PharmExec Blog

How Pro-Active is Your Anti-Bribery Strategy?

How Pro-active is Your Anti-Bribery Strategy?
Most multinationals are already familiar with the Foreign Corrupt Practices Act (FCPA). US regulators have been aggressively prosecuting companies and individuals for bribery with increasing zeal for the past decade, with healthcare companies being specially targeted. Recently, leading manufacturers of orthopedic implants: Zimmer, Depuy, Smith & Nephew, Biomet and Stryker settled with US regulators regarding US public sector contracts under the False Claims Act (paying penalties totaling $310 million) and accepted that they had paid bribes (cash and in-kind) and kickbacks to doctors and consultants who had bought and recommended their products. More recently there have been a number of FCPA settlements in the sector which we list out below. However, a couple of companies in this sector received ‘declinations’ in this sector based FCPA investigation – that is undertakings that the US Government would not prosecute – for reasons we will discuss later. Often these FCPA cases have their ultimate provenance in US Anti-Trust, US Healthcare Fraud or False Claims Act prosecutions and are continuations in kind.
There have also been settlements from pharma companies that won orders under the Iraqi government’s Oil for Food Programme (Novo Nordisk and Akzo Nobel both have settled).
In the UK, the Serious Fraud Office (SFO) — the body charged with prosecuting bribery and corruption – has had a slow start in prosecuting under the UK’s Bribery Act, which came into force in 2010. But the SFO did have some success under prior legislation in its prosecution of Robert Dougall, a former Vice President of Market Development of Johnson & Johnson subsidiary, Depuy International. Dougall was found guilty of conspiring to make corrupt payments and give inducements to medical professionals working in the Greek public healthcare system. Despite Dougall’s full co operation with the SFO, the Court sentenced him to a year in jail, although in a welcome show of sanity, this was reduced to a suspended sentence on appeal.
Tigers and Flies
However, the biggest news by far in 2013 has related to the high profile dawn raids by Chinese authorities – which have focused on many leading pharma companies. GSK, Astra Zeneca, Sanofi and Novartis have, according to the press, all received such attention from Chinese prosecutors. GSK’s vice president of China operations has publicly admitted that the company used third party vendors to help stage legitimate conferences however at inflated prices. The vendors, such as travel agents, then allegedly used the extra money to pay the bribes to doctors presumably to help promote the sale of relevant product. The US Department of Justice and the UK’s SFO are apparently also investigating these allegations.
The Risks From Business Partners
Many companies use agents or distributors to interact with government officials; to import and export; arrange permits; market their products; or act as intermediaries or facilitators: this is one of the main areas of risk. This is because in most anti-bribery statute, companies are liable for the actions of not only their subsidiaries, but also these joint venture partners, distributors and agents.
Risk Areas for Multinational Managers.
All business managers recognize that passing bundles of cash in brown envelopes to senior governmental officials in return for lucrative contracts is indefensible. Many of the recent prosecutions for bribery, however, have excluded such blatant activity. Instead, they have involved routine, smaller payments, in mundane circumstances, simply to get things done in far flung parts of the world.
Having a very wide ambit, the relevant laws do not define a bribe by the payment of cash, but rather, giving a “financial or other advantage” to the recipient. This can include paying expenses on behalf of someone (paying school fees for the recipient’s children is popular) or where entertaining crosses the boundary of acceptability and has no link to legitimate product promotion.
In our experience, many of the business managers who have been investigated for bribery
Are unaware that the activity is criminal.
Believe that the activity is “standard business practice.”
Do not realize the seriousness of the criminal penalties if they are prosecuted.
Do not realize the damage that can be caused by their corrupt act.
Do not believe that they will be caught.
Are required to condone the corrupt activity and are afraid to refuse to do so.
Implications for the Pharmaceutical Industry
This sector cannot be passive. It must actively re-address anti-bribery policies and ensure that “adequate procedures” are in place. Governmental organizations have an increasing ability to fully resource and inform more technical investigations. Back in 2009, Lanny Breuer, whilst a senior prosecutor in the Department of Justice (DoJ), made a keynote address at Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum. His experience is that: “In the pharmaceutical context, we (the DoJ) have additional expertise that significantly enhances our ability to proactively investigate and prosecute these often complex cases. That additional expertise is located in our healthcare fraud group, where we have prosecutors and analysts with the industry knowledge necessary to quickly identify corrupt practices. These two groups — our
