Also considering that Germany is ranked 14th on the TI list of least corrupt countries, so the relative problem of corruption loss as percentage of GDP may be even worse in other countries.

Something to think about when considering the stagnant or even declining economic growth in Europe.

In his post, Luke Balleny explains the impact corruption has had on Greek society and now on the crisis facing Greece.

The 2012 Greek chapter of the Transparency International report on National Integrity System Assessment suggests that the Greek government “acceptance” of corrupt practices has contributed to the current crisis in Greece.

TI’s Assessment of National System Integrity on Greece can be found here: TI – NIS

Considering the impact on the lives of many if not most Greeks, and the contribution to the current crisis of the corruption in Greece, we must conclude that corruption is in fact not a victim-less crime.  The consequences may not be immediate or clear to most, but as this case teaches us, there almost always are consequences to be paid.

Fighting corruption, both by preventative measures and controls and by investigating and exposing corruption post-fact, is crucial to the smooth operation of the economy as a whole. And if you need more convincing of the real-world impact, just look at Greece today and the draconian budget measures that they have to implement.

On February 06, 2012, U.K. based medical devices maker Smith & Nephew Plc. agreed to pay $22.2 million to settle Foreign Corrupt Practices Act offenses committed by its U.S. (Smith & Nephew Inc.) and German (Smith & Nephew Orthopaedics GmbH) subsidiaries. [Refer SEC’s Litigation Release 22252 / February 6, 2012 on the following link http://www.sec.gov/litigation/litreleases/2012/lr22252.htm (Accessed on February 9, 2012)]

This is a significant order for more than one reason. The biggest reason is that this order is one in a series of previous prosecutions that has included key players in the medical devices industry. Another reason is that this order highlights why companies that are operating in medical devices segment need to go that extra mile to ensure that the transactions entered into by third parties (agents, distributors etc.) on their behalf adhere to their policies. In this alert, we outline salient points of this case and then outline what companies in this segment can do in future to avoid such actions.

Smith & Nephew plc (S&N), founded in 1856, is a global medical device company, operating around the world. According to the available press release from SEC and Deferred Prosecution Order of the Department of Justice, the company’s two subsidiaries had bribed government-employed doctors in Greece for more than a decade to buy its products.

What Went Wrong?
In terms of the Securities and Exchange Commission (SEC) allegation, S&N’s two subsidiaries used a distributor to create a slush fund to make illicit payments to doctors employed by government hospitals in Greece from 1997 to June 2008. According to the complaint, S&N’s subsidiaries made payments to a total of three shell entities in the United Kingdom controlled by the distributor that were used to pay bribes.

The complaint alleges that on paper, it appeared as if S&N’s subsidiaries were paying for marketing services, but no services were actually performed.
S&N paid $ 16.8 million criminal fine to the Department of Justice (DoJ) and entered into a deferred prosecution agreement and paid $ 5.4 million in disgorgement and prejudgment interest to the Securities and Exchange Commission (SEC).

This is not the first time that a company in the manufacture and sale of medical devices industry is penalized for corrupt practices. In April last year, Johnson & Johnson paid $70 million to the DOJ and SEC to resolve bribery charges related to payments in Greece, Poland, and Romania. Companies such as AGA Medical Corp., DPC (Tianjin) Co. Ltd., Micrus Corp., etc. were also penalized under the FCPA offences for bribing the physicians/doctors of the government owned hospitals to buy their products or retain their services.

How can Medical Devices manufacturers ensure compliance with FCPA?
U.S’ FCPA and UK’s Anti-bribery Act are two key legislations in force that punish persons who make illegal payments to foreign public officials for gaining advantage in international business. Non-compliance with these legislations typically means a large cost to the company in the form of penalty, reputational risk, and increasingly, also involve sentences for responsible officials.

