Lessons from GlaxoSmithKline: Understanding the Foreign Corrupt Practices Act

As the pharmaceutical market in Asia Pacific countries becomes increasingly competitive, it appears many companies are resorting to bribery and payoffs to maintain a foothold in the region. This week China announced it is expanding a corruption investigation of pharmaceutical company GlaxoSmithKline, to include at least four other multinational drugmakers.

In this particular case, police investigations discovered pharmaceutical companies hired travel agencies to fabricate conferences for employees to attend, then funneled the money to bribe doctors into prescribing their company’s medications. Under FCPA, both the pharmaceutical companies named and more than 700 travel agencies involved face criminal charges and heavy fines.

What is the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act (FCPA) was established in 1977 to discourage bribery by U.S. citizens and companies of foreign officials for the purpose of obtaining or retaining business. FCPA was amended in 1998 to include foreign companies or individuals who encourage corrupt payments to take place in the U.S.

Enforcement of FCPA falls under the jurisdiction of the Securities and Exchange Commission (SEC), with varying penalties based on being charged as an individual or as an entity. These penalties range from civil penalties of $10,000 to a criminal fine of up to $2 million. However, the criminal fine may increase to twice the gain or loss resulting from corrupt payment. For example, in 2012, Indianapolis-based pharmaceutical company Eli Lilly and Company was charged with improper payments to government officials in Russia, Brazil, China, and Poland, resulting in more than $29 million in fines. 

How you can protect your company 

The rise of globalization means more and more companies are entering foreign markets each year, potentially unaware of the laws surrounding travel, gifts, gratuities and even charitable contributions. If your company is exploring or currently participating in overseas markets, it is important to take the following three steps to ensure compliance under the Foreign Corrupt Practices Act.

1. Know the Law

We’ve covered the basics of FCPA here, but the nuiasances of the law can be confusing. If ever in doubt, consult with legal counsel. Common violation areas include: accounting, loans, chariatable contributions, entertainment, travel, gifts, petty cash and fees. Additionally, include third-party business partners, vendors or consultants in the compliance process and make sure they are aware of FCPA regulations, as well as any laws enforced by regulatory agencies in their home country.

2. Establish Oversight

Understanding FCPA is only the first step to ensuring compliance–there must be demonstrated support for compliance from the top down. Management should be transparent in their compliance efforts and lead by example. Furthermore, the Board of Directors should be tasked with establishing and maintaining a system of internal checks, and evaluate that system periodically. A good first step is to perform a risk assessment of the company, exploring where business is done and with whom. 

3. Train Employees

Performing a risk assessment will help determine the areas of your business that are most vulnerable to compliance violations and where you should target an employee training program. OpenSesame provides a number of FCPA compliance elearning courses that can be distributed to employees remotely and accessed via our site or through your company’s learning management system. While training will provide employees with an understanding of regulations, your system must allow for employees to be able to report suspected violations and receive feedback quickly. Conduct periodic reviews to determine the effectiveness of your reporting process and whether additional training is necessary.  

FCPA shouldn’t prevent you from expanding operations internationally. Training yourself and your employees on the regulations, as well as encouraging open dialogue around real situations is often enough to avoid compliance violations and successfully conduct business in foreign countries.

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