Advertisement

July 28, 2014

China Intensifies Scrutiny of Multinational Pharmaceutical Companies

The Chinese government’s recent crackdown on alleged bribery and corruption of local officials by multinational pharmaceutical companies could signal a broad trend toward elevated scrutiny of all foreign corporations operating in the country—and provides an even greater incentive for companies to identify and implement anti-corruption practices focused on China’s unique business and legal culture.

In early July 2013, the government of the People’s Republic of China (PRC) announced a milestone investigation into GlaxoSmithKline Plc. (GSK) that has allegedly uncovered bribery involving millions of U.S. dollars that were funneled through more than 700 travel agents and other third parties over the last six years. The exact trigger for the inquiry is currently unknown, but there has been wide speculation about a variety of motives for the timing and targets of the case including a desire to reduce healthcare costs. The PRC government will be targeting foreign pharmaceutical companies with official “requests,” unannounced visits and dawn raids. Indeed, at least one other company has acknowledged being visited recently by government investigators in connection with this investigation.

Recommendations

In the wake of the Chinese government’s launch of a new round of aggressive investigations, multinational companies should begin scrutinizing their operations more carefully to ensure that their policies are well understood, and look for signs of potential bribery being carried out by their employees. To do so, they should truly localize their global compliance policy and program to specifically address their local operations in China, including the development and implementation of the following:

  1. Thorough and complete Foreign Corrupt Practices Act (FCPA) risk-based due diligence for mergers with, and acquisitions of, Chinese local companies

  2. Thorough due diligence review of third-party business partners, including but not limited to agents, distributors, consultants and travel agents

  3. A robust compliance program covering all critical functions, including sales and marketing personnel as well as compliance, legal, finance and human resources staff

  4. A well-run ethics helpline with active follow-up to all complaints and queries

  5. Ongoing compliance training for local management as well as employees

  6. Periodic compliance audits and immediate remediation as necessary

To fully benefit from these compliance efforts, multinationals should consider engaging professionals with the following skills and strengths:

  1. Familiar not only with FCPA requirements but also PRC anti-corruption laws and regulations

  2. Possess a deep understanding of Chinese business culture, along with a command of the unique nuances of compliance challenges in China, and able to identify and formulate effective responses to new and innovative forms of bribery and corruption

  3. Specialized in dealing with Chinese government investigations appropriately and licensed in China

The insights of such professionals would be helpful in minimizing risk and potential consequences, including reputational damage and executives’ liability. Ultimately, global compliance measures superimposed upon China’s unique business environment are not enough. A truly effective compliance program for China needs to be one that identifies and addresses the issues arising out of local business and legal culture.

© 2014 McDermott Will & Emery

About the Author

John Z.L. Huang  Managing Partner Shanghai Law Firm China
Managing Partner

John Z.L. Huang is a founding partner of MWE China Law Offices (MWE China) and serves as its managing partner.  John focuses on creating practical comprehensive solutions for a diverse array of multinational corporate clients. 

 

Providing legal counsel in China for over 20 years, he has handled numerous landmark cross-border transactions and disputes for both Fortune 500 companies and well-known Chinese enterprises. 

 

As the Chinese regulatory environment has evolved, John has also acquired expertise in liaising with authorities at...

86 21 6105 0588

About the Author

Leon C.G. Liu, McDermott Will Emery Law Firm, China, Regulations Attorney
Partner

Leon C.G. Liu is a partner of MWE China Law Offices based in Shanghai.

Leon focuses his practice on the areas of dispute resolution and regulatory compliance. 

Prior to joining the Firm and achieving his second law degree in the U.K., Leon was a prosecutor in Nantong City, Jiangsu Province.

Leon has extensive experience working closely with foreign investment companies, multinational companies and overseas lawyers in litigation and international arbitration, particularly with legal matters in relation to intellectual property rights.

86 21 6105 0533
Senior Counsel

Glenn Engelmann is Senior Counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C. office.

In advising clients, he will leverage his 25 years of experience managing complex legal and regulatory matters in the pharmaceutical industry.  As a leader of McDermott’s multi-disciplinary global Life Sciences practice, Glenn is integral in the ongoing development of its growth.

202 756 8388

About the Author

John C. Kocoras, McDermott Will Emery Law Firm, Corporate Attorney
Partner

John C. Kocoras is a partner in McDermott Will & Emery LLP’s White Collar & Securities Defense practice group and is based in the Firm’s Chicago office.  John focuses his practice on internal investigations, white-collar criminal defense matters including Foreign Corrupt Practices Act (FCPA) cases and complex litigation.

Prior to joining McDermott Will & Emery, John served for four years as Managing Director and Regional Counsel of the global investigations company Kroll, where he directly supervised investigators, forensic accountants and computer...

312-984-7688

Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on www.NatLawReview.com are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is www.NatLawReview.com  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.