days after the Initial 
Report. The second Follow-up Report shall be completed by no later than 1050  
days after the completion of the Initial Report. Respondent may extend the time 
period for issuance of the Follow-up Reports with prior written approval of the 
Commission staff. 
 
d. The periodic reviews and reports submitted by Respondent will likely include 
proprietary, financial, confidential, and competitive business information. Public 
disclosure of the reports could discourage cooperation, impede pending or potential 
government investigations and thus undermine the objectives of the reporting 
requirement. For these reasons, among others, the reports and the contents thereof 
are intended to remain and shall remain nonpublic, except (a) pursuant to court 
order, (b) as agreed by the parties in writing, (c) to the extent that the Commission 
staff determines in its sole discretion that disclosure would be in furtherance of the 
Commission’s discharge of its duties and responsibilities, or (d) is otherwise 
required by law. 
 
e. During this three-year period of review, Respondent shall provide its external 
auditors with its annual internal audit plan and reports of the results of internal audit 

 13 
procedures and its assessment of its FCPA compliance policies and procedures. 
 
f. During the three-year period of review, Respondent shall provide Commission staff 
with any written reports or recommendations provided by Respondent’s external 
auditors in response to Respondent’s annual internal audit plan, reports of the 
results of internal audit procedures, and its assessment of its FCPA compliance 
policies and procedures. 
 
51. Certify, in writing, compliance with the undertaking(s) set forth above. The 
certification shall identify the undertaking(s), provide written evidence of compliance in the form 
of a narrative, and be supported by exhibits sufficient to demonstrate compliance. The Commission 
staff may make reasonable requests for further evidence of compliance, and Respondent agrees to 
provide such evidence. The certification and supporting material shall be submitted to Tracy L. 
Price, Deputy Chief, FCPA Unit, Division of Enforcement, Securities and Exchange Commission, 
100 F St., NE, Washington, DC 20549-5631 no later than sixty (60) days from the date of the 
completion of the undertakings. 
  
Deferred-Prosecution Agreements 
 
 52. Novartis Hellas S.A.C.I., a Novartis subsidiary, has entered into a three-year 
deferred prosecution agreement with the U.S. Department of Justice, in which it acknowledged 
responsibility for criminal conduct relating to certain findings in the Order.  See United States v. 
Novartis Hellas S.A.C.I, Crim No. 20-CR-538 (DNJ Jun 25, 2020) (SDW).  Alcon Pte Ltd, a 
current subsidiary of Alcon Inc. and a former subsidiary of Novartis, independently entered into a 
three-year deferred prosecution agreement with the U.S. Department of Justice, in which Alcon Pte 
Ltd acknowledged responsibility for criminal conduct relating to certain findings in the Order.  See 
United States v. Alcon Pte Ltd, Crim No. 20-CR-539 (DNJ Jun 25, 2020) (SDW). 
 
Non-Imposition of a Civil Penalty 
 
 53. Novartis acknowledges that the Commission is not imposing a civil penalty based 
upon the imposition of a $233,925,000 criminal fine as part of the above referenced resolutions 
with the U.S. Department of Justice. 
 

 14 
IV. 
 
  
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent Novartis’ Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
committing or causing any violations and any future violations of Sections 13(b)(2)(A) and  
13(b)(2)(B) of the Exchange Act. 
 
B. Respondent  shall  comply  with  the  undertakings  enumerated  in  paragraphs 50-51 
above. 
 
C. Respondent shall, within fourteen days of the entry of this Order, pay disgorgement 
of $92,300,000 and prejudgment interest of $20,500,000 for a total of $112,800,000 to the 
Securities and Exchange Commission for transfer to the general fund of the United States 
Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, additional 
interest shall accrue pursuant to SEC Rule of Practice 600. 
  
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 

 15 
Payments by check or money order must be accompanied by a cover letter identifying 
Novartis as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Tracy L. Price, FCPA Deputy Unit 
Chief, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
Washington, DC 20549-5631.   
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
Secretary 
 
 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 89149 / June 25, 2020 

 

ACCOUNTING AND AUDITING ENFORCEMENT 

Release No. 4150 / June 25, 2020 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-19835 

 

In the Matter of 

 

NOVARTIS AG 

 

Respondent. 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER  

  

I. 
 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), against Novartis AG (“Novartis” or “Respondent”).   

 

II. 
 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, Respondent admits the Commission’s 

jurisdiction over it and the subject matter of these proceedings, and consents to the entry of this 

Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the Securities 

Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order (“Order”), as 

set forth below. 



 2 

III. 
 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  

 

Summary 
  

1. These proceedings arise out of improper activities by subsidiaries and affiliates of 

Novartis AG, a global pharmaceutical and healthcare company headquartered in Basel, Switzerland, 

to increase the use of products in several geographic markets between 2012 and 2016.   

