FCPA Compliance and Ethics Blog

November 22, 2010

UK Bribery Act and the Pharmaceutical Industry

Filed under: Bribery Act — tfoxlaw @ 2:04 pm
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Ed. Note-today we are pleased to have our first international guest post. By Barry Vitou & Richard Kovalevsky Co-authors www.thebriberyact.com

At the invitation of the UK’s Association of the British Pharmaceutical Industry (ABPI) Richard Alderman, Director of the UK’s Serious Fraud Office (SFO) recently addressed ABPI members at their Legal Day conference to speak about the SFO’s work and the new UK Bribery Act which comes into force in April next year. His comments though very important for the pharmaceutical sector went largely unreported.

Significantly, Mr. Alderman singled out the UK pharmaceutical industry noting that on anti-corruption it was on the “high risk register” of the U.S Department of Justice (DoJ) and “will be receiving a considerable amount of attention from the DoJ.”

In a stark warning to the pharmaceutical industry in the UK Mr. Alderman signaled that the SFO is also looking closely at the pharmaceutical industry. Mr. Alderman warned conference attendees not to “underestimate the amount of information sharing that goes on between us and the DOJ and the SEC about all of these issues”.

The warning echoes a similar warning issued a year ago at a US pharmaceutical industry conference where Lanny Breuer warned delegates that the pharmaceutical industry was in the cross hairs of the Department of Justice (DoJ).

The US DoJ and SEC pharmaceutical sector investigation

It has been well known for some time that the US is conducting a sector wide investigation into the US pharmaceutical industry following on from an ongoing and well publicized investigation into the medical device industry.

In November 2009, at the annual Pharmaceutical Regulatory and Compliance Congress’ forum in Washington, Lanny Breuer assistant attorney general for DOJ’s criminal division said a new focus of his department would be rooting out violations of the Foreign Corrupt Practices Act specifically in pharmaceutical companies. In part the US FCPA focus is because of the numerous contact points with government. Breuer said:

“I would like to share with you this morning one area of criminal enforcement that will be a focus for the Criminal Division in the months and years ahead – and that’s the application of the Foreign Corrupt Practices Act (or “FCPA”) to the pharmaceutical industry. According to PhRMA’s 2009 Membership survey, close to $100 billion dollars, or roughly one-third, of total sales for PhRMA members were generated outside of the United States, where health systems are regulated, operated and financed by government entities to a significantly greater degree than in the United States. As a result, a typical U.S. pharmaceutical company that sells its products overseas will likely interact with foreign government officials on a fairly frequent and consistent basis. In the course of those interactions, the industry must resist short-cuts. It must resist the temptation and the invitation to pay off foreign officials for the sake of profit. It must act, in a word, lawfully.”

“Our focus and resolve in the FCPA area will not abate, and we will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations to be sure, but also investigation and prosecution of senior executives. Effective deterrence requires no less. Indeed, we firmly believe that for our enforcement efforts to have real deterrent effect, culpable individuals must be prosecuted and go to jail where the facts and the law warrant.”

This prophetic statement was followed in the summer US 10-Q season with a slew of pharmaceutical companies reporting that they had either received requests from, or been subpoenaed by, the DoJ and/or SEC for information relating to their practices in various jurisdictions.

If you are a pharmaceutical company with ties to the US or the UK, your business is being scrutinized. Against that backdrop pharmaceutical businesses in the UK ignore the warning given by Mr. Alderman at their peril.

The law under the new Bribery Act

Under the new UK law coming onto the books next April bribing, receiving a bribe, bribing a foreign public official and importantly failing to prevent bribery are offences wherever they take place worldwide.

On top of offences which may be committed by organisations criminal liability is personal for directors and officers. As the SFO are fond of saying, liability for Bribery Act violations is brought directly into the Boardroom. The SFO is not shy of prosecuting CEO’s as Mr. Messent former CEO of city firm PWS insurance found to his cost recently when jailed for just under two years for bribery offences.

Under the new law whether you know about it or not on top of your own obligations you will be criminally responsible for bribery by business partners performing services for your business worldwide.

The UK’s Serious Fraud Office has identified its new long arm jurisdiction and the new failure to prevent bribery offence as the two most important features of the new law. Politicians and prosecution authorities have signaled a tough new enforcement approach. While closely related to the US Foreign & Corrupt Practices Act (FCPA) the new Bribery Act is not the same.

Commercial bribery is covered and there is no exception for facilitation payments and/or corporate hospitality.

Penalties for violations are harsh. Individuals risk prison. Organisations risk unlimited fines, blacklisting from EU/US/world bank contracts and forfeiture of proceeds of illegal deals under associated UK anti-money laundering law.

There is a defence under the Bribery Act for businesses who put in place adequate procedures to prevent bribery.

UK anti-corruption prosecution and investigation activity

Enforcement activities in the UK have increased significantly in the last two years. There have been a number of successful prosecutions and settlements (including within the medical device sector) involving close co-operation with the DoJ.

It is widely known that the UK SFO is involved in a numerous investigations which will see increased activity over the coming months and after the entry into force of the new law.

Prevention is better than cure

With the pharmaceutical sector under investigation pharmaceutical businesses are on notice to take steps now to ensure they have Bribery Act compliance programs fully implemented before the April 1 2011 deadline.

Pharmaceutical companies that do not may have to take some very unpleasant medicine.

Free masterclass for pharmaceutical companies-If you would like to learn more in the new year we shall be running a free masterclass dealing with the impact of the new law on the pharmaceutical industry with guest speakers for senior executives and in-house counsel of pharmaceutical companies.

Ed. Note-the authors of the site, www.BriberyAct.com, have put together an excellent resource for any US or other non-UK practitioner to help them guide through the Bribery Act.

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