Ministry of Justice Guidance on the Bribery Act 2010: Is it helpful for Pharmaceutical Companies?
This article was first published in Regulatory Affairs Pharma May 2011
After some delay, the UK's Ministry of Justice has published its guidance on anti-bribery procedures which it expects companies to put in place1 in order to comply with the Bribery Act 2010 ("the Act"). This publication is a trigger for the entry into force of the Act, set to be 1 July 2011. This delay is intended to give companies time to set their houses in order. Companies should however note that the UK does have current and effective anti-bribery legislation in place. This "old" legislation continues to be effectively applied by the Serious Fraud Office to exact substantial fines from breaching companies and individuals2. The stated aim of the new guidance is to provide clarity on how the law will operate. Whilst this is in part achieved with respect to some of the terms used in the Act, we will see that there is still plenty of scope for questions about the interpretation of the Act when related to the typical activities of pharmaceutical companies. The content of the Act has been extensively written about already so this article focuses solely on the new information contained in the guidance as it relates to the business of pharmaceutical companies.
National and local newspapers have had a field day tolling the bell for the hospitality industry as a result of the Act. Whilst these headlines have (perhaps wildly) exaggerated the draconian effects of the Act, the pharmaceutical industry has been used to considering very carefully any hospitality offered to healthcare practitioners and limiting this strictly as required by the applicable national codes and laws specific to this industry. Hospitality for individuals from institutions making regulatory decisions about pharmaceutical products is also unwise. It is not generally necessary to network with such individuals and therefore hospitality is hard to justify even as a "routine business courtesy"3. An exception might be providing a basic working lunch at a manufacturing plant to inspectors of that plant, where timing of the inspection means that they will be part way through their inspection at lunchtime.
In their other activities however, pharmaceutical companies are much like any other business and may, subject to the Act, provide hospitality as a business courtesy. This might, for example, include entertaining CEOs of major suppliers or manufacturers or joint venture partners. Pharmaceutical companies will therefore welcome the additional guidance from the Ministry of Justice, which makes it clear that hospitality is not, at least as a matter of course, considered to constitute a bribe under the Act. The detail of the guidance does however need to be reviewed and considered in the context of the actual business relationships and the hospitality which the company provides to its commercial partners. The important test is whether such hospitality is "bona fide" (which is relevant to the test of the intention behind the provision or offer of hospitality). If the hospitality is "proportionate and reasonable" it is less likely to be problematic. Companies should consider the various situations and commercial contexts in which hospitality might be offered both by and to their employees. They should determine what is "proportionate and reasonable" in relation to the particular individuals and the commercial context and should include this in a clearly written company policy. All the circumstances need to be considered, including whether the timing of the hospitality coincides with the offer of a contract. Examples of hospitality which is deemed acceptable in given contexts can be more helpful than just a fixed sum per head. Ken Clarke's Foreword to the guidance specifically refers to Wimbledon and the Grand Prix being acceptable, which will be a relief to organisers of those two events.
In procurement situations it is common for "extraneous extras" to be requested and/or offered. An example in the industry might be a diabetes nurse. The section 6 offence of bribery of a foreign public official might be triggered by such an offer, save that the guidance has clarified that there will be no such offence where "written law" permits or requires the official to be influenced by such arrangements". In the UK, the provision of additional unrelated facilities by developers is permitted, for example, to influence a decision of whether or not to grant planning permission for the main development. However, in procurement situations European law requires that the items or services which are not the subject matter of the procurement do not influence the final outcome of the procurement process4. Therefore, offering these "extraneous extras" will be an offence. The guidance however states that "prosecutors will consider the public interest in prosecuting"5. Before offering these extra benefits in any procurement process, pharmaceutical companies will need to determine whether they are comfortable being "under consideration" by the prosecuting authorities, or whether they would prefer to avoid this scrutiny by not offering them at all. This will be a difficult decision if government tenders continue to specifically include a request for these "extraneous extras", unless all pharmaceutical companies refuse to offer them.
A very welcome clarification in the Guidance is the fact that exclusion from public procurements will, at least in the UK, be a discretionary sanction and not a mandatory one.
Failure to prevent bribery
The section 7 offence of failure to prevent bribery, generally referred to in commentaries as a "strict liability" offence contains a number of definitions which are clarified in the guidance.