 

2. In Korea, Vietnam, and Greece, Novartis or Alcon local subsidiaries and affiliates 

engaged in schemes to make improper payments or to provide benefits to public and private 

healthcare providers (“HCPs”) in exchange for prescribing or using Novartis or Alcon products.  

These schemes varied in method and amount but were known among certain managers of the local 

subsidiaries or affiliates.  Within Novartis’ former Alcon Asia business, internal accounting 

controls weaknesses associated with Equipment Financing Arrangements (“EFAs”) in China from 

2013 to 2015 resulted in forged contracts, missing surgical equipment, as well as a significant EFA 

accounts receivable balance associated with poor performing EFAs, for which Alcon China 

recorded large bad-debt provisions. 

 

3.  False books and records were maintained in connection with the various schemes, 

and Novartis also lacked sufficient internal accounting controls with respect to certain aspects of 

the operations of these subsidiaries and affiliates.  As a result, Novartis violated the books and 

records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 

(the “FCPA”) [15 U.S.C. § 78m], and was unjustly enriched by approximately $92.3 million. 

 

Respondent 

 

4. Novartis AG (“Novartis”) is a global provider of pharmaceutical and healthcare 

products.  Novartis’ products are available in approximately 155 countries and Novartis Group 

companies employ approximately 104,000 individuals.  It is a corporation organized under the 

laws of Switzerland with headquarters in Basel, Switzerland.  During the relevant period, Novartis 

was the sole owner of Alcon Inc., an eye care company, until it was spun off in 2019.  Novartis 

issued and maintains a class of publicly traded securities registered pursuant to Section 12(b) of the 

Exchange Act, which are traded on the New York Stock Exchange under the ticker symbol 

“NVS.“2    

 

 

                                                 
1  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 

person or entity in this or any other proceeding. 

 
2  On March 23, 2016, Novartis settled a FCPA action with the Commission alleging violations arising from 

conduct in China. In the Matter of Novartis AG, Sec. Exch. Act Release No. 77431, available at    

http://www.sec.gov/litigation/admin/2016/34-77431-s.pdf 

 

http://www.sec.gov/litigation/admin/2016/34-77431-s.pdf


 3 

Other Relevant Entities 
 

             5. Novartis (Hellas) S.A.C.I. (“Novartis Greece”), a Greek corporation headquartered 

in Athens, Greece, is an indirect wholly-owned subsidiary of Novartis.  Novartis Greece conducts 

sales and marketing activities throughout Greece for Novartis prescription drugs.  Novartis Greece 

financial statements were consolidated with those of Novartis.   

 

             6. Novartis Korea Ltd (“Novartis Korea”) is an indirect majority-owned subsidiary 

of Novartis.  Novartis Korea conducts sales and marketing activities throughout the Republic of 

South Korea with annual sales of between $300 million and $400 million during the relevant 

period.  Novartis Korea financial statements were consolidated with those of Novartis. 

 

7. Alcon, Inc. (“Alcon”) was a multinational eye care company with headquarters in 

Fort Worth, Texas, and was incorporated in Hünenberg, Switzerland.  In or around April 2011, 

Alcon merged with Novartis, after which Alcon became an indirect wholly-owned subsidiary of 

Novartis.  Alcon’s financial statements were consolidated with those of Novartis during the 

relevant period.  Alcon Inc. was spun off of Novartis in 2019 and currently maintains a class of 

publicly traded securities registered pursuant to Section 12(b) of the Exchange Act, which are 

traded on the New York Stock Exchange.  Alcon Inc. is currently the largest eye care company in 

the world with 20,000 employees conducting business in more than 140 countries.   

 

8. Alcon Pte Ltd (“Alcon Singapore”) was an affiliate of Alcon between 2011 and 

2014.  Among other functions, Alcon Singapore provided management oversight over two Alcon 

representative offices in Vietnam (collectively, “Alcon Vietnam”).  Alcon Singapore’s and Alcon 

Vietnam’s financial statements were consolidated with those of Novartis during the relevant 

period. 

 

FACTS 

 

Conduct Relevant to Greece 

 

9. From approximately 2012 through 2015, Novartis Greece engaged in a scheme to 

corruptly provide improper benefits and things of value to HCPs, including employees of state-

owned and state-controlled hospitals and clinics, to obtain an improper advantage and to increase 

sales of Lucentis in Greece.  In addition, from approximately 2009-2012, Novartis Greece 

conducted certain Phase IV and epidemiological studies that were primarily designed to promote 

sales of Novartis products in Greece, resulting in improper payments to HCPs. 

