During the past few weeks, Chinese government authorities' actions against a famous British multinational pharmaceutical company in China have become cover story for most domestic and international media. China's Ministry of Public Security officially announced on July 11 that some senior executives of this company are under criminal investigation on suspicion of offering large bribes to government officials, hospitals, doctors, and medical industry associations through travel agencies aiming at increasing sales. Some of the senior executives and employees are also suspected of taking bribes from third party vendors.
According to the news reports, this high-profile investigation is organized and led by the national Ministry of Public Security and the investigation kicked off in late June, when the local public security bureaus visited Shanghai, Changsha and Zhengzhou offices of this pharmaceutical company. It is reported that company documents have been seized and some employees detained.
In addition to this high-profile investigation reported in the media, other healthcare companies have also found themselves being investigated by government authorities at different levels recently. The National Development and Reform Commission also announced earlier in July that an investigation into 60 pharmaceutical companies operating in China into the cost of medicines.
These various investigations and crackdowns on companies in the healthcare industry probably highlighted China's intention to push forward with healthcare reforms, which will have impact on healthcare companies overall.
In view of the above, healthcare companies and possibly other companies which operate with high compliance risks, for example, increase usage of third party intermediaries, frequent interaction of government officials or State-owned enterprises. These companies are advised to pay more attention to this new trend and take proper response measures.
In the current regulatory climate, companies are advised to stay focused on their compliance programs to ensure that they are robust and fully implemented. Recommended steps include the following:
- Review and revise internal policies and procedures on, among other things, hospitalities, "dawn raid" guidelines in the event of government inspections, employee handbooks and manuals; and the process for handling "whistleblowers;"
- Prepare a training course for employees on how to handle investigations;
- Conduct compliance and legal risk assessment;
- Review and "stress-test" internal control procedures on, among other things, financial and accounting practices;
- Conduct proactive internal audits and investigations of suspected violations;
- Conduct detailed due diligence on third party intermediaries such as agents and sales representatives;
- Take prompt action if faced with evidence or allegations of wrongdoing.
Companies should exercise caution when an investigation has been initiated before embarking on any internal assessment and audit process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.