On October 11, 2024, the State Administration for Market Regulation (SAMR, 国家市场监督管理总局) issued the Draft Compliance Guidelines for Healthcare Companies to Prevent Commercial Bribery Risks (the Draft Guidelines, 医药企业防范商业贿赂风险合规指引). These Draft Guidelines were published for public comment, due by Sunday, October 20, 2024. While China's public comment system is still developing, the Draft Guidelines provide valuable insight into regulators' views and expectations. We have prepared informal translations of the Draft Guidelines and their related Drafting Statement which provides additional background.
Overview
The publication of these Draft Guidelines is a new milestone in the development of China's anti-corruption regulatory framework, similar to the Foreign Corrupt Practices Act (FCPA) Resource Guide published by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission. Like the FCPA Resource Guide, the Draft Guidelines primarily summarize the requirements of existing laws, regulations, and guidance, such as the Anti-Unfair Competition Law (AUCL) and the Drug Administration Law (DAL), with two notable exceptions:
- The Draft Guidelines recommend that companies proactively report misconduct to regulators. While this is in line with enforcement trends in other jurisdictions, China does not have a formal regulatory framework for proactive disclosure such as that found in the U.S. or UK.
- The Draft Guidelines appear to allow manufacturers to organize academic and promotional meetings and to pay service fees to healthcare professionals (HCPs), in contrast with prior guidance that HCPs should only lecture at events organized by government agencies, healthcare institutions, and similar organizations, and should only receive service fees from such organizations.
The Draft Guidelines show the continued development of
China's anti-corruption compliance framework and its continued
adoption of global standards. The Draft Guidelines also signal the
Chinese government's continuing focus on the healthcare
industry and can be seen as a continuation of the government's
ongoing anti-corruption campaign targeting the healthcare
industry.
In recent years, multiple Chinese regulators have issued a number
of regulations and guidance documents regarding corruption in the
healthcare industry. These documents have primarily focused on the
conduct of healthcare institutions and practitioners, but there has
been relatively little guidance for other industry participants.
The Draft Guidelines are intended to fill this gap by providing
comprehensive and practical guidance on anti-corruption
issues.
The SAMR, previously known as the Administration for Industry and
Commerce, or AIC, is the primary regulator responsible for
enforcing the AUCL, which imposes administrative penalties for
commercial bribery, e.g., fines, confiscation of profits, and
suspension or cancellation of business licenses. China's AUCL
is broader than the U.S. FCPA, encompassing payment of bribes by
both individuals and organizations. The AUCL also encompasses the
payment of bribes to government officials.
The Draft Guidelines are divided into four chapters:
- General principles
- How to establish an effective compliance program
- How to identify and prevent anti-corruption risks
- How to remediate anti-corruption risks
Below is a high level overview of some of the key content:
Drafting Statement
Along with the Draft Guidelines, the SAMR also published a
Drafting Statement providing additional detail on the background,
drafting process, main content, and highlights of the Draft
Guidelines.
The Drafting Statement notes that the positive and negative
recommendations in the Draft Guidelines are each organized into
four categories:
Recommendations:
- "Required" (应当): These recommendations reflect the content of China's laws, such as the AUCL and the DAL.
- "Permitted" (可以): These recommendations are based on industry standards and regulatory guidance.
- "Suggested" (建议): These recommendations offer suggested best practices within the industry.
- "Encouraged" (倡导): These recommendations outline measures which can further help and improve a compliance program.
Restrictions:
- "Prohibited" (禁止): Conduct that violates applicable laws and regulations, and includes conduct identified as commercial bribery in recent enforcement actions.
- "Avoided" (避免): Conduct that is not directly prohibited by law or regulation, but is considered to have high anti-corruption risk.
- "Restricted" (限制): Conduct inconsistent with general compliance principles, which may increase anti-corruption risk in some circumstances.
- "Noted" (关注): Conduct inconsistent with general compliance principles, but generally of low risk.
General Principles
Chapter I explains that the Draft Guidelines are intended to
provide guidance for participants in the healthcare industry,
including companies engaged in research and development,
manufacturing, distribution, marketing, and sales. This chapter
also clarifies that the Draft Guidelines are limited to the
regulation of commercial bribery under the AUCL and do not apply to
criminal enforcement actions under China's Criminal Law.
This section provides general obligations for various participants.
It encourages large- and medium-sized companies to implement
compliance programs and suggests that they engage third parties to
evaluate such programs, while small companies are encouraged to
manage compliance-related matters in accordance with the Draft
Guidelines. This section also encourages the public to report
potential bribery cases in the healthcare industry, and encourages
healthcare institutions to implement internal rules in line with
the Draft Guidelines.
Compliance Programs
In Chapter II, the Draft Guidelines require companies to establish effective compliance programs. The recommendations and guidance are consistent with most multinational companies' compliance programs. Examples of required measures include designating a compliance management team, formulating policies, setting up systems for approval and audit of transactions, and providing training to employees. The Draft Guidelines also encourage companies to set up internal whistleblower programs and implement anti-retaliation measures.
High Risk Activities
In Chapter III, the Draft Guidelines list nine types of activities that are considered high risk and provide guidance on how to identify and prevent these risks. The nine high risk activities include:
- Academic Visits and Communications (学术拜访交流)
- Hospitality (接待)
- Speaker Fees/Service Fees for HCPs (咨询服务)
- Outsourcing (外包服务)
- Discounts, Rebates, and Commissions (折扣、折让及佣金)
- Donations, Sponsorships, and Grants (捐赠、赞助、资助)
- Free Placement of Medical Devices (医疗设备无偿投放)
- Clinical Research (临床研究)
- Retail Sales (零售终端销售)
The Draft Guidelines provide concrete examples of dos and
don'ts in each of these areas, which are generally in line with
best practices in other jurisdictions. For example, the Draft
Guidelines recommend that sponsorships should be arranged
transparently and in response to a public request for sponsorship
and prohibit the use of sponsorships to influence HCPs to prescribe
or use products.
As noted above, the Draft Guidelines recognize the need for
companies to directly engage HCPs for legitimate business purposes.
This appears to ease prior guidance that had limited HCPs to
speaking at events organized by government agencies, healthcare
institutions, or industry associations, and required any service
fees to be paid by such organizations. To this end, the Draft
Guidelines recommend that companies adopt best practices, such as
calculating service fees based upon HCPs' expertise, paying
service fees through bank transfers, and documenting the
performance of services.
Remediation
In Chapter IV, the Draft Guidelines provide suggestions on how
to mitigate any risks identified.
With respect to internal mitigation of risks, the Draft Guidelines
recommend that companies not only conduct internal investigations,
but also recommend that they engage third parties to conduct
investigations as appropriate.
The Draft Guidelines also encourage companies to proactively report
potential misconduct to the Administration for Market Regulation.
This section of the Draft Guidelines provides mitigating factors
for law enforcement's consideration to lower or eliminate
potential penalties, showing the government's efforts to
encourage self-reporting of misconduct. As noted above, while this
effort to encourage proactive disclosure is in line with trends in
other jurisdictions, China does not have written guidance for law
enforcement similar to the U.S. DOJ's corporate enforcement policy or
the UK Serious Fraud Office's guidance on
corporate prosecutions.
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.
