Anti-corruption: All roads lead to enforcement

02.06.17 | By Amy Greenstein, Caroline Franco, Darren Jones and Veronique Monjardet

Abstract:  When it comes to corruption, Life Sciences companies are a frequent target of investigation and enforcement.  The French enactment of Sapin II is the latest in a long line of laws to combat corruption.  This article explores Sapin II and why the authors feel that Life Sciences companies are among the best positioned to comply with Sapin II’s requirements.

Corruption occurs across all industries – from banking and finance to energy and mining – however, Life Sciences companies are frequently under the microscope due to a variety of circumstances unique to the industry.  Among these circumstances are the fact that:

  • Customers and influencers of prescription drug use are often public officials (i.e. HCPs can be government employees or work at public institutions),
  • Company-sponsored event objectives can be unclear (i.e. whether a sponsored event or engagement is related to scientific exchange or is promotional/commercial in nature),
  • There is a heavy reliance on third parties and sub-contractors who are responsible for engaging with government officials and employees, and relatedly, and
  • Complex supply chains and distribution channels typically span all corners of the globe.

The stakes are particularly high for Life Sciences companies given their global nature and the global reach of anti-corruption laws.  Increasingly, once one country starts investigating a company other countries initiate an investigation as well and countries will work together (see example on Figure 1). Numerous times over the past 18 months the U.S. Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”) have reiterated their focus on the industry through the establishment of dedicated industry enforcement units.

Anti-corruption trends

When the US Foreign Corrupt Practices Act (“FCPA”) was first enacted in 1978, the US was the only country to criminalize bribery of foreign officials to gain business abroad. In the last several decades, we have seen the globalization of the values embodied in the FCPA.  We have also seen the scope of anti-corruption laws reach beyond government interactions and more frequently to all commercial relationships.

Today, over 39 countries have ratified the OECD Anti-Bribery Convention, 165 countries are state parties to the UN Convention against Corruption and at least 45 countries have enacted their own anti-bribery and anti-corruption legislation.  Both multilateral agreements require signatories to implement anti-corruption measures – including laws, institutions and practices – that prevent corruption, including criminalizing domestic and foreign bribery of public officials, embezzlement, trading in influence and money laundering.

Countries that already have anti-bribery laws – such as Germany and Brazil – have been revising their laws to be more robust.  In fact, Germany’s new anti-bribery bill focuses on the healthcare sector by criminalizing giving and taking bribes in the healthcare sector. It also specifically applies to all HCPs that require a state certification to carry out their jobs.

While many countries have laws on the books, enforcement remains elusive and international organizations have criticized those countries that are not doing enough, calling on these countries to intensify their efforts. The Organization for Economic Co-operation and Development (“OECD”) has expressed concern due to the lackluster response of authorities in actual or alleged cases of foreign bribery in various countries including Azerbaijan[1], France[2] and Ireland[3] among others. While such criticism is certainly more of a stick, the revenue streams flowing from anti-bribery and anti-corruption settlements in the US, Brazil and Germany and others are a carrot to encourage countries to enact and enforce more robust anti-bribery and anti-corruption enforcement. This combination of the increased international scrutiny and anti-bribery enforcement as a potential revenue source has given rise to:

  • The development of stronger anti-bribery regulations and enforcement mechanisms, and
  • More enforcement actions globally.

China’s 2014 settlement with GSK for $483 million is a prime example of how one country’s financial gain has snowballed into a global investigation enticing other countries to avail themselves of the financial windfalls that robust anti-corruption enforcement affords (see Figure 1).  We can also see the same from the recent joint settlement by Embraer where the company settled with the governments of Brazil, Saudi Arabia and the US for violating their respective global anti-bribery laws.

France

The latest country to have furthered its anti-corruption legislation is France, with its passage of an updated anti-bribery law, Sapin II. France’s first anti-bribery law, Sapin I, was passed in 1993.

Following a vivid and lively debate in France, the French Constitutional Council voted the Sapin II anti-corruption enforcement law into effect on December 8, 2016[4]. With the passage of this law, France rises to the ranks of having among the highest standards for fighting bribery and corruption in Europe.  Among the statute’s reforms are:

  • An obligation to prevent risks through a compliance program,
  • A new anti-corruption agency,
  • Protected status for whistleblowers,
  • A legal agreement as an alternative to criminal prosecution (similar to Deferred Prosecution Agreements in the US), and
  • Additional penalties for non-compliance.