 

10. The misuse of seemingly legitimate educational and scientific activities for 

improper purposes included the Novartis Greece Ophthalmology franchise (“Ophtha”), and was 

known and approved by Novartis Greece Ophtha managers of various levels, including brand 

managers and sales managers, who provided guidance to subordinate staff on the use of 

“investment” activities.  Novartis Greece improperly recorded the payments related to these 

activities as legitimate advertising and promotion or marketing and sales expenses.   

  



 4 

11. Certain Novartis Greece Ophtha employees ranked HCPs by their prescribing 

product preference and volume and, based upon their likelihood to prescribe, provided them with 

improper inducements as “investments” to increase their use of Novartis products.  This was 

internally described as a return on investment ("ROI"), and sales and marketing staff were 

encouraged to plan their activities so as to maximize ROI.  In strategy planning documents within 

the Ophtha business franchise, sales staff remarked that HCPs were reminded of their investment 

and obligation to prescribe.  If an HCP was not meeting their return on investment, investment 

activities were reduced or eliminated.   

 

12. Novartis Greece’s Ophtha franchise misused international congress sponsorships to 

induce HCPs to write prescriptions for Lucentis, a drug sold by Novartis Greece that was used to 

treat neovascular (wet) age-related macular degeneration, among other indications.  Novartis 

Greece targeted Greek HCPs that it designated Key Opinion Leaders (“KOLs”) and paid their costs 

to attend the congresses, many of which exceeded $5,000 per HCP.  Internal documents written by 

members of Novartis Greece Ophtha franchise and minutes of meetings within the ophthalmology 

business discussed use of international congresses, including to the United States, to “undermine [a 

competitor company’s] aggressive congress policy,” and described the need to increase pressure on 

HCPs to prescribe Lucentis, including stating that HCPs “must understand that their participation 

in [specific congresses in the United States and Europe] will be cancelled if sales performance is 

not improved significantly.”  An internal document went on to describe that Novartis Greece sales 

representatives “must make clear to their [HCP] customers that Lucentis is facing real difficulties 

in the market and for this reason there will be serious consequences.”  In his 2013 Action Plan, the 

Novartis Greece Ophtha KOL manager wrote that he would convey to one ophthalmology KOL, 

“to get you must write.  No presents any more.”   

 

13. In certain instances, sales representatives also demanded that KOLs agree to “NON 

USE of [a competitor’s product and] TOTAL COOPERATION,” in exchange for Novartis Greece 

considering “DOUBLING THE GIFT IN 2014.”  Those Greek HCPs that were perceived to have a 

lower potential to prescribe Novartis drugs, and thus lower potential ROI, were excluded from 

obtaining sponsorships and other ostensibly educational and scientific activities. 

 

14.  Novartis Greece also engaged in improper conduct with respect to Phase IV and 

epidemiological studies.  The Phase IV clinical studies were supposed to be used to assess the 

safety and efficacy of the studied prescription drug with a publication announcing the results of the 

study in order to inform medical decisions.  In a phase IV clinical study, HCPs are selected by 

Novartis’ Medical Affairs group.  However, in certain instances, sales personnel made the selection 

of HCPs to participate in order to inappropriately promote particular products or induce HCPs to 

increase prescription sales.   

 

15. As described in a 2012 Novartis Internal Audit review of the phase IV studies 

conducted by Novartis Greece, there was a lack of transparency outside of the Medical Affairs 

function in the planning, design, and execution of clinical studies in Greece, and it determined that 

weaknesses in process and control design in execution did not ensure that the studies were of a 

non-promotional nature.  The review identified numerous control deficiencies surrounding Phase 

IV studies conducted in Greece, including (1) unsupported medical or scientific rationale to 



 5 

perform the studies; and (2) indications the studies were promotional and designed to achieve 

commercial advantage.  Internal audit also found controls weaknesses in the collection of data and 

publication of study results.  In response to the internal audit review, Novartis Greece agreed to 

engage in a remediation plan, and to improve the Finance Department’s oversight of clinical 

studies.   

 

16. Internal audit reported its findings to Novartis corporate security, which conducted 

its own review in 2012.  Among the studies that Novartis corporate security reviewed were 

EXACTLY related to the products Diovan, Exforge, and Rasilez; OBVIOUS related to product 

Aclasta; and REGINA related to product Xolair.  Novartis corporate security had similar findings.  

In summary, corporate security found weak scientific rationales for several clinical studies, 

suggesting that some clinical studies were used primarily, and inappropriately, as a marketing tool 

to increase sales of Novartis products.  Corporate security also found control weaknesses that made 

it difficult to ensure that HCPs were paid the correct amounts for their participation in the clinical 

studies.  For example, in the EXACTLY study, approximately four times as many HCP names 

were submitted to the local health authority than actually received payments.  Additionally, some 

payments were made to HCPs using a vendor named “dummy vendor.” 

