China: Commercial Bribery Enforcement In The Healthcare Industry: What’s Next?

In 2010,we witnessed an increasing number of enforcement actions taken by the local Administrations for Industry and Commerce ("AIC") in China against sales and promotional activities undertaken by healthcare companies, alleging commercial bribery. The enforcement actions were taken by AICs in many cities across China, and many targeted multinational companies.

These recent AIC initiatives have focused on companies' interactions with healthcare professionals, especially on speaking engagements, sponsorships for participation in scientific and educational activities, and direct or indirect donations to healthcare institutions. Although these activities may have genuine scientific or educational purposes and were approved internally according to companies' compliance policies and the local industry code of conduct, the AICs in some cases view them quite differently. Thus, Foreign Corrupt Practices Act ("FCPA") policies alone will not exempt companies from local enforcement exposure.

In 2011, there is no sign that the AICs will decrease these enforcement efforts. On the contrary, enforcement actions may become increasingly intensive and aggressive because the AICs are obtaining more knowledge about the business models adopted by the multinational companies for the Chinese market.

The Chinese Government is amending the Law for Anti-Unfair Competition, the legal basis for the AIC enforcement against commercial bribery. If the amended law does not provide sufficient clarification on key substantive and procedural issues,AICs may have even greater power and discretion in the future.

In response to this situation, companies should carefully review their sales and promotional activities in light of China standards. Employees should be trained on AIC standards. More importantly, industry should continue to help the AICs and the Chinese legislative bodies to understand legitimate scientific and business activities which are otherwise being disrupted by AIC enforcement efforts.

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