France has been under scrutiny in recent in years regarding its lack of enforcement of the law. Three of the top ten FCPA cases of all time involved French companies – Alstom, Total SA and Technip SA.  These cases resulting in $1.6 billion in fines that went into the U.S. Treasury. Thus, speculation for Sapin II’s passage is that France wants to garner some of these funds and is weary of being singled out by the U.S. In fact, through the years, France has requested that it take over the U.S. investigations. The U.S. has refused citing as the reason for the denial the fact that  French law was not strict enough[5].

The balance of this article will discuss Sapin II in the context of recent global anti-bribery and anti-corruption regulatory trends. We will focus on the unique challenges in the highly regulated and increasingly globalized life sciences sector and will provide guidance on a strategy to meet Sapin II’s new compliance requirements and beyond.

Mandatory establishment of a robust compliance program

Sapin II requires pharmaceutical companies with more than 500 employees and annual gross profits of at least 100 million EUR to have a robust and operational compliance program in place to mitigate potential corruption. Similarly, under the UK Anti-Bribery Act failure to prevent bribery is an offense and companies are also required to implement a compliance program that adequately prevents employees and associated persons from bribing.[6]  Sapin II also creates extra-territorial jurisdiction for offences committed outside France. This means that if representatives of a French company commit an act of bribery or corruption outside of France, the French company will now be liable under the law.

Typically, compliance programs call for companies to have clear policies, processes and procedures in place to preemptively mitigate and retroactively remediate corruption risks, as well as risk assessments detailing and prioritizing these risks. The new French law is no different in that regard.

Additionally, to comply with the new law, companies are now required to implement reporting mechanisms and procedures for internal reporting of suspected illicit activity. Lastly, the law stipulates that companies train their employees and management on the firm’s anti-corruption policies and potential risks.

Creation of the Agence Française Anti-corruption and penalties related to compliance deficiencies

France is now creating a national regulatory body to detect and counter corruption: the Agence Française Anti-corruption (“AFA”). Not only does the new legislation require companies to create and implement a compliance program, but it also specifies penalties if it is determined that the compliance program is not robust enough to meet the AFA standards.

While the DOJ does not have explicit criteria to evaluate the effectiveness of compliance programs, the AFA has in fact developed criteria. These criteria include enacting an ethics code, internal whistleblowing procedures, risk assessment mechanisms, accounting controls, third party due diligence processes, employee training, reporting chains and procedures for internal reporting of alleged illicit activity and a disciplinary policy.

The AFA will be evaluating the quality and efficacy of compliance programs and will have the power to request documents from companies that it suspects are not following their compliance obligations.  The AFA will not be able to initiate bribery proceedings, however their probes into companies’ compliance programs could prove to be a powerful tool to lay the groundwork for French prosecutors as well as signal the gravity of Sapin II’s compliance requirements

Additionally, the law enhances penalties already in place by placing sanctions on non-compliant companies including three years of AFA supervision, similar to a monitor in the U.S., and a hefty fine of up to €200,000 against individuals and €1 million against entities.

Protection of whistleblowers

The new law also ensures better protection for whistleblowers by prohibiting retaliation from the company, while allowing individuals to report corrupt actions anonymously. However, contrary to the whistleblower program in the U.S., the new French legislation does not provide financial compensation for those who report wrongdoing. Nevertheless, it is expected that this reinforced protection will encourage witnesses to corruption to alert authorities.

Deferred prosecution agreements

Following on the U.S. system, the law introduces deferred prosecution agreements that will provide opportunities for civil settlements when a company is found to have breached anti-corruption law.  In theory, this could allow French authorities to close more cases in a shorter time period. However, it is still too early to tell if this will happen in practice as there are no incentives, such as reduced sanctions, for companies to self-report.

Conclusion: The impact on Life Sciences companies

The full name of Sapin II, “Transparency, the fight against corruption and the modernization of economic life” is indicative of France’s holistic and progressive approach – Sapin II is both a tool to combat bribery as well as a potential revenue source to advance the French economy – which makes Sapin II among the most robust anti-bribery and anti-corruption laws in Europe. Sapin II is complemented by existing anti-fraud and abuse laws such as the French Sunshine Act, “Loi Bertrand”, and the recently revised French Anti-kickback Statute, DMOS law[7], which requires Life Sciences companies with at least one government-reimbursed drug to report all hospitality, convention and engagement contracts to the appropriate professional associations.[8]  In addition these new and existing regulations, coupled with the French government’s response to recent scandals involving French Life Sciences companies, such as Sanofi[9] and Servier[10], demonstrate France’s willingness to crack down on Life Sciences companies operating in France and French companies operating globally.

