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Home > FCPA
How Are Drugs Being Sold in China Despite the Anti-Corruption Crusading

In addition to the business report about a major bribing case of a UK-based pharmaceutical company, www.ComplianceinChina.com issued the report: How Drugs Are Being Sold in China despite Anti-Corruption Crusading based on a similar titled survey.


The survey began in November, 2016 and ended in end of March, 2017.  Hereinafter is the summary of the report.  If you want to have the summary of the total survey statistics, please follow the link to register.  If you want to have the complete version of the report which is written in Chinese, please follow the link to join as a premium member ComplianceinChina.com.


1. Are kickbacks still given to sell drugs and medical devices?


Regarding the question if your company still sells drugs by giving kickbacks, there is surprisingly a large percentage of participants maintaining that their companies are still giving kickbacks.  Only a small percentage of participants said that their companies rather not dare to give kickbacks, while they maintained that there is no better way to market their products in keeping with the anti-bribery compliances.  There were participants stating that their companies do the marketing by introducing to their target audience the product characteristics, organizing academic activities and enhancing the after-sale services.


It seems in line with our perception that giving kickbacks is still a common practice.  Some companies use third parties such as dealers to confer bribes.  A recent case study indicates that a drug manufacturer uses a dealer that has good connections with hospitals to sell drugs and the dealer charges a fee as high as 65% of the ex-factory price.  The unprecedented go-between fee was disclosed in a criminal case where a manager of the dealer was punished for taking bribes from the manufacturer.  We are going to introduce the case in greater detail via a separate article.


2. How is a bribery case ever disclosed?


About the question “how is a bribery case ever disclosed”, 29 of 126 participants selected the option that employees blow the whistle on these activities before the government authorities, an opinion held by 23% of the participants.  There were 26 participants who selected the option that said the competitors blow the whistle on these activities before the government authorities, making it an opinion held by 21% of the participants. 


Option 3 was that government authorities conduct investigations in furtherance of the clues that are obtained from some casual investigations.  This option was selected by 22 participants amounting to 17% of the mix.


Option no. 4 was that the employees blow the whistle on their employers, which 20 participants out of 126 selected, amounting to 16% of the participants.  Option no. 5 was the discovery through internal audit that 14 participants out of 126 selected amounting to 11%.  Six participants selected the option that said discoveries were made because of the unprecedented disclosure of corporate information an opinion held by 5% of the participants.  Nine (7%) selected the option “others”.


3. How to host or organize an academic conference?


Due to a “robust internal control”, it is difficult for an MNC to get cash to offer bribes.  It becomes a common practice therefore for some MNCs to seek help of travel agencies or some other meeting organizers, to host some fake meetings.  The travel agencies or the meeting organizers then pass on hefty portions of the expenditure to medical representatives of the MNCs as bribes that are further given to the target bribe recipients, for which the travel agencies or the meeting organizers charge a fee.  As a result, the government began to watch “academic meetings” quite closely to investigate if there is any non-compliance or violation of the anti-bribery law.  As a result, some companies refrain from hosting large conferences at locations that are far from their corporate offices.  Instead, some companies choose to host small meetings, which are held in their corporate offices and are not longer than a day so that there is no necessity to rent hotels.


According to our survey, only a very small percentage of participants selected the option that they do not convene academic conferences.  A large percentage of the participants selected the option that they still host large conferences.  Some selected the option of hosting small meetings.


4. Is a travel agency engaged to organize conferences?


For the reasons as mentioned in the aforementioned paragraphs, some companies do not engage a travel agency or conference organizer to host their conferences.  Instead, the companies entrust a trade association to host the conference.  In other words, the companies enter into a two-party agreement with a trade association instead of a three-party agreement with a travel agency or meeting organizer.


In our survey, 54 out of 126 participants (43%) maintained that their companies still enter into three-party agreements.  There were 52 (41%) participants who selected the option that their companies enter into two-party agreements.  20 participants, i.e. 16%, selected “others” as an option.

