Hot Topics in FCPA, Anti-bribery/Anti-corruption (“ABAC”) Enforcement: Focus on Brazil and China / How to Handle a Crisis Situation?

04.07.15 | By Steve Vincze

On March 28th, 2015, I had the honor and privilege or giving a guest lecture at the University of California, Berkeley Extension School in San Francisco.  I was invited to discuss the latest developments, enforcement trends and hot button topics on FCPA/ABAC by my University of Chicago Booth School of Business classmate, Dr. Volker Kuebler, Ph.D., MBA.  The presentation was to Dr. Kuebler’s  international digital marketing and business leadership class. After providing a brief legislative overview and history of the U.S. Foreign Corrupt Practices Act (“FCPA”) and the UK Anti-bribery act, I focused on two countries – Brazil and China – that reflect two of the most significant trends in this area: (1) the continued globalization of ABAC legislation and (2) increasing global enforcement. Brazil is one of the latest countries to add new anti-corruption legislation, which became effective in January 2014.  Before, only individuals could be prosecuted for corruption. Now, civil and administrative liability will be imposed on corporate entities that bribe Brazilian or non-Brazilian officials. This legislation establishes civil liability against companies for actions of directors, officers, employees, or other agents. Penalties include:

  • fines up to 20 % of gross revenue from the previous year
  • disgorgement of benefits obtained,
  • suspension of the company’s activities
  • even the dissolution of the offending entity

The law includes a provision directing that sanctions may be reduced if:

  • effective compliance programs are in place
  • self-disclosure of violations of the law occurs

Of course, any life science company and its affiliates doing business in Brazil need to ensure their compliance program is updated to address these Brazilian requirements effectively.  Ideally, companies can leverage whatever current FCPA and ABAC compliance processes they may already have that are relevant. Working with our clients, we see most companies prudently take an initial assessment or snap-shot of their current compliance risks and framework in Brazil.  Then armed with this more precise understanding of where their greatest risks and gaps may be, they diligently and thoughtfully add the necessary policies, procedures, processes and training, followed by a monitoring and auditing program after a reasonable time to let the business adopt these new additions.  It is especially important to note that the key to effectiveness and efficiency in this process is how well the new additions to the compliance program relating to Brazilian anticorruption requirements are integrated into existing compliance programmatic elements. China, of note, has been cracking down on corruption in an unprecedented fashion.  Just last week, on March 28th, several notable news sources, such as The Economist and The Washington Post focused on the latest crackdown, the largest in China’s history, which is led by China’s “Anticorruption Czar, Mr. Wang.”*  The latest initiative, ominously named, “Sky Net” enables China to catch corrupt officials who may have fled overseas as well as to better coordinate Chinese investigation into offshore funds and “underground banks” used by officials to funnel money out of the country.**  [*The Economist, March 28, 2015,** The Washington Post, March 28, 2015] Certainly, for life science companies doing business in China, this latest trend is important to note, especially after the GSK case.  In the GSK case, the alleged violation involved using a travel agency to funnel 482M in bribes to doctors. The travel agency allegedly set up sham events and created fake invoices to pay doctors for prescribing GSK drugs. Mark Reilly, and 4 other top GSK China Execs, were sentenced to 3 years in jail (suspended sentences). Working with our clients who do business in China, we have found that performing a basic fair market value (“FMV”) analysis of sponsorships in China can uncover or “red flag” questionable expenditures that can then be appropriately investigated and addressed proactively.  Similar to the process in Brazil, an upfront assessment can provide a thoughtful foundation from which to leverage existing materials and identify more precisely what gaps need to be filled. From a life sciences perspective, it is important to note the specific types of transactions that give rise to ABAC exposure (See Slide Below). 1Conducting proper due diligence on third parties is certainly a pre-requisite for any effective FCPA/ABAC compliance program. This is especially relevant for life science companies as approximately 50% of recent life science FCPA enforcement actions involved violations of third party actors (distributors, sales-agents, etc.). I concluded my presentation at Berkeley, by sharing a crisis leadership model that was first published in the July/August 2013 edition of the Harvard Business Review and which I have employed myself as a Chief Compliance Officer (“CCO”) and have encouraged clients and other CCO’s to use when facing a compliance crisis.  Ultimately, when thinking about compliance generally, but especially in a global anticorruption context, organizations need to be prepared to respond swiftly and effectively if something goes terribly wrong.  What do you do?  How can you survive such an event in the best possible manner? The Leadership Lessons from the Chilean Mine Rescue from the summer of 2013 and as captured here can be the difference between success or tragic failure. If you’d like to learn more, please feel free to contact me at svincze@polarismanagement.com or at direct: +1-617-444-8762 or mobile at +1-617-435-5486.