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Enforcing the Foreign Corrupt Practices Act (FCPA) in the Healthcare Industry: Though Bitter, Good Medicine Cures Illness

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Recently, the US Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) have increased enforcement of the Foreign Corrupt Practices Act (FCPA) in the healthcare sector that includes the biopharmaceutical and medical device industries. In a nutshell, the Act, enacted in 1977, prohibits the offering or payment of “anything of value” to a “foreign official” for the purpose of obtaining/retaining business or securing an improper business advantage. To this effect, the FCPA requires all U.S. companies to maintain effective internal accounting controls and precise records of its transactions. Companies with international operations in the healthcare industries are likely to interact with “foreign officials” on a regular basis. Such involvement may take place in connection with the research and development, approval, production, import/export, and marketing of a healthcare product/service.

It’s important to note that the Act covers U.S. citizens, companies based in the U.S. as well as non-U.S. companies with operations in this country making use of U.S. foreign or interstate commerce. Furthermore, the 1997 Organization for Economic Cooperation and Development (OECD) Anti-bribery Convention established legally binding international standards for compliance with anti-corruption rules; to date, the Treaty has been ratified by a total of 40 countries, a list that includes several important emerging countries (Argentina, Brazil, Russia, South Africa, Colombia, Turkey, etc.).

The combination of attractive production conditions (both in terms of low labor costs and relatively light regulation) and high sales potential of Emerging Markets (EMs), many of which have a deeply entrenched bribery culture, create a “high-risk” scenario. In the past few years, leading healthcare companies like Johnson & Johnson, Pfizer/Wyeth, GlaxoSmithKline, and Eli Lilly, among many others, have paid hundreds of millions of dollars in fines for allegedly engaging in corrupt practices in Asia, Eastern Europe, and elsewhere.

During a recent business conference in Jamaica, I had the opportunity to make a presentation about the managerial implications of the healthcare industry’s increased exposure to questionable and potentially corrupt practices abroad.

In my opinion, corporate management in healthcare companies should take appropriate steps to minimize legal liability under the FCPA by focusing on the creation and maintenance of a strong “culture of compliance” throughout the organization, including all international affiliates and third parties (consultants, clinical research organizations, and intermediaries) working with them. Moreover, FCPA-related investigations and prosecutions are likely to generate negative publicity both in the US and abroad. In the case of many emerging markets with “high-context” cultures, where business is conducted on the basis of long-term relations and trust, the damage done may be irreparable. It is therefore imperative that firms in the healthcare sector continuously review their global marketing strategies as well as sales tactics to ensure the application of high ethical standards as a means of creating a lasting competitive advantage, enhancing brand equity and long-term profitability in these potentially lucrative markets.

George V. Priovolos, PhD, is a Marketing & International Business Professor at Iona College, NY, President of Marque-Echo, LLC, and a member of the Board of Advisors at Analytic MedTek Consultants, LLC.

 

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