Relevant commercial organisation
Great concern has been caused by the definition of a "relevant commercial organisation", being one to which section 7 applies. The net cast by this section is potentially over companies which might have only limited connection to the UK. This limited connection requires only that the company "carries on a business or part of a business, in any part of the UK". The guidance states that the government expects that a "common sense approach" will be applied. "Common sense" is not a specific judicial tool for the interpretation of statutes and it therefore remains to be seen whether the courts will live up to government expectation on this point. Questions raised by this definition are of course around exactly how much business needs to be undertaken in the UK before a company falls within the jurisdiction of the UK courts. In the context of multinational pharmaceutical companies for example, will a "sales office" in the UK mean that the whole complex web of a group structure be brought within the jurisdiction of the UK courts? The guidance clarifies that any "commercial activities" will constitute "carrying on a business"6 and that, on its own, admission to the Listing Authority's Official List will not7. More interestingly, the guidance states that "having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act independently of its parent or other group companies."8 This raises more questions than it answers. In the context of a pharmaceutical company with a parent based outside the UK, UK subsidiaries are likely to be handling regulatory filings, clinical trials and sales in the UK and possibly other countries. Should the UK subsidiary be acting independently of the parent company in carrying out those activities, or ought the parent company to be exerting through management, its influence to "prevent bribery"? Does this mean that the UK authorities will not pursue the parent company, only the UK subsidiary? By extension, does this mean that where there is a UK parent, subsidiaries based outside the UK and engaging in bribery in other jurisdictions might also be considered to be acting "independently of its parent" and therefore outside the jurisdiction of the Act? This point is covered later in the Guidance in relation to joint venture companies. In that section it states that liability of a parent company is engaged where the subsidiary (the joint venture company) intends that the bribe will result in the parent company obtaining or retaining business9. The question which this raises is whether it is the "intention" of the subsidiary or "control" of the parent which determines whether the parent is liable for the activities of the subsidiary, or is it perhaps both? The only certainty is that the Guidance (but not the Act) seems to be clear that a parent company will not always be held to be responsible for the bribery of its subsidiaries.
It is possible that the intention is that it is assumed that the line of command is normally from a parent company to its subsidiaries. Therefore, the fact that there is a UK subsidiary does not necessarily bring a whole group of companies with a foreign parent into the jurisdiction of the Act. This is because the UK company may have no actual management or control over the company engaging in the bribery, because that company is a sister company or the parent.
The stated aim of a broad jurisdictional approach was to give the Serious Fraud Office ("SFO") the possibility to level the playing field for UK companies. This is potentially removed if the statement in the Guidance is extrapolated and subsidiaries of UK companies can be treated as "independent". We will have to see whether the SFO will flex its muscles only if the UK parent has had some direct involvement in the bribery (for example through their management or direction), or whether they will be considered de facto to have failed to prevent bribery simply because the bribery has been engaged in by a subsidiary over which it ought to have exerted control. A relevant case is the very recent DePuy case10. In that case the bribery was carried out by the Greek subsidiary of the English registered DePuy International Limited, but under the direction of and condoned by the management of the UK company. In the US on the other hand, under the Foreign Corrupt Practices Act, the authorities successfully pursued the US parent, Johnson & Johnson.
A pharmaceutical company is potentially liable for failure to prevent bribery if an "associated person", defined as someone performing services on behalf of the company, bribes a third party. The Guidance helpfully gives some examples of the type of individuals or organisations who might be an "associated person". An employee of the company is presumed to be performing services for the company, as are agents and subsidiaries11. Although the point is a different one, the statement in the guidance about a "relevant commercial organisation" which states that subsidiaries may act as "independent" from their parent company seems contradictory.
In addition "all relevant circumstances" are to be considered when deciding whether the relationship between a company and a third party will make that third party an "associated person" for which the company is responsible under the Act. The Guidance states that the definition is deliberately large "to embrace the whole range of persons connected to an organisation who might be capable of committing bribery on the organisation's behalf". The most important words here are "on the organisation's behalf". Further examples are where a purchaser of goods is performing services and not just acting as an onward seller of those goods. In the pharmaceutical industry the relationship between a company and those purchasing and selling its products can be closer than for products not subject to regulation. This is because such regulation includes for example requirements for traceability, the ability to undertake recalls and pharmacovigilance requirements.