Moreover, the National Board of the French Professional Association of Physicians (CNOM), which provides opinions on FMV compensation to HCPs but does not prevent companies from executing unapproved contracts, recently reported that they rejected over 70% of contracts due to the high fees for HCPs’ services.  While CNOM does not have investigative and adjudicative authority, they do have a robust body of data that could potentially be interpreted by French authorities as a red flag indicating insufficient compliance controls.  With the advent of Sapin II and specifically the establishment of the AFA, France now has the infrastructure to act on such warning signs of potential bribery and corruption.

Nonetheless, if we take a step back, we will see that many of Sapin II’s clauses have simply codified existing global best practices within the Life Sciences industry.  Many of the requirements mirror the OIG’s “Seven Fundamental Elements of an Effective Compliance Program.” For example, companies are now obligated to (1) adopt a code of conduct (element 1); (2) implement an internal warning system (elements 2, 4); (3) conduct risk assessments (elements 5 and 7); (4) conduct auditing and monitoring to ensure the ethics and integrity of stakeholders: customers, suppliers and third parties (elements 4, 5 and 7); (5) provide training to senior managers and staff across the enterprise (element 3); (6) establish policies and SOPs for disciplinary sanctions (elements 1 and 7).

Sapin II is currently generating fervent debate among companies, policymakers, lawyers and other stakeholders in France and around the world – and with good reason. The law is truly groundbreaking in the fight against global bribery and corruption, particularly the requirements for an integrated anti-corruption compliance program and the new Anti-Corruption Agency’s oversight of these programs.

As previously mentioned, many Life Sciences companies are already adhering to obligations created by Sapin II. Thus, while this legislation and other related developments indicate that French authorities are rolling up their sleeves to get much tougher in their anti-corruption enforcement activities, in reality, Life Sciences companies are among the best positioned to comply with Sapin II’s requirements – particularly if they already are following industry compliance best practices.

 
This article was featured in the February issue of Life Science Compliance Update. To learn more about the publication or to subscribe, visit their website.
 

[1] See OECD, Azerbaijan should take strong and comprehensive measures to fight entrenched corruption, October 2016, available at http://www.oecd.org/corruption/azerbaijan-should-take-strong-and-comprehensive-measures-to-fight-entrenched-corruption.htm

[2] See OECD, OECD seriously concerned at lack of foreign bribery convictions in France, but recognizes recent efforts to ensure independence of prosecutors, October 2012, available at http://www.oecd.org/corruption/oecdseriouslyconcernedatlackofforeignbriberyconvictionsinfrancebutrecognisesrecenteffortstoensureindependenceofprosecutors.htm

[3] OECD, Statement of OECD Working Group on Bribery: Ireland’s Laws for Combating International Bribery need Urgent Reform, October 2016, available at http://www.oecd.org/corruption/statement-of-oecd-working-group-on-bribery-ireland-s-laws-for-combating-international-bribery-need-urgent-reform.htm

[4] See Thomas Fox, FCPA Compliance Report-Episode 293, Saskia Zandieh on the new French Anti-Corruption law, Sapin II, December 2016, available at http://www.jdsupra.com/legalnews/fcpa-compliance-report-episode-293-sask-01690/

[5] The Guidance on the UK Anti-Bribery Act sets out six principles to guide the creation of a compliance program: Proportionate Procedures, Top-level Commitment, Risk Assessment, Due Diligence, Communication (including training) and Monitoring & Review.

[6] DMOS law: Law no.93-121 1993 on Diverses Mesures d’Ordre Social – the French law concerning the financial benefits offered to physicians by life sciences companies.

[7] Legifrance, CIRCULAIRE N° DGS/PP2/2013/224, May 2013, available at http://circulaire.legifrance.gouv.fr/pdf/2013/06/cir_37134.pdf

[8] Aram Mbengue, Dépakine: les députés votent la création d’un fonds d’indemnisation, November 2016, available at http://www.rfi.fr/france/20161116-scandale-depakine-deputes-votent-creation-fonds-indemnisation-victimes

[9] BFM, L’affaire Mediator, October 2016, available at http://bfmbusiness.bfmtv.com/actualite/