Over my career, I have worked for pharmaceutical and life sciences companies in all the major continents of the world. I have learned that there are many fraud and bribery risks within the life sciences industry and that are commonly seen across different jurisdictions.
It is essential to be aware of local cultures and customs when conducting business internationally. For example, in a Middle Eastern country I have come across payments made in cash that turned out be a corrupt payment to a healthcare official in exchange for discounts on drug supplies.
In China, there was a huge underground industry producing fake invoices and other supporting documents. These slips of serial numbered paper, with a date of transaction, description of services or product and value of transaction (called a “fa piao“ 发票) can now be checked fairly easily against a Chinese tax bureau hotline for legitimacy. As a result, a new underground industry has emerged that issues genuine invoices and supporting documentation, but for exaggerated or non-existent goods and services. Often a middleman called a “Huang Niu” (黄牛) will charge about 8% of the invoice value to source and provide seemingly genuine “fa piao”s.
Here are some of the top risks that regularly occur in the life sciences industry: :
- A corrupt payment made by a distributor will be treated the same as if a manufacturer pays themselves. Therefore, additional controls are required to ensure that distributors are compliant with anti-bribery and corruption laws. It is key to conduct regular monitoring of your distributors via an audit clause in the distributor agreement. These distributor audit should be detailed and cover review of policies and procedures and transaction testing.
- With other third parties, such as your Clinical Research Organisation and R&D partners, there are increasing instances of these partners allocating and re-charging costs that are either unallowed under the contract or unjustified. Third-party open-book audit clauses are vital in these contracts and should be activated, as necessary.
- In any industry, overseas goods need to clear customs and in some jurisdictions customs officers will request additional payments for goods to be cleared expeditiously, or at all. Very often manufactures would use customs agents in order to extract these payments from the company via invoices for “professional services” from these agents. These payments are illegal under FCPA and UK Bribery Act 2010 and UK manufacturers must ensure that they are fully compliant with this act.
- Healthcare professionals are responsible for ensuring that a manufacturer’s products reach There are laws in most jurisdictions regulating the transfer of financial value and products by healthcare professionals on behalf of manufacturers. Appropriate training of your staff and your third parties acting on your behalf is required to maintain awareness and prevent any illegal payments being made to HCPs.
- Procurement fraud appears to be widespread in the life sciences and pharmaceutical industry. I have seen procurement processes abused or not followed in order to favour a particular supplier for reasons such as personal connection or a kickback to a member of a manufacturer’s procurement team. There have been examples of opportunistic procurement fraud as companies use family members to create an illusion of a competitive tender. I suggest regular review of a sample of completed tenders to ensure the procedures were followed appropriately.
- Cyber attacks and ransomware attacks are increasingly common, particularly following COVID and a scramble to illegally obtain vaccine formulae. In light of increasing digitisation of the industry, hackers can now freeze an organisation’s or a hospital’s operations completely, putting patient care at risk. I work closely with a Cyber Security team who conduct the necessary regular testing, such as red teaming, to identify any IT vulnerabilities early on.
- As many other industries, pharmaceutical and life sciences sector is prone to such kinds of internal fraud as invoice fraud, expense fraud or HR fraud. For example, in one of my recent cases through email spoofing fraudulent invoices were sent and subsequently processed for payment. In another case, two sales managers ramped up tens of thousands of pounds in personal travel and restaurant bills. In another investigation that my team has recently worked on, with the help of an insider, an attacker was able to change the bank sort code and account number on a regular payment to divert money to their bank.
This, of course, is not an exhaustive list but it highlights the need to be vigilant over policies, procedures and training in the industry and above all the importance of awareness of business practices that may be normal in certain higher risk countries but which are illegal under acts such as the UK Bribery Act 2010 and FCPA which have global reach from the UK and the US, respectively.
People often ask me whether it is worth trying to do business in certain countries where illegal business practices can be tolerated. My response is that with careful training and monitoring, it is possible, within normal risk appetite, to do business in such countries in a legal and ethical way.