 

5. Is an auditor hired to check the authenticity of the conference?


For the reasons stated earlier, some companies may hire a third-party auditor to do some on-the-spot check to see if a conference is indeed being held.  Therefore, the survey showed that a large portion of the participants do not hire any third-party auditors to do on-the-spot check.  Some participants surveyed said that they hired third-party auditors to do the third-party audit.


6. Is a doctor ever paid for making a speech?


Doctors are usually invited to speak on academic conferences about some pharmaceutical or medical device.  Sometimes, a doctor may be invited to make a flattering speech about the products of the company that invited him or her.  As such, the companies pay an honorarium to doctors for speaking at these events.


About the issue, a small percentage of participants maintained that they do not invite doctors to give any speeches.  However, a large portion of those surveyed maintained that they still invite doctors to give speeches and pay them accordingly.  Some maintained that they do not give a fee.  Instead, they reimburse the expenditures incurred by the doctor.  Some said that they reimburse the expenditures incurred as well as give some fees in addition. 


7. How is a third party monitored for compliances?


The U.S. law (such as the FCPA) prohibits bribery, direct or indirect, so does the Chinese law. However, it is a common practice that a third party (e.g., vendor or broker) could be hired to execute the act of bribing.  Therefore, it is important to conduct due diligence investigations or other risk management compliances over third parties especially those who deal with governmental authorities or state-owned enterprises.


About the question “how is risk management done on third parties such as a broker”, a small portion maintained that their risk management concerning third parties is very strict.  However, a large portion of participants maintained that they do risk management on third parties, but not strictly.  Some selected the option that they have compliance management in place for dealers, but not quite strict.  6% selected “others”.


8. Does your company make under the table payments to the heads of hospitals?


In China, a paramount percentage of hospitals, especially the large ones, are state-owned.  Therefore, the doctors of the state-owned hospitals are government officials under the FCPA.  However, the doctors are not viewed as government officials or state working personnel under Chinese law unless the doctors are the administrative staff of a hospital (such as presidents) or a medical department (such as a departmental director).


Because the administrative staff have power to place orders, they usually fall prey to a bribing scheme.  About the question “if your company still makes some under the table payments to the government officials (including the leaders of a hospital or a hospital department”, a small percentage selected “no”.  However, a large percentage of participants selected “yes” while 10% selected “others”.


9. How has the compliance environment changed?


Regarding the question “what do you think of the current compliance environment especially compared with the environment prior to the GSK China case”, 36% maintained that the compliance environment has improved.  44% maintained there is no change.  Only 13% expressed that the situation has become worse. 8% selected “others”.


10. Is there any impact because of the amendment to the Chinese anti-bribery law?


There are two kinds of law in relation to bribery: criminal law and administrative law.  For more information, you may refer to the article “Why Chinese anti-bribery law is an important compliance obligation?


The primary legal authority of administrative law, Anti-Unfair Competition Law, is being amended, about which 57% said that the amendment is likely to aggravate the anti-bribery compliance obligations for the companies, but 4% maintained that the compliance obligations would be alleviated.  25% maintained that there is no change.


If you want to have the report of the total survey statistics, please follow the link to register.  If you want to have the complete version of the report which is written in Chinese, please follow the link to join as a premium member ComplianceinChina.com.


*The author Henry Chen, licensed to practice law in China and the New York State of the U.S., is a Senior Partner of Dentons Shanghai Office.  Before joining Dentons, Henry Chen was the AP Compliance Director of Ford Motor Corporation.  Henry Chen is a representative of China Delegation to negotiate over ISO19600 Compliance Management System - Guidelines, and the Vice Director of the Working Committee on China national standard Compliance Management System.  Henry Chen is the author of the book Commercial Bribery Risk Management in China. If you have any questions about this report, please do not hesitate to contact henry.chen@dentons.cn



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