One of the SEC releases states that “Since 2010, the SEC has filed 32 FCPA cases, including the case against Armor Holdings, and obtained more than $600 million in penalties, disgorgement and interest.” [Refer SEC release dated July 13, 2011 on the following link http://www.sec.gov/news/press/2011/2011-146.htm (Accessed on February 9, 2012)]

Below are some of the preventive measures which a company may take to avoid non-compliance with these regulations:

• Put in place a policy on anti-bribery containing a message of Zero tolerance to corruption,
• Conduct a thorough background check before on-boarding any new third party such as a distributor and agent,
• Conduct regular integrity assessment of third parties,
• Install a robust internal reporting programme to assist management in assessing the success of the policy,
• Conduct periodic Fraud & Risk Assessments,
• Train employees and third parties on the effects of non-compliance,
• Set up whistle-blower policy in the organization.

In Belgian context, medical devices makers may also wish to include various guidelines on marketing as part of this compliance program. Companies need to keep a close watch on sales made directly or indirectly to government or semi-government or international aid projects.

To have a deeper conversation about how this subject may affect your business either in Belgium or overseas, please contact:
Rudy Hoskens, Partner
Tel: +32 (0)2 710 4307
Email: rudy.hoskens@pwc.be

Jacqueline Gram, Director
Tel: +32 (0)2 710 4151
Email: jacqueline.gram@pwc.be

Client Alert – UK Bribery Act & FCPA Compliance – Medical Devices Business

The Association for International Arbitration (AIA) works towards the promotion of alternative dispute resolution (ADR). AIA focuses on arbitration as a means of dispute resolution and strives to bring together the global community in this field, including judges, lawyers, arbitrators, mediators and academics as well research scholars and students.

Our article provides a short summary of our global expertise in the field of arbitration, alternative dispute resolution and dispute resolution support.

You can find the November 2011 issue of the newsletter here.

TI sees the need for companies to consider new approaches and new business models in light of the persistent global economic woes and ever growing public dis-trust in corporations around the world.

Well worth the read: TI – Corporate Transparency: Old Problems and New Ideas

Serious Economic Crime: A boardroom guide to prevention and compliance

In Belgium, 84 undertakings, including 36 listed companies, participated in the survey. Of the Belgian organisations faced with economic fraud in the past year, no fewer than 44% (23% globally) said that they’d fallen victim to cyber-crime. Misappropriation of assets continues to be the most common form of economic crime here just like elsewhere in the world.

A further striking conclusion from the survey is the great divide between perception and reality: businesses under-estimate their vulnerability and fall victim to economic fraud more often than they imagine. It continues therefore to pose a stubborn problem, and not a single sector is spared. Which is why businesses have to protect themselves better, given that the economic damage being done is enormous. For 1 in 10 companies (worldwide) that were faced with cases of economic fraud in the last 12 months, the losses topped five million dollars.

Please click the following links to see the different reports:

• Global report: http://www.pwc.com/crimesurvey
• Local reports: http://www.pwc.com/gx/en/economic-crime-survey/country-supplements.jhtml

Let’s imagine, for a moment, that you feel you have a rough idea what software is being used in your company. You have a robust security policy and more or less good guidelines on how software should be installed and used. But, you haven’t actually ever counted and verified against the contracts. Should you worry?

I am afraid the answer will be yes. Users often easily install software on corporate machines without giving it much thought. The company, however, can be held liable for this. But, the larger issues often lie within the server environment rather than the pc-environment. Due to the very nature of the software contracts and the rapid developments in IT, you can become heavily out of compliance by simple actions such as upgrading or changing a processor. As a result, a potential compliance audit by a software publisher may cause more disruption than desired and the findings may cause a small financial hangover. And if it doesn’t, you could worry that perhaps you have been spending too much on software.

For readers that just want to avoid worrying all together, maybe you want to think about a software asset management function. I will pick that up next time.

Cheers,
Sally

The Harvard Business Review seems to thinks not…

HBR: UBS Systems Failed the “Too Big to Fail” Bank

An eye-opening piece on risk management systems at UBS, which permitted this massive fraudulent trading to take place, without ever being detected.
Despite a recent and large scale overhaul and improvement.

Sort of makes you think, doesn’t it?