 

17. Of the patient medical information submitted on 42,000 clinical research forms, 

25,500 forms had mistakes.  Further, an audio recording of a debrief following the EXACTLY 

study showed that some Novartis Greece employees were aware that some HCPs who participated 

in EXACTLY believed that they were obtaining payments in return for their prescriptions of 

Novartis products and not for their role in the study.  For instance: 

 

 “you all know this very well, I just repeat, that the doctor believes that he/she 

participates in a study and gets paid for what he prescribes in reality and not for 

what he/she write in the study…” 

 “To be honest, the studies were conducted in a similar way in the past as well; they 

were conducted as marketing projects.  That’s within quotation markes.  Between 

us.” 

 

18. From the perspective of Novartis Greece’s Finance Department, clinical studies 

were a “black box,” in that the Finance Department lacked visibility into clinical study budgets and 

due to a lack of internal accounting controls there was no proper reconciliation between budget and 

actual spend.  Moreover, in some instances, because of deficiencies in Novartis Greece’s internal 

accounting and supplier management controls, Novartis Greece used “dummy vendors” to try to 

track which HCPs were paid for which studies and to monitor payments relative to the approved 

budget.  Some HCPs received approximately 60 euros (then approximately $83 USD) per patient 

clinical form and some received as much as 38,000 euros (then approximately $52,820 USD) for 

completing clinical forms.  A follow-up Internal Audit review in 2013 concluded that Novartis 

Greece addressed many of the deficiencies identified in the 2012 review.  Over the next several 

years, Novartis Greece reduced the number of local Phase IV studies it performed and eventually 

stopped conducting them altogether. 

 



 6 

19. As described in a 2013 Novartis Internal Audit review, Novartis Greece also lacked 

sufficient controls around grants provided to HCPs, and they were sometimes provided without 

complete due diligence of the recipient, without clear details regarding the use of the funds, and in 

circumstances where there was an improper connection to sales strategies.  In response to the 

internal audit review, Novartis Greece agreed to improve internal controls over the grant approval 

and governance processes. 

 

20. During the relevant period, Novartis was unjustly enriched byover $70.1 million 

from sales in Greece of Lucentis and products related to the OBVIOUS and REGINA studies. 

 

Conduct Relevant to Alcon Vietnam 

 

21. Alcon conducted its business operations in Vietnam through two representative 

offices (collectively “Alcon Vietnam”).  Alcon Vietnam’s management and financial reporting  

were overseen by the regional management team of Alcon Singapore, which was an indirect 

wholly-owned subsidiary of Novartis.  In light of local laws, Alcon Vietnam conducted all sales 

and marketing activities of Alcon surgical equipment (e.g., phacoemulsification and refractive 

surgery lasers) and consumables (e.g., intraocular lenses (“IOLs”)) through a Vietnamese 

distributor (“Distributor Company”).  Under a 2006 distributorship agreement, the Distributor 

Company was guaranteed a margin of 24.7% for “importation, technical service, product 

registration, and distribution services.”   

 

22. Beginning in approximately 2007 and continuing into 2014, Alcon Vietnam and 

Distributor Company engaged in a scheme to make improper payments to HCPs, both private and 

publicly employed at Vietnam state-owned and state-controlled hospitals and clinics, to increase 

the sale of Alcon’s IOLs.  In connection with the scheme, from 2008 to late 2011, the Distributor 

Company implemented a “consultancy program” through which it paid bribes to HCPs in 

exchange for their agreement to recommend the benefits of Alcon products to patients and thereby 

increase sales of Alcon products.  Distributor Company made the improper payments directly to 

the HCPs with the approval of Alcon Vietnam managers and employees, who reimbursed 

Distributor Company for up to 50 percent of the costs associated with the payments through the 

use of credit notes.  

 

23. Alcon Vietnam personnel and Distributor Company coordinated the amounts of the 

improper payments to HCPs through the consultancy program and also coordinated which types of 

doctors to target for the payments.  For example, in July 2008 the Distributor Company proposed 

payments to, “Doctor in consult[ation] room,” “Doctor in the exam room,” “Nurse in 

consult[ation] room,” “and the “Chief of [Operating Room] in certain eye hospitals in Vietnam.  

Other communications made clear that the purpose of the payments was to “encourage[] doctors to 

introduce and use Alcon’s IOLs and … speed up IOLs sales.”   

 

24. Following the 2011 merger of Novartis and Alcon, Novartis failed to take sufficient 

steps to ensure the improper payments to HCPs halted.  After 2011, the program was instead 

revised and referred to by different names (e.g., “patient education”), and Distributor Company’s 

payments to HCPs continued.  For example, a profit-and-loss statement provided by the Distributor 



 7 

Company to Alcon Vietnam Representative Office personnel in June 2014 showed a line item for 

“[c]onsultant cost” through mid-2014.  Despite awareness by some personnel at the representative 

offices of ongoing payments to HCPs by Distributor Company, Alcon Vietnam approved 

Distributor Company’s inflated requests to Alcon Vietnam for reimbursement for marketing, 

human resources, and margin reconciliation funds. 

