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Chris Cartmell is Senior Solicitor in the Regulatory Disputes Practice, and Jo Pisano is Partner in UK Pharma and Lifesciences Consulting Practice, both at PwC.
When it first came into force the UK Bribery Act 2010 was deemed to be revolutionary. Looking back, what has been its impact on pharma? Chris Cartmell and Jo Pisano report.
In July 2011, the United Kingdom Bribery Act 2010 (UKBA) was introduced, the first major international anti-bribery and corruption (ABC) legislation since the US Foreign Corrupt Practices Act 1977 (FCPA). The UKBA was heralded as a defining moment in the fight against bribery and corruption with commentators claiming it to be the world’s most stringent ABC legislation. Seven years on as the UK Government sets up a committee to assess the impact of the UKBA (the Review), we explore the current bribery and corruption risk landscape and analyse what steps pharmaceutical companies should take to ensure compliance with ever increasing ABC global standards.
A common misconception is that before July 2011 there was no UK criminal offence for bribery and corruption; this was not the case as a number of individuals found out to their detriment (and some still do given the frequent lag between criminal conduct, investigation and prosecution). From as early as 1906 the UK had legislation criminalizing corruption. The UKBA collated various pieces of legislation into one act and, importantly, introduced a new corporate offence of failure to prevent bribery and corruption (section 7 UKBA).
In short, companies could be held liable for a criminal offence in the event they or a party associated with them committed bribery. This offence applies to any company who had a connection to the UK no matter where the bribery offence took place. Section 7 is in essence a strict liability offence, the only defence being that the culpable company had implemented “adequate procedures” to manage the risk of bribery and corruption. When it first came into force the UKBA was deemed to be revolutionary but looking back, seven years later, what has been its impact and should we expect any change as a result of the Review?
The aim of the UKBA was to deter bribery in the UK and abroad and to encourage companies to implement adequate procedures to manage the risk of bribery and corruption. The fanfare around the UKBA raised awareness of bribery and corruption in UK companies and those doing business in the UK and put the issue on company board agendas. This awareness and the confirmation, that bribery and corruption is wrong has created a cultural change in UK Plc and across the global corporate world.
The change in the responses to PwC’s Global Economic Crime and Fraud Survey (GECS) highlights this shift in mindset. When the UKBA came into force in July 2011, nearly two-thirds of respondents said they didn't see any need to update their organization's existing policies. By 2014, responses showed a change in this thinking and the UKBA appeared to be having more impact than firms initially expected. 87% of respondents in 2014 said that their organization had made at least some changes to policies and procedures, with 37% saying that their organisation had performed a major overhaul of their ABC policies. By 2018, 75% of UK respondents said their organisation had a formal ethics and compliance program in place. Of these, 62% said that this included specific ABC policies, well above the global average of 50%.
The business community say that the UKBA has been a key milestone in developing and driving change in ABC compliance program, it has provided an underlying business driver for investment into a compliance function to support their ‘adequate procedures’ defence. Additionally, businesses now have a better awareness of the diverse forms that bribery can take and that non-financial methods, (in addition to traditional financial payments), are in fact used. CSR/corporate philanthropy, sponsorships and political donations in particular are three areas where we have seen the UKBA to be beneficial in driving much smarter and more risk-aware decision-making. Such has been the success of the UKBA that other jurisdictions, including Australia and India, have developed or are developing similar ABC legislation based on this model. Therefore, the general consensus that that the UKBA has had the positive impact on fighting bribery and corruption intended, however, the legislation is not perfect and lessons can be learnt from other global financial crime legislation.
A good place to start is in France and Sapin II, introduced in June 2017. There are many similarities between the UKBA and Sapin II, however, there are also some key differences:
1. Sapin II requires relevant organizations to have ABC policies and procedures (e.g. failing to have such a compliance framework in place is an offence). Under section 7 of the UKBA “adequate procedures” is not compulsory, rather a defence in the event bribery or corruption is found in the business;
2. The French guidance is more detailed and explanatory than its UK equivalent, providing further detail on the expectations upon relevant organizations; and
3. The Sapin II requirement for a ABC compliance programme only applies to companies with turnover of over EUR 100m and/or more than 500 employees (whilst for “adequate procedures” the UKBA applies to all business, large or small).