FCPA unit and our healthcare fraud unit — are already beginning to work together to investigate FCPA violations in the pharmaceutical and device industries in an effort to maximize our ability to effectively enforce the law in this area.”
Clearly other regulators and prosecutors are closely scrutinizing the sector also.
We believe pharma companies need to take these three key steps to start to address their exposure to regulatory prosecution:
Set the tone from the top — appoint a Bribery Czar — educate management and employees, and agents and suppliers on the likely impacts of the Act, and show people how to avoid falling foul of the law. Implement rigorous controls regarding payments and expenses.
Check high risk areas — review past practice to identify areas or transactions at risk, and seek independent advice and help to deal with problems and to improve processes.
Business partners — they must structure their business to ensure there are contracts with all agents and suppliers that require clear, honest practice. They must put contingency arrangements in place wherever risks lie and retain the right to audit a business partner’s practices – and actually be prepared to audit in the event of a red flag or whistleblower allegations. Increasingly, many companies are rolling out a specific programs to do just this taking into account the risk based approach referenced above. They need to be able to terminate the contract if found to be noncompliant.
As Mark Pieth, Chair of the Organisation for Economic Co operation Development (OECD) Working Group on Bribery, has stated: “Bribery is indeed still out there. Perhaps part of the problem is that the closer you look, the more you find.”
On the positive side, if companies can demonstrate a robust compliance culture and infrastructure, this has led to declinations from prosecutors. Pharma, as has long been the case with Natural Resources industry, has clearly become a sector where the question is not ‘if’ but ‘when’, or even ‘when again’ will regulatory investigations strike.
About the Authors
Toby Duthie is one of FRA’s co-founders and heads its London office. With experience in cases involving government enforcement in the UK and the US, his expertise lies in internal and regulatory investigations, data protection and complex financial modeling, with particular experience in global, multi-jurisdictional cases. Toby was instrumental in the development of FRA’s service in the anti-corruption and white-collar defense arena across Europe. He spent more than five years in the US, gaining extensive experience advising on damages amounts in a number of complex civil and criminal litigations and in connection with a number of high-profile FCPA enforcement actions (e.g. Panalpina, Bonny Island LNG and Oil for Food). He has also worked on matters involving the UK, Swiss and French regulators.
David Lawler is an expert forensic accountant with over 20 years’ experience in white collar and anti-corruption investigations, insolvency litigation, and in valuing and appraising troubled, declining or formative businesses. David has quantified and reported on gain and disgorgement analysis for a number of international companies charged with breaches of the FCPA by US enforcement authorities. He also performs intensive reviews and tests of the
FCPA/anti-corruption systems and controls in place at overseas branches of several multinational energy and mining companies, including extensive compliance audits in South America, West Africa and Asia. David is the author of the textbook, ‘Frequently Asked Questions in Anti-Bribery and Corruption’, published by John Wiley & Sons in March 2012.
About Forensic Risk Alliance
Forensic Risk Alliance is an international firm of forensic investigators and accountants, data protection experts and eDiscovery specialists with offices in the US, UK, France and Switzerland. It helps businesses to resolve complex and high-risk financial, legal and regulatory challenges. Its people provide independent, conflict-free advice and litigation support services, often in the local language as its team speaks most of the world’s key business languages, including most European languages as well as Arabic, Russian, Portuguese, Mandarin and Cantonese Chinese, Malay and Bahasa Indonesia. FRA collects and analyzes data for use in legal disputes and investigations (often cross-border) in a number of areas, including litigation, fraud, bribery and corruption investigations. The company has extensive worldwide project experience in Latin America, Asia, Europe, Africa and the Middle East. FRA is one of only ten companies in the world approved to carry out validation audits for the EITI (Extractive Industries Transparency) Initiative which evaluate how well a country’s government conforms to the EITI’s standards of transparency in reporting revenue received from the extraction of natural resources. For more information, visit www.forensicriskk.com