 

25. Up until June 2014, Alcon Vietnam allowed for the Distributor Company to be paid 

annually as partial reimbursement for payments that it made to HCPs (for instance, reimbursing up 

to approximately $180,000 in 2010, and up to $100,000 in 2013 and 2014), pursuant to the 

consultancy program and the post-2011 variations of the program. 

 

26. During a phone call in or around late summer 2014, a Distributor Company 

executive told an Alcon Singapore executive that it had used up all of its funds to pay for Alcon 

surgical equipment and could no longer pay the “usual considerations” to HCPs to ensure they 

purchased Alcon products.  A former Alcon Singapore executive who was aware of the improper 

payments signed and transmitted two false Sarbanes-Oxley sub-certification letters to Alcon’s 

Chief Executive Officer and Chief Financial Officer in which the executive did not  identify the 

improper reimbursements to the Distributor Company.  The payments were falsely recorded as 

legitimate consultant payments in the consolidated books and records of Novartis.  

 

27. During the relevant period, Novartis was unjustly enriched by approximately $8.4 

million as a result of improper conduct in Vietnam. 

 

Conduct Relevant to Korea 

 

28. Between 2011 and August, 2016, Novartis Korea employees made corrupt 

payments to HCPs to increase prescriptions and sales of Novartis products over that of its 

competitors.  These payments were made through one of several means, and each of which was 

improperly recorded in Novartis’ consolidated books and records.  One scheme to make improper 

payments to HCPs was disguised as payments made for ostensible medical journal activities 

organized by a third party vendor.  Under local law, pharmaceutical companies are prohibited from 

making any type of payment directly to HCPs for the purpose of promoting sales.  One intent of 

the local restriction was to discourage pharmaceutical companies from concentrating more on 

marketing and promotional activities towards HCPs rather than on competition based on product 

quality through research and development.   

 

29. In an effort to circumvent local law, certain employees of Novartis Korea made the 

improper payments to HCPs via certain third-party medical journals that forwarded the payments 

to the HCPs for participating in roundtable meetings organized by the medical journal.  Novartis 

Korea sales personnel selected HCPs to participate in editorial and roundtable meetings, at some of 

which Novartis Korea sales representatives marketed Novartis products, and some meetings were 

followed by recreational activities with the HCPs.   

 

30. HCPs who participated in the round-table meetings received honoraria in amounts 

ranging from $268 to $447 USD per event, and the amount of fees paid to HCPs averaged $2550 



 8 

USD per journal.  The honoraria came from advertising fees Novartis Korea paid to the medical 

journals and were improperly recorded in the books and records as such.  Novartis Korea paid the 

medical journals over $16.3 million between 2011 and 2015, some of which was improperly 

passed on to HCPs as honoraria.  As these events were conducted through a vendor, they were not 

subjected to compliance review as otherwise required by Novartis’ policies.   

 

31. For the conduct described above, the Korean Ministry of Health and Welfare and 

the Korean Ministry of Food and Drug Safety imposed in 2017 civil administrative fines totaling 

approximately $50.3 million USD on Novartis Korea and suspended sales and reimbursements of  

certain Novartis products for 3-6 months.  In 2020, criminal proceedings by the South Korean 

authorities against Novartis Korea and several former Novartis Korea employees found Novartis 

Korea and one of its former sales staff guilty for the same conduct, and Novartis Korea was fined 

approximately $35,000 USD. 

 

32. In another scheme, Novartis Korea sales managers and employees organized the 

sponsorship of HCPs to international medical conferences as an inducement for HCPs to increase 

their prescriptions of Novartis products.  Between 2011 and August 2016, Novartis Korea provided 

funding for 2,032 HCPs to attend 381 international conferences at a combined cost of 

approximately $7 million.  Of those conferences, 645 HCPs attended 112 conferences in the 

United States at a cost of approximately $2.5 million.  The types of conferences varied across 

therapeutic area, including oncology, cardiometabolic, neuroscience, and ophthalmology.  As a 

result of internal accounting controls weaknesses, certain of these ostensibly legitimate congress 

sponsorship fees were used to improperly influence HCPs.  In connection with some congresses, 

Novartis Korea employees took into account the prescription sales activities of certain HCPs when 

targeting them for sponsorships in an effort to encourage the HCPs to increase their prescriptions.   

 

33. Novartis Korea incorrectly recorded the improper payments on its books and 

records as legitimate advertising and promotional fees.  Novartis Korea failed to have in place a 

control system reasonably designed to ensure that its sales staff were not using sponsorships as 

improper inducements.  Novartis Korea also failed to have adequate internal accounting controls 

over its payments for these trips.  In June 2017, Novartis Korea was charged and fined 

approximately $446,000 by the Korea Fair Trade Commission with unfair trade practices for the 

conduct described above.   

