‘Interactive anti-bribery training is an essential element in building a culture of compliance’

The pharmaceutical sector has seen some high profile investigations and settlements concerning bribes given to healthcare providers in various countries, the latest being the anti-trust lawsuit in the US against 18 generic pharma companies, including five Indian companies. Alexandra Wrage, President, TRACE, a US-headquartered anti-bribery business organisation, gives Viveka Roychowdhury an overview of the risks of transnational business in the pharma industry and outlines what companies can do to increase levels of compliance to local and global anti-bribery laws

India is ranked 85 out of 200 countries on the 2018 TRACE Bribery Risk Matrix, which ranks countries based on the assessment of bribery risk. While New Zealand tops as the least risky country, Somalia is the worst. What is the methodology to arrive at this Matrix? What has been India’s comparative rating since it was part of the Matrix?
The TRACE Bribery Risk Matrix assesses the likelihood that companies will be faced with bribe demands in that country. It’s not a generalised perception of levels of corruption, but an in-depth look at what factors make it more likely that a company will be shaken down, either because the opportunity is high (for example, high levels of red tape) or the risk is low (for example, civil society isn’t organised to highlight the problem or enforcement of the laws is weak).

The Matrix aggregates data collected by leading international institutions to derive country-level scores gauging the strength of the various governmental and societal factors that contribute to business bribery risk. The factors are: (1) degree of opportunity for bribery solicitation, defined by contact with government, expectation of bribes and regulatory burden; (2) the strength of deterrence efforts, measured by societal disapproval of bribery and governmental anti-bribery enforcement; (3) governmental transparency of regulatory functions and the health of the civil service sector; and (4) civil society oversight, defined by the quality and freedom of the media, as well as human capital and civic engagement.

How India has fared:

• 2014: 185/197 (score: 80)
• 2016: 178/199 (score: 78)
• 2017:  88/200 (score: 45)
• 2018:  86/200 (score: 50)

Change in these trends over time has in this instance been driven by notable bureaucratic improvements and shifts in societal expectations of bribery. However, because TRACE has made methodological improvements to the Matrix, scores are not strictly comparable from year to year.

What are the key provisions and recent amendments to India’s Prevention of Corruption Act and what do they mean for local and foreign companies? Any specific implications for pharma companies?
The most notable of the amendments is the imposition of criminal liability on the bribe-payer, where it previously fell only upon the public servant for taking a bribe. Individual penalties can go as high as seven-years’ imprisonment and/or a fine. Commercial organisations are also responsible for bribes paid on their behalf under India’s amended law, with possible prison terms of three to seven years for complicit directors and officers. In addition, to avoid penalties and fines, companies should have ‘adequate procedures’ in place to defend against improper conduct. While this approach of ‘adequate procedures’ as a defense is gaining ground internationally, it should be noted that no guidance has been offered to date on what might constitute adequate procedures. At the TRACE Workshop held in Mumbai last May, there was lively discussion on this point and a general sense that the UK guidance on adequate procedures works well until Indian companies get more clarity.

What is the extent of TRACE International’s operations in India? Who are the pharma clients in India as well as global clients dealing with India?
TRACE is headquartered in the US but operates globally, with offices in Canada, Europe, Africa and Asia. We have a partner law firm in India with which we work very closely. Our clients and members include hundreds of multinational companies with operations in India. We also work with hundreds of small and medium local enterprises across industry sectors in India, including pharma. We don’t list member companies without first obtaining their approval.

It is a common practice for pharma companies to pay speaking and consulting fees and provide international travel expenses to doctors. What are the latest laws to anti-bribery and transparency laws on such practices? Any examples on how such practices were investigated, detected and dealt with? What were the penalties involved?

Where doctors are employed by the government, they are considered government officials under the Foreign Corrupt Practices Act (FCPA) and would be considered ‘public servants’ for purposes of India’s Prevention of Corruption Act. While speaking and consulting fees can be legitimate, they have also been used as sham vehicles for improper payments by pharma companies to encourage doctors to prescribe their products.

For example (all settled in 2016):

• AstraZeneca ($4.325 million disgorgement plus $822,000 interest and $375,000 civil penalty)
• GlaxoSmithKline ($20 million civil penalty)
• Teva Pharmaceutical Industries (criminal penalty of more than $283 million and disgorgement of approximately $236 million)

What are the most common risks that pharma companies face when engaged in transnational business?
Pharma companies often rely on complex supply and distribution chains, complicating the prevention of third-party bribery. Additionally, extensive government regulation of products can be burdensome, providing temptation to expedite approval through improper means. Under state-run healthcare systems, doctors are considered government officials, which brings into play the FCPA and its significant penalties. Finally, there is a heightened risk of abuse of practices relating to gifts and hospitality within the industry (for example, sponsored conference participation, the funding of research trials, promotional items and activities, etc).

How is the pharma sector different, in terms of the vulnerability to bribery, from other sectors? Any peculiarities, given that we are dealing with lifesaving medicines and doctors who are the decision makers, not the actual consumer, the patient?
The pharma sector is distinctly characterised by a combination of huge markets and vigorous competition among a limited set of players. Other relevant characteristics of the industry are the heavy government involvement in distribution and regulation and the extremely high stakes involved in the development and marketing of new products. As elsewhere, however, bribe-takers are violating a fiduciary responsibility — where professional or civic — with harm generally borne by a public with no direct involvement in the transaction.

What are some of the safeguards that pharma companies can take to mitigate these risks?
The relation between healthcare systems and state or national governments is complex and dynamic. It can vary tremendously from one country to another and within a single country over time. Pharma companies can cultivate a sharpened awareness of these conditions in each market and of the incentives and liabilities to which they give rise. Additionally, requiring rigorous due diligence and prioritising institutional commitment to compliance within the industry is a critical part of fighting corruption.

The pharma sector sees many deals, be they mergers, buyouts, etc. What are the red flags that need to be heeded during the due diligence process?
M&A due diligence is a huge topic about which volumes can be written. Perhaps the three most common M&A red flags are (1) ownership by a government official; (2) very obscure corporate structures; and (3) elaborate sales and marketing chains involving agents and sub-agents, the responsibilities for which are not clear. Generally, companies should be thorough and mindful of the scope of successor liability. If there is a problem, the responsible parties will want to know about it before the deal closes, and it must be addressed before additional liability accrues.

What can pharma companies do to increase levels of compliance and ensure their employees adhere to local and global anti-bribery laws?
Interactive anti-bribery training is an essential element in building a culture of compliance, and all multinational companies should require it. Enhanced compliance training is especially important for employees involved in deal-making, such as sales representatives. Companies should also take care to structure incentives in a way that does not encourage wrongdoing. Finally, awareness and understanding of all applicable legal regimes is hugely important for preventing liability.

Tell us about your recent trip to India this May.
I attended the Trade Winds conference in Delhi. It was a great success and a chance for US companies, Indian companies and trade facilitators from the US Department of Commerce to meet in a collegial, but structured manner. The level of interest in the Indian market was clearly very high.  From our perspective, it was very encouraging to see the extent to which Indian companies are weaving anti-bribery compliance into their strategy. We come to India regularly and we see the level of sophistication on compliance ramping up very quickly. TRACE provides a public database of pre-vetted business partners in India (and around the world) and we are seeing increasing reliance on this database to find local partners who have been trained on anti-bribery provisions, have adopted a code of conduct and have otherwise committed to a clean and transparent approach to business. After Trade Winds, we travelled to Mumbai for a TRACE Workshop with about 70 US and Indian companies. The discussion was lively and sophisticated!

[email protected]