The pharmaceutical sector needs to shape up to deal with the big uptake in bribery and corruption enforcement actions — and not just in the USA, write Toby Duthie and David Lawler.

Most multinationals are already familiar with the Foreign Corrupt Practices Act (FCPA). US regulators have been aggressively prosecuting companies and individuals for bribery with increasing zeal for the past decade, with healthcare companies being specially targeted. Recently, leading manufacturers of orthopedic implants: Zimmer, Depuy, Smith & Nephew, Biomet and Stryker settled with US regulators regarding US public sector contracts under the False Claims Act (paying penalties totaling $310 million) and accepted that they had paid bribes (cash and in-kind) and kickbacks to doctors and consultants who had bought and recommended their products. More recently there have been a number of FCPA settlements in the sector which we list out below. However, a couple of companies in this sector received ‘declinations’ in this sector based FCPA investigation — that is undertakings that the US Government would not prosecute – for reasons we will discuss later. Often these FCPA cases have their ultimate provenance in US Anti-Trust, US Healthcare Fraud or False Claims Act prosecutions and are continuations in kind.

There have also been settlements from pharma companies that won orders under the Iraqi government’s Oil for Food Programme (Novo Nordisk and Akzo Nobel both have settled).

In the UK, the Serious Fraud Office (SFO) — the body charged with prosecuting bribery and corruption – has had a slow start in prosecuting under the UK’s Bribery Act, which came into force in 2010. But the SFO did have some success under prior legislation in its prosecution of Robert Dougall, a former Vice President of Market Development of Johnson & Johnson subsidiary, Depuy International. Dougall was found guilty of conspiring to make corrupt payments and give inducements to medical professionals working in the Greek public healthcare system. Despite Dougall’s full co operation with the SFO, the Court sentenced him to a year in jail, although in a welcome show of sanity, this was reduced to a suspended sentence on appeal.

Tigers and Flies
However, the biggest news by far in 2013 has related to the high profile dawn raids by Chinese authorities — which have focused on many leading pharma companies. GSK, Astra Zeneca, Sanofi and Novartis have, according to the press, all received such attention from Chinese prosecutors. GSK’s vice president of China operations has publicly admitted that the company used third party vendors to help stage legitimate conferences however at inflated prices. The vendors, such as travel agents, then allegedly used the extra money to pay the bribes to doctors presumably to help promote the sale of relevant product. The US Department of Justice and the UK’s SFO are apparently also investigating these allegations.

The Risks From Business Partners
Many companies use agents or distributors to interact with government officials; to import and export; arrange permits; market their products; or act as intermediaries or facilitators: this is one of the main areas of risk. This is because in most anti-bribery statute, companies are liable for the actions of not only their subsidiaries, but also these joint venture partners, distributors and agents.

Risk Areas for Multinational Managers.
All business managers recognize that passing bundles of cash in brown envelopes to senior governmental officials in return for lucrative contracts is indefensible. Many of the recent prosecutions for bribery, however, have excluded such blatant activity. Instead, they have involved routine, smaller payments, in mundane circumstances, simply to get things done in far flung parts of the world.

Having a very wide ambit, the relevant laws do not define a bribe by the payment of cash, but rather, giving a “financial or other advantage” to the recipient. This can include paying expenses on behalf of someone (paying school fees for the recipient’s children is popular) or where entertaining crosses the boundary of acceptability and has no link to legitimate product promotion.

In our experience, many of the business managers who have been investigated for bribery

Are unaware that the activity is criminal.

Believe that the activity is “standard business practice.”

Do not realize the seriousness of the criminal penalties if they are prosecuted.

Do not realize the damage that can be caused by their corrupt act.

Do not believe that they will be caught.

Are required to condone the corrupt activity and are afraid to refuse to do so.

Implications for the Pharmaceutical Industry
This sector cannot be passive. It must actively re-address anti-bribery policies and ensure that “adequate procedures” are in place. Governmental organizations have an increasing ability to fully resource and inform more technical investigations. Back in 2009, Lanny Breuer, whilst a senior prosecutor in the Department of Justice (DoJ), made a keynote address at Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum. His experience is that: “In the pharmaceutical context, we (the DoJ) have additional expertise that significantly enhances our ability to proactively investigate and prosecute these often complex cases. That additional expertise is located in our healthcare fraud group, where we have prosecutors and analysts with the industry knowledge necessary to quickly identify corrupt practices. These two groups — ourFCPA unit and our healthcare fraud unit — are already beginning to work together to investigate FCPA violations in the pharmaceutical and device industries in an effort to maximize our ability to effectively enforce the law in this area.”

Clearly other regulators and prosecutors are closely scrutinizing the sector also.

We believe pharma companies need to take these three key steps to start to address their exposure to regulatory prosecution:

Set the tone from the top — appoint a Bribery Czar — educate management and employees, and agents and suppliers on the likely impacts of the Act, and show people how to avoid falling foul of the law. Implement rigorous controls regarding payments and expenses.

Check high risk areas — review past practice to identify areas or transactions at risk, and seek independent advice and help to deal with problems and to improve processes.

Business partners — they must structure their business to ensure there are contracts with all agents and suppliers that require clear, honest practice. They must put contingency arrangements in place wherever risks lie and retain the right to audit a business partner’s practices – and actually be prepared to audit in the event of a red flag or whistleblower allegations. Increasingly, many companies are rolling out a specific programs to do just this taking into account the risk based approach referenced above. They need to be able to terminate the contract if found to be noncompliant.

As Mark Pieth, Chair of the Organisation for Economic Co operation Development (OECD) Working Group on Bribery, has stated: “Bribery is indeed still out there. Perhaps part of the problem is that the closer you look, the more you find.”

On the positive side, if companies can demonstrate a robust compliance culture and infrastructure, this has led to declinations from prosecutors. Pharma, as has long been the case with Natural Resources industry, has clearly become a sector where the question is not ‘if’ but ‘when’, or even ‘when again’ will regulatory investigations strike.

About the Authors
Toby Duthie is a co-founder of Forensic Risk Alliance, an international firm of forensic investigators and accountants, data protection experts and eDiscovery specialists. Tony heads FRA’s London office.  David Lawler is an expert forensic accountant and author of Frequently Asked Questions in Anti-Bribery and Corruption (John Wiley & Sons, 2012).

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