A helpful clarification is that a company is "likely only to exercise control over its relationship with its contractual counterparty"12 and not further down the supply chain. However the same paragraph of the Guidance goes on to say that the agreement with the original contracting party ought to include a provision requiring that the distributor include anti-bribery provisions in onward distribution agreements as those with the manufacturer. If a company is not responsible for the more extensive supply chain, why is this necessary, and would they be in breach of the Act if the next company in the supply chain does engage in bribery and they had not included such a "reach through" provision? Pharmaceutical companies should probably take a cautious approach and include this provision in supply agreements, at least until this point is clarified.
The Guidance also refers to joint ventures, recognising the difference between a contractual joint venture and a corporate one. A corporate joint venture might only engage the liability of one of its shareholders if it is "performing services" on their behalf and "the bribe is paid with the intention of benefiting that member". A bribe paid by the joint venture company, or its employees or agents will not trigger liability for a shareholder "simply by virtue of them benefiting indirectly from the bribe through their investment in or ownership of the joint venture". This would seem to accord with the principles of shareholder ownership: shareholders who are "sleeping" investors are not liable for the activities of the companies in which they invest. Where the joint venture is more than an investment, but rather a vehicle for collaboration, with the shareholders having board representation, which is commonly the case, then the responsibility of a joint venture party will presumably be engaged.
It is stated that a contractual joint venture is different, and the relevant circumstance is the degree of control of a participant over the activities of an individual, who is perhaps an agent or an employee of one of the parties only. The guidance states that such an employee or agent is "presumed" to be a person performing services for and on behalf of his employer13, in the absence of evidence that they are acting on behalf of the contractual joint venture as a whole. In the case of pharmaceutical collaborations and co-marketing and co-promotion agreements, as long as a party does not direct the activities of the employees and agents of the other party, one might assume that they will not be liable for bribery engaged in by other party's employees or agents. Note however, that where there is a supply chain relationship including services, as discussed above under "Associated Person" included in such an agreement, then there is a level of responsibility which flows through a party's employees to the other party. This seemingly helpful clarification is therefore not as helpful as it might at first appear.
The decision to prosecute offences is to be made either by the SFO or the Director of Public Prosecutions. In order to achieve consistency the Joint Prosecution Guidance of the Director of the Serious Fraud Office and the Director of Public Prosecutions was published at the same time. Both this document and the Guidance state that any only the serious offences likely to be prosecuted. The two elements to be considered are firstly evidence and secondly, public interest in the prosecution. Hospitality, promotional expenditure and facilitation payments (all of which on the scale of things tend to be small) are said to be less likely to be prosecuted.
Whilst the Guidance provides some welcome clarity on some of the intentions of the Government and of the interpretation of some of the terms used in the Act, there remain significant areas of uncertainty. Given that this and the fact that the Guidance has no legislative effect, pharmaceutical companies need to take a cautionary approach to their anti-bribery measures. They should therefore ensure that they do include appropriate contractual provisions and/or management controls over employees, joint ventures (whether corporate or contractual), subsidiaries and chains of supply. Companies should remember that if they find themselves pleading the defence of "adequate procedures" they will be doing so in the context of a bribe having be made. Where a crime has been committed, pleading innocence through this defence will not be a comfortable ride.
- http://www.justice.gov.uk/guidance/docs/bribery-act-2010-guidance.pdf ("Guidance").
- At the date of writing, the latest fine (as a civil recovery order) is £4.892 million against Johnson and Johnson. See: http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2011/depuy-international-limited-ordered-to-pay-%C2%A34829-million-in-civil-recovery-order.aspx. That fine is an addition to the $70 million payable in the US for the same offences.
- In paragraph 30 of the guidance, "incidental provision of a routine business courtesy" is stated to be unlikely to "raise the inference that it was intended to have a direct impact on decision making, particularly where such hospitality is commensurate with the reasonable and proportionate norms for the particular industry."
- Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, Article 53: Contract award criteria 1. ....the criteria on which the contracting authorities shall base the award of public contracts shall be either:(a) when the award is made to the tender most economically advantageous from the point of view of the contracting authority, various criteria linked to the subject-matter of the public contract in question, for example, quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost-effectiveness, after-sales service and technical assistance, delivery date and delivery period or period of completion, or (b) the lowest price only.
- Paragraph 25 of the Bribery Act 2010 Guidance, issued by the Ministry of Justice.
- Paragraph 35 of the Guidance.
- Paragraph 36 of the Guidance.
- Paragraph 36 of the Guidance.
- Paragraph 42 of the Guidance.
- Paragraph 37 of the Guidance.
- Paragraph 39 of the Guidance.
- Paragraph 41 of the Guidance.