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European Pharmaceutical Contractor

Prevention is Better Than Cure

As law enforcement and regulators turn the spotlight on bribery and corruption, the pharmaceutical and life sciences industries face heightened risks. Cases of late have revealed significant compliance failings involving well-known brands, such as GlaxoSmithKline (GSK), Johnson & Johnson, Eli Lilly and Pfizer – suggesting there may be some way to go in strengthening governance.

All companies operating and contracting in the pharma and life sciences spheres need to have policies and procedures designed to minimise bribery threats. Enforcement agencies around the world have become increasingly aggressive in investigating cases in recent years and, for businesses expanding globally into new and emerging markets, bribery and corruption risks are particularly acute.

The recent example of GSK – a Britishheadquartered pharma and consumer healthcare firm – illustrates that failure to consider the threat of bribery occurring within an organisation, and to implement adequate procedures to address this risk, can have very serious consequences. The Chinese division of GSK was fined $489 million in September 2014 after it was found guilty of bribery, and authorities prosecuted five of the company’s senior managers, who reportedly received suspended prison sentences of between two and four years. The investigation began in China in July 2013, following allegations that GSK sales staff had paid bribes to doctors and hospitals in order to have their products promoted, channelling illicit kickbacks through travel agencies and pharma industry associations. In 2014, following the inquiries in China, the UK, the US and Poland launched criminal investigations into the commercial practices of GSK and its subsidiaries.

Legal Backing

With increasing cross-border enforcement cooperation, understanding the basics of anti-bribery and corruption law, as well as implementing adequate prevention procedures, is a must for all contractors in or dealing with the pharma and life sciences sectors. However, this challenge is by no means insurmountable and there is significant scope to improve the current position, while reducing reputational, financial and personal risks to senior executives.

The UK Bribery Act defines bribery as the offer, promise or giving of a financial or other advantage to someone else, or the request, agreement to receive or acceptance of a financial or other advantage from someone else, either as an inducement or a reward for improper performance of a public or business function. The recipient of the advantage may be the person acting improperly or another, with the Act also imposing liability on businesses that fail to prevent bribes being paid on their behalf by employees or others performing services for them. Significantly, to commit an offence, an organisation does not need to actively carry it out or even be aware of it; failing to prevent bribery is enough for conviction. However, the company may have a defence if it can demonstrate that it had adequate anti-bribery and corruption procedures in place.

The US Foreign Corrupt Practices Act (FCPA) 1977 and the UK Act are both very broadly framed anti-bribery regimes – both in terms of what they prohibit and where they can apply. The latter can catch offences which take place outside the UK, if there is a close connection to the country. This is the case when bribery is carried out by an organisation that was incorporated or formed in the UK, executed a business or part of a business there; or by an individual who is a British citizen or ordinarily a resident. Companies or individuals can also face legal action for the same conduct under local laws, so in a global industry such as pharma, multiple prosecutions can be brought.

What is the Damage?

The consequences for involvement in bribery are severe, including investigation, prosecution and possible imprisonment for individuals, and large fines for companies, as well as the prospect of legal costs. Organisations can face disgorgement of profits, serious dents to their reputation, and damage to supplier and customer relationships. Moreover, the procurement laws of the EU require member states to exclude firms convicted of corruption from being awarded public procurement contracts.

Meanwhile, a breach of the FCPA can give rise to extremely large fines. Late last year, Alstom – a French industrial giant in the electricity and transport market – paid $772 million in criminal penalties to US authorities, to settle charges for bribing officials in Indonesia, Saudi Arabia, Egypt and the Bahamas. Under the UK Bribery Act, fines are not subject to a maximum cap.

Local Variations

As businesses move into areas where local laws may be weak or seldom enforced, it is all the more important to have robust internal compliance procedures in place for a number of reasons. Firstly, since bribery laws have wide international reach, even bribes given abroad could lead to prosecutions back home or in other countries.

Secondly, risk is heightened where public sector dealings are concerned. While the UK Act covers both private and public offences, some countries’ laws apply only to bribery of public officials, or are more rigorously applied in that context. Healthcare professionals – doctors and hospital staff, for instance – and health fund administrators are often regarded as public officials for this purpose.

Finally, entering new markets often involves the use of third parties, such as local agents. Under the UK Act, third parties, if they give a bribe to obtain business for their principal, bring liability both to the principal and themselves. Due diligence needs to be conducted on partners performing services on the company’s behalf, not just in order to be compliant with the UK Act, but also for sound commercial and risk management reasons. The frequent use of intermediaries to enter new markets means that, when it comes to business partners, there is a greater need for enhanced and effective due diligence, both from the outset and on an ongoing basis. The company’s compliance programme should be implemented by these third parties if they do not have their own which is of equal rigour.

Steps to Compliance

Having adequate anti-bribery and corruption defences in place makes sense from a business perspective, as well as potentially providing a defence to the corporate offence under the UK Act. Firms should therefore develop procedures appropriate to the risks faced by their organisation, using the following six practical steps as a guide:
  • Risk assessment: any compliance programme should start with a risk assessment. A lack of clarity in the policy on gifts, entertaining and travel expenses, or an absence of clear financial controls or communication from top-level management, may be factors that add to the level of risk faced. Companies should periodically assess the nature and extent of exposure to potential bribery, both internal and external, and ensure this process is informed and documented
  • Clear, practical, accessible procedures: organisations must develop procedures that are proportionate to the bribery risks relevant to them, and to the nature, scale and complexity of the activities they undertake. These procedures should be effectively implemented and enforced
  • Top-level commitment: it is crucial that a strong anti-bribery culture is established throughout businesses, from the top down. In a number of recent cases, senior management have been involved in bribery – therefore, systems must be designed to pick up misconduct at the highest level, just as much as throughout the rest of the company
  • Due diligence: these procedures need to be applied to business relationships with those who perform, or will perform, services for or on behalf of another organisation
  • Effective implementation: it is imperative that anti-bribery policies and procedures are embedded and understood throughout a company. This can be done through internal communication and training, and communication with suppliers and customers
  • Anti-bribery policy monitoring and review: internal checks and balances need to be positioned to assess policy changes. External trigger events which will prompt a review should also be identified, such as government changes, corruption convictions or negative press reports
Reducing Risk

In this context, prevention is much better than cure. Having adequate procedures in place is part of good governance and will reduce the risk of bribery offences occurring in the first instance. Businesses dealing with the pharma and life sciences sectors should invest in compliance policies and procedures which will reduce the likelihood of running into devastating financial costs and reputational harm. However, there is no ‘one size to fit all’, and each organisation must implement a bribery and corruption prevention strategy that best suits their specific circumstances.

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Catriona Munro is a Partner at Maclay Murray & Spens LLP, a full-service UK law firm. She has spearheaded the company’s anti-bribery and corruption practice, and has advised numerous clients on implementing policies and training. Catriona has particular expertise in conducting internal investigations, and has successfully developed an online system – MMS Smart In-Site – which provides compliance training in relation to bribery and competition issues. She is an accredited mediator, and is qualified as a solicitor in Scotland, England and Wales.
Catriona Munro
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