The Bribery Act 2010 – How will it impact the pharmaceutical industry?

At a time when the value of emerging markets to the pharmaceutical industry is increasing, the global reach of the Bribery Act 2010 is one of a number of good reasons why the new legislation merits particular attention.  In addition, the trend towards "externalisation" in the sector means that the industry needs to have a proper understanding of the "associated persons" provisions of the new Act. And while compliance with the ABPI’s Code of Practice is a good starting point, the industry can’t afford to assume that this will mean that compliance with the new Act can be taken as read.

The Bribery Act 2010

The Bribery Act 2010 (the "Act") establishes four types of offence. The first three offences can be committed by either a company or an individual, whilst the fourth offence can only be committed by a company. The offences are:

1. bribing another person;
2. being bribed;
3. bribing a foreign public official; and
4. failure by a commercial organisation to prevent bribery (the "corporate offence").

Unlike the old bribery offences, the new offences do not rely upon the establishment of a particular relationship – instead they revolve around the concept of improper conduct. Offences 1 and 2 are based upon the idea that an advantage is offered or accepted, with the intention that some function or activity is performed improperly. Offence 3 arises when an advantage is promised or offered to a foreign public official, combined with an intent to influence that official in order to obtain or retain business. Offence 4 arises when a commercial organisation fails to prevent offences 1-3 being committed by a person it is associated with.

A "commercial organisation" includes UK incorporated companies and UK formed partnerships, as well as companies and partnerships, wherever incorporated or formed, which carry on business (or part of a business) in the UK.

The corporate offence and "associated persons"

The offence that will be of most significance to the pharmaceutical industry is the corporate offence. The offence is one of strict liability and can be broken down into three components:

• a person associated with a commercial organisation;
• is or would be guilty of offences 1 or 3 (bribing another person or a foreign public official); and
• such bribery was carried out in order to obtain or retain an advantage for the organisation concerned.

However, a company will not commit an offence under the Act where it can show that it had "adequate procedures" in place.  The recent guidance from the Ministry of Justice ("MoJ") states that what is regarded as "adequate" in this context will depend on the bribery risks faced by the relevant company.  The MoJ guidance also sets out 6 principles that a company should consider in formulating appropriate policies and procedures:

1. Proportionality – the action you should take should be proportionate to the risks you face.
2. Top Level Commitment – senior management in a company should take the lead in ensuring the company does not engage in bribery and has appropriate policies in place.
3. Risk Assessment – you should carry out a proper risk assessment of the particular bribery risks you face, taking into account relevant factors such as the jurisdiction(s) and the value of the business involved.
4. Due Diligence – make sure you carry out adequate checks on those you engage in relation to business dealings (such as your “associated persons”, discussed further below).
5. Communication – ensure your staff and associated persons know about the relevant policies and procedures, and receive appropriate training.
6. Monitoring and Review – proper compliance is not a one-off exercise: it is an ongoing task that requires regular monitoring and review.

Issues for the pharmaceutical industry

1.         The global reach of the Act

The increasing value of emerging markets to the pharmaceutical industry is widely acknowledged.  However, in many cases these markets will be ones in which local custom and practice may include the use of facilitation payments or the conferring of other benefits that could be regarded as bribery under the Act.

The breadth of the definition of "commercial organisation" under the Act, combined with the concept of "associated persons", means that UK pharmaceutical companies need to consider carefully their activities globally – whether carried out themselves, through a third party associated person, or through a subsidiary.

For example, the MoJ guidance refers specifically to the need for a proper risk assessment where an organisation enters a new market where it has not done business before.  The entry into new markets for pharmaceutical companies will also be likely to involve interaction with foreign public officials (such as individuals working in the relevant jurisdiction’s health authority), giving rise to potential liability risks under section 6 of the Act (bribery of a foreign public official).

2.         How well do you know your "associated persons"?

At a time when many in the pharmaceutical industry look for increased "externalisation" of their operations, the concept of an "associated person" is a particularly important one.

The definition of an "associated person" is a broad one: any person who performs services for or on behalf of an organisation.  In the pharmaceutical industry this could include sales representatives from a contract sales organisation, a regulatory consultant operating in an emerging market, or an agent in a particular jurisdiction responsible for health authority contract tenders.

The burden is on pharmaceutical companies to ensure that they carry out adequate due diligence on any associated persons they intend to contract with, and to make those persons aware of the relevant pharmaceutical company’s policies and procedures in relation to the Act.  It would also be prudent to ensure all associated persons are adequately trained on the relevant policies, and to ensure that rights to audit associated persons are enshrined in contract and exercised with appropriate frequency.

The obligations of a pharmaceutical company in relation to an associated person extend also to their existing body of associated persons: a proper assessment of those existing relationships should be carried out, and a risk-based approach should be adopted in determining the urgency and scope of such assessments.

3.         Hospitality – is compliance with the Code enough?

The ABPI’s Code of Practice refers in Clause 19 to the circumstances in which hospitality can be made available to healthcare professionals and appropriate administrative staff, and the fact that such hospitality must be "subsistence only".

The guidance from the MoJ on the Act talks about "transparent, proportionate, reasonable and bona fide hospitality and promotional expenditure", and refers to expenditure on hospitality being "reasonable given the sort of business you do".  The standard of reasonableness in the case of the pharmaceutical industry is likely to be judged by reference to the ABPI’s Code, so a breach of Clause 19 of the Code in relation to hospitality provided to healthcare professionals may mean that an offence has been committed under the Act.

There are differences in the scope of the Code and the Act that also need to be borne in mind. The global reach of the Act and the associated persons provisions both mean that the Act can impact where the Code does not, so particular care must be taken in reviewing hospitality arrangements that have been dismissed previously as falling outside the Code.  For example, the provision of hospitality to a foreign public official working in the health authority in an emerging market would fall outside the Code, but could give rise to liability under the Act.

While compliance with the Code is a good starting point, it will not in itself guarantee a company a defence under the Act.  Companies should ensure that they have overarching anti-corruption policy in place, and that the policy is based on a detailed consideration of the 6 principles outlined in the recent MoJ guidance.

How can Taylor Wessing help?

• We can advise on adequate procedures including preparing an anti-corruption policy for your organisation (typically as part of a wider ethics policy).
• We can carry out or advise on appropriate due diligence when establishing new relationships with intermediaries and agents for whose acts your business will be responsible, and also advice on how to monitor those agents.
• We can perform a corruption "red-flag" review as part of a due diligence on business acquisitions.
• We can investigate potential corruption incidents and advise on appropriate steps to be taken including possible self-reporting to government authorities.

Lawyers Tim Worden, David de Ferrars