Is Your Compliance Program Real?

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The GSK attitude towards corruption in all its forms is simple: it is one of zero tolerance, whether committed by GSK employees, officers, complementary workforce or third parties acting for or on behalf of the company.

Source: GlaxoSmithKline – Code of Conduct

At the recent Corruption and Compliance Congress, Asia 2013, Seth Berman, Executive Managing Director, Stroz Friedberg LLC, said that ‘Is Your Compliance Program Real?’ is the question that would be asked of a company’s counsel who came in to discuss a potential violation of the Foreign Corrupt Practices Act (FCPA) with the Department of Justice. This question would seem to be apt, in light of the events now transpiring in China with GlaxoSmithKline (GSK) and the ongoing allegations of bribery and corruption that the company now finds itself in the middle of in China.

For those who may not know the story, GSK finds itself in serious bribery and corruption hot water in China over allegations that it funded a bribery scheme to get doctors to prescribe its drugs. According to a story in the Financial Times (FT), entitled “China steps up GSK bribery probe”, Andrew Jack and Leslie Hook reported that “The Chinese authorities have stepped up their investigation into GlaxoSmithKline accusing it of being the ringleader of a half-a-billion-dollar bribery scandal involving 700 companies.” They reported on a briefing given by “Gao Feng, the lead Chinese investigator on a probe into the UK drugs group, said police were examining Rmb3bn ($488m) in deals from as far back as 2007. Chinese police believe that GSK used travel agencies and consultancies as a conduit to bribe doctors and lawyers in order to boost sales and profits.”

In an article in the Wall Street Journal (WSJ), entitled “China Drops Hammer on Glaxo”, Laurie Burkitt and Chris Matthews reported on a televised interview of Liang Hong, the GSK China Vice President and Operations Manager, where he “described for viewers of China Central Television how staffers would allegedly organize conferences that never happened and divert the money to bribe government officials, hospitals and medical personnel to get them to use Glaxo’s products.” He was quoted as saying, “Dealing with some government departments requires some money that couldn’t be claimed normally under company expenses.” Burkitt and Matthews said that “The broadcast follows detailed allegations by China’s Ministry of Public Security on Monday accusing Glaxo of using travel agencies as vehicles to bribe hospitals, officials and medical personnel to sell more drugs at inflated prices. Officials also alleged the travel agencies offered what the officials called sexual bribes to Glaxo executives to keep company business.”

How strong do you think the GSK commitment to anti-corruption is? They certainly seem to say the correct things when confronted with such public allegations. In the FT article, it was reported that GSK said in a company released statement that “These allegations are shameful and we regret this has occurred. We are deeply concerned and disappointed by these serious allegations of fraudulent behaviour and ethical misconduct by certain individuals at the company and third-party agencies.”

But what about their actions? In another article in the FT, by Hook and Jack entitled “GSK is test case in China’s rules laboratory”, they listed a timeline in this matter. They noted that GSK had investigated claims of bribery and corruption and publicly announced that the company had found no such evidence of “bribery or corruption in relation to our sales and marketing…in China”. Further, the company claimed it was unaware of any allegations of bribery of doctors to prescribe its drugs until there was a public announcement by China’s Public Security Ministry on July 11.

We started with Seth Berman’s question and adapting it to GSK, just how real is the company’s compliance program? While I am sure they GSK management, much like Captain Renault in Casablanca is SHOCKED, SHOCKED, to discover that anyone in the company is engaged in corruption, the question remains just how real is the company’s compliance program. One of my FCPA mantras is the following: Document, Document and, Document. The reason being is that if you do not document what you have done, it never existed. So if you have performed the steps necessary to qualify third parties as sales or supply chain partners, it really only counts if you have documented each step in the process.

If your company has Chinese operations, what should you do about now? In another WSJ article by Chris Matthews, entitled “Western Companies Sweat as Glaxo Probe Unfolds”, he warns that “The rapidly unfolding bribery probe by Chinese authorities into the U.K. drug maker has alarmed Western companies with business there that are accustomed to highly-publicized corruption crackdowns on Chinese officials, but who see the Glaxo matter as new territory, China watchers said. The push against Glaxo could signal that a new anticorruption push in China could now also include foreign companies.” I would suggest that a review of your sales operations is in order, as in immediately. Matthews quoted Joe Warin, a partner at Gibson Dunn & Crutcher LLP, who said, “In particular, companies should examine relationships with travel agencies and event-planning companies, which have long been an “Achilles heel” in China”. The first thing that you should check on is to see the spend that you have with any Chinese travel agencies. You should then match up all receipts and other documentation with all costs to see if there is anything out of line.

However, you should also look at your own employee base. Regarding a company’s own employees, Matthew quoted Jerome Cohen, co-director of New York University School of Law’s U.S.-Asia Law Institute, for the following, “This is a fairly obvious warning that companies need to conscientiously scrutinize the activities of their employees there”. Remember the Eli Lilly FCPA enforcement action brought by the Securities and Exchange Commission (SEC) late last year? The bribery scheme which got Lilly into trouble in China involved its own employees, who inflated their expense accounts and used the extra money to pay bribes to secure sales.

It is clear that companies should follow Matthews’ advice that “multinationals need to scour their operations in China to limit their vulnerability to future investigations.” Now is the time to begin your own investigations because you certainly do not want to be like GSK and find out about allegations that your employees engaged in a multi-year, multi-million dollar bribery and corruption scheme through a public pronouncement from the Chinese Public Security Ministry.

Topics:  China, Compliance, Corruption, FCPA, GlaxoSmithKline, Zero Tolerance Policies

Published In: General Business Updates, Criminal Law Updates, International Trade Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox | Attorney Advertising

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