 

34. In yet a third scheme, Novartis Korea employees in the neuroscience business unit 

devised a local non-interventional clinical study with 17 pre-selected HCPs to improve 

relationships with those HCPs.  The study was organized in May 2013 through a local medical 

journal with Novartis Korea providing the list of HCPs to participate and the $100,000 funding 

necessary to complete the study.  Novartis Korea recorded the funding to complete the study as 

advertising expenses and failed to have the study reviewed and approved by medical affairs as 

required by internal procedures.   

 

35. Over the relevant time period, Novartis was unjustly enriched  by over $13.8 

million from the improper conduct in Korea. 

 



 9 

Conduct Relevant to Alcon Asia 

 

36. In 2011, Novartis merged with Alcon, which until that time had publicly traded 

securities in the United States.  After the merger, Novartis operated Alcon as a separate reporting 

segment through which it sold vision care equipment and other products, such as IOLs and other 

consumables.  

 

37.  From 2013 to 2015, within Novartis’ Alcon Asia business, including its  operations 

in China, employees placed Alcon surgical equipment at hospitals or clinics for no or little money 

down in exchange for contractual assurances that those hospitals or clinics would either pay for the 

equipment directly or finance it over several years through payments associated with the purchase 

of Alcon’s IOLs and consumables during the contract’s term.  

 

38. This business model was in place both before and after Novartis merged with 

Alcon, and it facilitated long-term relationships between Alcon and its customers.  Beginning in 

2013, Alcon called these agreements “equipment financing arrangements” (i.e., EFAs).  Certain 

Alcon Asia managers used aggressive sales techniques and employees in China at times falsified 

documents in order to enter into these EFAs. Novartis lacked adequate internal accounting controls 

to ensure the appropriate accounting treatment for the arrangements and to appropriately record the 

transactions in its books and records. 

    

39. Before 2013, Novartis generally accounted for Alcon’s equipment placement 

agreements as operating leases, and recognized associated revenue as payment was received, 

whether on the equipment or on associated sales of Alcon IOLs and/or consumables.  In 2013, 

Novartis generally started accounting for Alcon’s EFAs as finance leases or sales, recognizing 

revenue up front at the time of placement (after installation and training). 

 

40. Novartis lacked sufficient internal accounting controls needed in light of the 

degree of accounting, contractual, and financial complexity presented by EFAs.  For 

example, in connection with Alcon EFA’s in China, Novartis lacked appropriate internal 

accounting controls to ensure that a written instrument reflected the terms negotiated with a 

hospital, that agreements were signed or “chopped” by the counterparty hospital, and that 

agreements contained the price of consumables to be purchased or the premium to be paid.  

Other controls issues existed with respect to Alcon China’s credit assessments of 

counterparty hospitals, allowances for bad debt established at inception, compliance billing, 

equipment repossession, proof of delivery or installation and completion of required 

training associated with EFAs.   

 

41. Particularly in markets such as China, where the customer base of Alcon’s 

local subsidiary (“Alcon China”) was dominated by public hospitals and state HCPs, EFAs 

presented issues of validity, profitability, and misaligned incentives.  A significant portion 

of Alcon’s surgical sales in China were derived from EFAs  with state HCPs.     

 

42. After the switch to finance lease accounting, sales personnel – who until mid-2015 

were compensated, in part, based upon the amount of equipment placed under EFAs rather than 



 10 

upon how EFAs ultimately performed – entered into certain EFAs that did not satisfy relevant 

revenue recognition criteria or that inaccurately projected future IOL and/or consumable purchases.  

Despite knowing that customers’ “compliance rates” with respect to EFA contractual purchase 

obligations were sometimes very low, Alcon China continued entering into certain EFAs that 

lacked adequate profitability safeguards. 

   

43. In late 2015, a new management team of Alcon China initiated a 

comprehensive review of most equipment placed in hospitals and clinics and the associated 

contractual paperwork.  The on-site check was completed in the summer of 2016 and 

revealed that of the 1348 pieces of equipment in scope (with about 700 customers) that 844 

pieces of equipment had been placed pursuant to 466 contracts, with which Alcon China 

had identified potential issues.  Nearly half of the 844 pieces of equipment in question had 

been placed pursuant to contracts that lacked a formal hospital “chop” but had been 

validated by the hospital; the remaining pieces of equipment either could not be located, 

had been moved to other hospitals, or were obtained pursuant to forged or unverified  

contracts.  Group, Division, region, and local management became aware of the controls 

deficiencies through various internal audit reports, remediation exercises, and local 

financial certifications, including the 2016 internal audit of Alcon China, which resulted in 

a “Needs Major Improvement” rating for the second consecutive audit. 

