It has been several months since publicity began about
aggressive investigations of potential bribery in the
pharmaceutical industry in China. Despite the passage of time
and dwindling international media attention, Chinese regulators
have not slowed down their efforts to ferret out corruption in the
pharmaceutical sector and related industries. Chinese
authorities' determination is reflected not only in new and
continuing investigations, but also in the enactment of new
legislation. Several recent developments warrant
New Rules: A System of Bribery Records
Recently, the National Health and Family Planning Commission of
China announced that it would establish a record of medical device
manufacturers, agencies and individuals charged with bribery by
authorities, or sued, punished or otherwise investigated for
bribery. Organizations and individuals with a single negative
record will be barred for two years from selling their products
within the province at issue, while two negative records within
five years could have such organizations and individuals barred
from selling their products nationwide. The rules will
formally enter into force beginning 1 March 2014.
The new rules clearly indicate that the emphasis on
anticorruption in China is not going to diminish with the end of
pending investigations of large foreign companies. As with US
rules excluding companies from participating in government health
care programs as a result of certain misconduct, these rules are
likely to cause companies in China to increase their focus on
ethical practices and strict compliance with law.
The Chinese government's focus is not limited to foreign
companies; it continues to pay close attention to domestic Chinese
companies. For example, one of the largest Chinese
pharmaceutical companies, Shanghai Pharmaceuticals, appears to be
in the spotlight. Recently, its subsidiary Qingdao Growful
Pharma was accused of bribing hospital staff to prescribe its
drugs. The subsidiary company is alleged to have spent
approximately RMB 766,500 (USD 126, 200) on bribes between January
and June 2013, according to public reports. Shanghai
Pharmaceuticals reportedly has opened an internal bribery probe
after a report by an unidentified whistle-blower, maintaining that
it has a very strict internal control system.
Separately, Sinopharm Group Company is addressing similar issues
reportedly involving a former vice president and a former general
manager of one of its units. Both reportedly were detained by
Shanghai authorities in January 2014 as part of a corruption
investigation. According to press reports, the probe likely
was triggered by a whistle-blower, and the company reportedly
invited Shanghai authorities to investigate.
The Trouble with Partners
Many large companies operating in China actually have internal
controls and compliance policies, yet sweeping anticorruption
allegations suggest dramatic controls and policy failures.
What have sophisticated companies in China overlooked?
One answer could be a failure to investigate and supervise
appropriately the business partners, agents and third-party vendors
widely relied upon in Chinese business. Even with large and
reputable partners, companies can easily become linked to an
anticorruption investigation through a relationship with a third
party. Companies need to remain vigilant not only in vetting
third parties, but in on-going oversight and updated
China's current regulatory environment continues to present
new challenges in controlling global risks arising from operations
in China, and all signs indicate these risks will only
increase. Recent developments place a premium not only on
knowledge of acceptable business practices in China, but strongly
indicate that companies revisit their internal compliance systems
and practices. Many Chinese authorities are sending loud
signals that there is a new era of anticorruption enforcement in
China; those same authorities will expect that same new era to dawn
within Chinese business.
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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The requirement to provide home care packages on a consumer directed care basis (CDC) commenced on 1 July 2015.
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