Author: Azizur Rahman
24 September 2014
4 min read
Britain’s biggest pharmaceutical company GlaxoSmithKline is now under formal investigation by the Serious Fraud Office (SFO). The drugs giant may be in for a painful time as the authorities examine bribery allegations and the company’s approach to compliance.
GlaxoSmithKline (GSK) has made a fortune as one of the world’s largest pharmaceutical companies. Its drugs have found their way into medicine cabinets around the globe. But now it has a headache of its own that no amount of its painkilling products will be able to ease.
The SFO has announced that it has begun a formal criminal investigation into GSK’s sales practices. This announcement follows the decision by the Chinese authorities to investigate allegations that the company has been involved in bribery.
GSK’s response has been to say that it is committed to operating its business to the highest ethical standards and that it will continue to cooperate fully with the SFO. It is still early days for the investigation and neither the SFO nor GSK are keen to divulge any more details of what is set to come under scrutiny. But it is believed that the SFO wants to look at GSK’s activities in various parts of the world, including China
It is a year since GSK first had formal contact with SFO investigators. In May, the Chinese authorities charged three GSK executives with corruption. Mark Reilly, the former head of GSK’s Chinese operation, was among those charged. He is accused of offences that carry a maximum sentence of life in prison. The main thrust of the allegation is that Reilly and two Chinese GSK executives bribed hospital staff and doctors to favour the company. A year ago, GSK first faced accusations that it sanctioned £285M in bribes to encourage Chinese doctors to use its medicines. A rash of allegations then emerged in other countries. GSK is investigating itself over claims that doctors in Poland, Iraq, Jordan and Lebanon were also bribed.
The company has made it clear to anyone who will listen that the allegations are isolated cases and not evidence of a systemic approach. Yet in 2013, GSK was fined almost £2 billion in the United States after it admitted bribing doctors and encouraging the prescribing of inappropriate anti-depressants to children. At the time, the company said it would examine and overhaul its operations to prevent such “unacceptable mistakes’’ being repeated.
It has to be said that GSK is not alone in facing accusations in China. Poorly-paid doctors are receptive to bribes. Swiss drugs company Roche has come under investigation and the UK’s AstraZeneca, US company Eli Lilly and Denmark’s Novo Nordisk have also attracted the suspicion from Chinese authorities; although no allegations have yet been declared.
Some commentators have expressed surprise that such major corporations have been lax enough to allow such alleged activities to be carried out in their name. Others have wondered whether we have only seen the very tiniest tip of a very large iceberg. Business, they argue, is conducted by humans, who can be greedy, fallible and stressed. A little corruption here and there, therefore, is to be expected.
A look at the pharmaceutical industry does seem to back up that depressing argument. With GSK having paid out fines and now facing further investigation, Eli Lilly having been fined $29M to settle allegations of corruption in Brazil, China, Poland and Russia and a number of other companies attracting the authorities’ interest, it is a sector where scruples appear to have been in short supply. Yet the pharma industry is not alone in being found to have bent or completely broken rules. Some of our best-known banks have been fined hundreds of millions of pounds – billions in HSBC’s case – and the authorities have made it clear, both in the UK and abroad, that they are prepared to do what it takes to find out exactly what has been going on.
The UK’s Financial Conduct Authority (FCA) and National Crime Agency (NCA) are new organisations with determined agendas, the SFO has made it clear it will be able to fund investigations into large-scale wrongdoing and the Bribery Act has given such agencies the scope to examine business activities around the globe. Running a company means being responsible for staff, third parties, suppliers and those people doing even the slightest duties in the name of your firm anywhere in the world. If the measures in the Bribery Act and the determination of the agencies mentioned stand for anything then it is compliance. If anyone working for or representing a company is found to have indulged in bribery, corruption, money laundering or other business crime that firm will have no grounds for a worthwhile legal defence if it cannot point to evidence showing that it carried out due diligence on its staff and associates and had a culture of compliance.
Those who have no time for compliance claim it costs too much time, money and effort and provides little reward. But a large part of compliance simply involves applying informed legal expertise and using a large amount of common sense. In short, companies must ask themselves what systems they have in place to make sure they are complying with UK law and the legal system of any country they may be trading in. They need to make sure suppliers, agents and third parties have been properly checked out and are monitored in an ongoing way.
With the right help, companies can create and manage workplace systems that effectively design out any potential for wrongdoing and remove the risk of prosecution, fines, and imprisonment. It is not a one size fits all situation. A company’s needs will be determined by its size, location, the type of business it is in and the commercial relationships it has developed or is looking to foster. But each company’s activities will carry risks of corruption that will need to be removed or at least reduced.
The Bribery Act is wide ranging in its legal and geographical scope. But there are also the Fraud Act 2006, Money Laundering Regulations, the Companies Act and the Enterprise Act in the UK with which to prosecute business accused of business crime. Other countries have also developed legislation to cover business wrongdoing either on their shores or further afield – just ask GSK. Companies must devise, enforce, monitor and, when needed, amend their compliance policies if they are to prevent illegal activity in their name. Not having a compliance policy is like walking a very frayed tightrope without a safety net – sooner or later you will be in serious risk of a very costly fall.
If a company comes under investigation, being able to show it took all necessary action to minimise the potential for wrongdoing will be a huge boost to its chances of avoiding prosecution, or at the very least heavy penalties. There may be people in GSK who thought that whatever arrangements they came to in the hospitals and GP rooms of far-flung countries could not possibly harm the company. And there may be others in GSK wondering exactly what happened and how it happened, not to mention how it came to light. A decent dose of compliance would have provided answers earlier – and proved that prevention is better than cure.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.