 

44. Over time, efforts to ensure that EFAs in China were properly executed and 

recorded were unsuccessful, and Novartis management became aware of EFA-related controls 

deficiencies.  As described by a senior Alcon executive in a letter to several senior Novartis 

executives in response to a 2016 internal audit,  

 

A historically high pressure sales culture that prioritized meeting sales targets over 

compliance and a high tolerance of unacceptable risks still persists residually in the 

organization.  A very poorly executed legal EFA remediation exercise characterized 

by high pressure and coercion to obtain remediated contracts resulted in a large 

number of fraudulent, falsified, invalid and unenforceable contracts.  This resulted 

in a number of non-performing EFAs that are difficult to remediate commercially 

as the underlying agreement itself is in question. 

 

The letter observed that “[d]eveloping a strong compliance culture requires a 

comprehensive program and holistic approach with clear commitment from senior management” 

and then laid out the specific actions that Alcon’s new management team intended to take in late 

2016 to implement enhanced compliance processes to address the historical issues.   

 

45. During the relevant period, Novartis and Alcon attempted to strengthen controls to 

address these issues through various remediation exercises.  Novartis and Alcon ultimately 

abandoned the EFA business model for surgical sales in China and moved to a cash-sale business 

model beginning in late 2016.  The lack of appropriate internal accounting controls throughout the 

relevant period contributed to Novartis and Alcon ultimately provisioning over $50M in bad debt 

due to the poor performance of its EFAs in China. 

 



 11 

Legal Standards and Violations 

 

           46. Under Section 21C of the Exchange Act, the Commission may impose a cease-and-

desist order upon any person who is violating, has violated, or is about to violate any provision of 

the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, or 

would be a cause of the violation, due to an act or omission the person knew or should have known 

would contribute to such violation. 

 

         47. As a result of the conduct described above, Novartis violated Section 13(b)(2)(A) of 

the Exchange Act, which requires issuers that have a class of securities registered pursuant to 

Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) of 

the Exchange Act to make and keep books, records, and accounts which, in reasonable detail, 

accurately and fairly reflect their transactions and disposition of their assets.  [15 U.S.C. § 

78m(b)(2)(A)]. 

 

48. As a result of the conduct described above Novartis violated Section 13(b)(2)(B) of 

the Exchange Act, which requires issuers that have a class of securities registered pursuant to 

Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) of 

the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 

provide reasonable assurances that (i) transactions are executed in accordance with management’s 

general or specific authorization; (ii) transactions are recorded as necessary (I) to permit 

preparation of financial statements in conformity with generally accepted accounting principles or 

any other criteria applicable to such statements, and (II) to maintain accountability for assets; (iii) 

access to assets is permitted only in accordance with management’s general or specific 

authorization; and (iv) the recorded accountability for assets is compared with the existing assets at 

reasonable intervals and appropriate action is taken with respect to any differences.  [15 U.S.C. § 

78m(b)(2)(B)]. 

 

Cooperation and Remediation 
  

49. In determining to accept the Offer, the Commission considered remedial acts 

promptly undertaken by Respondent and cooperation afforded the Commission staff.  Novartis’ 

cooperation included providing translations of certain relevant documents, making current or 

former employees available to the Commission staff, and timely providing facts developed during 

the course of its own internal investigation.  Novartis’ remediation included the termination of 

select personnel and third-party entities involved in the misconduct and certain additions to and 

strengthening of its internal accounting controls.  Novartis also retained a dedicated chief 

compliance officer, improved its due diligence and business justification process for third parties, 

and enhanced training provided to employees. 

 

Undertakings 
  

50. Respondent shall report to the Commission staff periodically during a three-year 

term, the status of its remediation and implementation of compliance measures, particularly as to 

the areas of due diligence on prospective and existing third-party consultants and vendors, FCPA 



 12 

training and the testing of relevant controls including the collection and analysis of compliance 

data. During this period, should Respondent discover credible evidence, not already reported to 

Commission staff, that questionable or corrupt payments or questionable or corrupt transfers of 

value may have been offered, promised, paid, or authorized by Respondent, or any entity or person 

acting on behalf of Respondent, or that related false books and records have been maintained, 

Respondent shall promptly report such conduct to the Commission staff.  During this three-year 

period, Respondent shall: (1) conduct an initial review and submit an initial report and (2) conduct 

and prepare two follow-up reviews and reports, as described below: 

 

a. Respondent shall submit to the Commission staff a written report within 360  

calendar days of the entry of this Order setting forth a complete description of its 

FCPA and anti-corruption related remediation efforts to date, its proposals 

reasonably designed to improve the policies and procedures of Respondent for 

ensuring compliance with the FCPA and other applicable anticorruption laws, and 

the parameters of the subsequent review (the “Initial Report”). The Initial Report 

shall be transmitted to Tracy L. Price, Deputy Chief, FCPA Unit, Division of 

Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, 

DC 20549-5631.  Respondent may extend the time period for issuance of the Initial 

Report with prior written approval of the Commission staff. 