Given the positive impact the UKBA has had and in an increasingly transparent world it is unlikely that anything which softens the UKBA will be proposed by the Review, however, further clarity would be welcome. One outcome from the Review is likely to be further guidance, particularly around what “adequate procedures” looks like for companies of different size, sector and risk. Whether the Review committee decides to introduce a compulsory compliance framework requirement is yet to be seen. With any positive obligation this needs to be enforced and this will require time, money and resourcing. Failure to do so will undermine the requirement. It will be interesting to see how this evolves in France but for pharma companies with a good corporate culture and robust ABC framework any amendment to the UKBA is likely to require a refresh rather than an overhaul.
Another area which might be considered by the Review is the approach adopted by jurisdictions such as Italy and Spain. In these jurisdictions companies can be guilty of a whole range of criminal offences beyond ABC – including areas such as money laundering, market abuse and data and privacy related offences – as with section 7 of the UKBA in the event such offences are identified the company will only avoid prosecution if they can show they have implemented policies and procedures to manage risks of such offences occurring. The extension of the “section 7 offence” to cover more areas of financial crime has already been considered as part of a separate UK Government consultation in early 2017 and we await the outcome. It is unlikely too much time will be spent considering this, however, given the introduction of the UK failure to prevent tax evasion offence by the Criminal Finance Act 2017 (FTP) which follows the UKBA “section 7” model, it is likely that in the future other failure to prevent offences could be introduced.
For more information on the achievements of the UKBA, some of the UKBA’s challenges and what other jurisdictions are doing in this space, you can see PwC’s submitted evidence here: PwC evidence to UKBA Committee.
Whatever the outcome of the Review, one thing is clear and that is the direction of travel for ABC and wider financial crime globally is increased focus on corporate criminal liability and an ever increasing global approach and collaboration to compliance and enforcement. Against this backdrop, there is much for pharma companies to do to ensure effective and pro-active compliance. Below are some top tips for keeping on top of the compliance wave:
• Prosecutors’ and regulators’ approach to ABC enforcement is global cooperation; pharma companies should ensure they adopt a similar approach. A pharma company’s ABC compliance framework is only as strong as its weakest jurisdiction – ensure all offices in the group are trained, supported and are sufficiently resourced to manage the ABC risk in each local territory;
• It is important that both international and local ABC legislation is considered whilst designing an ABC framework. Whilst a lot of ABC legislation adopts are similar approach, there is some deviation. Although understandable that many companies focus on the UK and US ABC legislation given how actively this is policed, other legislation should not be overlooked;
• Look at compliance in the round to see if existing systems and controls can be developed and leveraged. There are similarities between the UK requirements for ABC, the new FTP and modern slavery amongst others so assess the value of working across units and divisions to ensure efficiency and consistency;
• Take time to proactively horizon scan ABC risks and developments rather than wait for a breach where control can be lost and it may be too late to remediate. Create a network of experts around you – advisors, colleagues, peers in pharma sector and register for alerts from advisors, regulators and non-government organizations (such as Transparency International) and ensure you take time to attend industry and ABC focused compliance events;
• Regularly monitor and review the adequacy of existing ABC systems and controls. Is the company adopting a “beyond the pill” strategy? If so, as well as starting new business offerings is the company also entering into new higher risk territories? If so, assess what impact these developments have on ABC risk and whether systems and controls need to be enhanced;
• Consider what role technology can play in ABC compliance, can transactions be proactively tested? Can gifts and hospitality approvals be further automated? Can technology be used for the ongoing monitoring of third parties? Can e-learning be an appropriate mechanism for training international staff? Many compliance steps undertaken by pharma companies can have a technology solution to them which can assist with challenges around costs, resourcing and efficiency.
By Chris Cartmell, Senior Solicitor in the Regulatory Disputes Practice, and Jo Pisani, Partner in UK Pharma and Lifesciences Consulting Practice, at PwC.