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
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
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
Prepare a training course for employees on how to handle
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
Conduct detailed due diligence on third party intermediaries
such as agents and sales representatives;
Take prompt action if faced with evidence or allegations of
Companies should exercise caution when an investigation has been
initiated before embarking on any internal assessment and audit
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.
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