 

b. Respondent shall undertake two follow-up reviews, incorporating any comments 

provided by the Commission staff on the previous report, to further monitor and 

assess whether the policies and procedures of Respondent are reasonably designed 

to detect and prevent violations of the FCPA and other applicable anti-corruption 

laws (the “Follow-Up Reports”). 

 

c. The Follow-up Report shall be completed by no later than 720  days after the Initial 

Report. The second Follow-up Report shall be completed by no later than 1050  

days after the completion of the Initial Report. Respondent may extend the time 

period for issuance of the Follow-up Reports with prior written approval of the 

Commission staff. 

 

d. The periodic reviews and reports submitted by Respondent will likely include 

proprietary, financial, confidential, and competitive business information. Public 

disclosure of the reports could discourage cooperation, impede pending or potential 

government investigations and thus undermine the objectives of the reporting 

requirement. For these reasons, among others, the reports and the contents thereof 

are intended to remain and shall remain nonpublic, except (a) pursuant to court 

order, (b) as agreed by the parties in writing, (c) to the extent that the Commission 

staff determines in its sole discretion that disclosure would be in furtherance of the 

Commission’s discharge of its duties and responsibilities, or (d) is otherwise 

required by law. 

 

e. During this three-year period of review, Respondent shall provide its external 

auditors with its annual internal audit plan and reports of the results of internal audit 



 13 

procedures and its assessment of its FCPA compliance policies and procedures. 

 

f. During the three-year period of review, Respondent shall provide Commission staff 

with any written reports or recommendations provided by Respondent’s external 

auditors in response to Respondent’s annual internal audit plan, reports of the 

results of internal audit procedures, and its assessment of its FCPA compliance 

policies and procedures. 

 

51. Certify, in writing, compliance with the undertaking(s) set forth above. The 

certification shall identify the undertaking(s), provide written evidence of compliance in the form 

of a narrative, and be supported by exhibits sufficient to demonstrate compliance. The Commission 

staff may make reasonable requests for further evidence of compliance, and Respondent agrees to 

provide such evidence. The certification and supporting material shall be submitted to Tracy L. 

Price, Deputy Chief, FCPA Unit, Division of Enforcement, Securities and Exchange Commission, 

100 F St., NE, Washington, DC 20549-5631 no later than sixty (60) days from the date of the 

completion of the undertakings. 

  

Deferred-Prosecution Agreements 

 

 52. Novartis Hellas S.A.C.I., a Novartis subsidiary, has entered into a three-year 

deferred prosecution agreement with the U.S. Department of Justice, in which it acknowledged 

responsibility for criminal conduct relating to certain findings in the Order.  See United States v. 

Novartis Hellas S.A.C.I, Crim No. 20-CR-538 (DNJ Jun 25, 2020) (SDW).  Alcon Pte Ltd, a 

current subsidiary of Alcon Inc. and a former subsidiary of Novartis, independently entered into a 

three-year deferred prosecution agreement with the U.S. Department of Justice, in which Alcon Pte 

Ltd acknowledged responsibility for criminal conduct relating to certain findings in the Order.  See 

United States v. Alcon Pte Ltd, Crim No. 20-CR-539 (DNJ Jun 25, 2020) (SDW). 

 

Non-Imposition of a Civil Penalty 
 

 53. Novartis acknowledges that the Commission is not imposing a civil penalty based 

upon the imposition of a $233,925,000 criminal fine as part of the above referenced resolutions 

with the U.S. Department of Justice. 

 



 14 

IV. 

 

  

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent Novartis’ Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 

committing or causing any violations and any future violations of Sections 13(b)(2)(A) and  

13(b)(2)(B) of the Exchange Act. 

 

B. Respondent shall comply with the undertakings enumerated in paragraphs 50-51 

above. 

 

C. Respondent shall, within fourteen days of the entry of this Order, pay disgorgement 

of $92,300,000 and prejudgment interest of $20,500,000 for a total of $112,800,000 to the 

Securities and Exchange Commission for transfer to the general fund of the United States 

Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, additional 

interest shall accrue pursuant to SEC Rule of Practice 600. 

  

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

http://www.sec.gov/about/offices/ofm.htm


 15 

Payments by check or money order must be accompanied by a cover letter identifying 

Novartis as a Respondent in these proceedings, and the file number of these proceedings; a copy of 

the cover letter and check or money order must be sent to Tracy L. Price, FCPA Deputy Unit 

Chief, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 

Washington, DC 20549-5631.   

 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

Secretary