The Multinational Monitor


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Bribery in the Pharmaceutical Industry

Excerpted with permission from Corporate Crime in the Pharmaceutical Industry, published by Routledge and Kegan Paul, London, 1984.

A worldly-wise moral relativism seems to have been the reaction from many following the Lockheed scandal of the mid-1970s. If the accepted practice in Saudi Arabia is to give the royal family a piece of the action when they buy some aircraft from you, then who are the Americans or Britons to say that their ways of doing business are morally superior? In any case, Americans perceive the high purposes of American Foreign policy and national security as advanced if fighters are bought from Lockheed rather than from a foreign power.

Bribery has a less acceptable gloss if its purpose is to persuade a health official to allow a dangerous drug onto the market, or, failing that, to entice a customs officer to allow the banned product into the country. Bribing an inspector to turn a blind eye to an unsanitary drug manufacturing plant canhardly be rationalized as in the national interest. It will be shown that these types of bribery are common in the international pharmaceutical industry. Bribery is defined as the giving of rewards beyond those allowed by law to entice a person with a duty of trust to pervert, corrupt or compromise that trust. Extortion is defined as the soliciting of a bribe. The major concern is not with minor `grease' payments to get bureaucrats to do the job they are paid for, but with what Reisman has called `variance bribes'.

Many of the payments to ministers and officials by pharmaceutical companies are extorted by the recipients. Conversely, respondents told of many situations where it was the company which initiated the illegal transaction. Irrespective of the allocation of guilt between the two parties, the point remains that here we are dealing with conduct which cannot be benignly tolerated as `customary business practice in foreign countries'.

Not all forms of bribery seem to bother executives in the pharmaceutical industry. It was generally accepted- that paying off health inspectors in certain Third World countries was normal and acceptable business practice. However, there was considerable concern over the bribing of government officials to get trade secrets concerning manufacturing processes. Such secrets are necessarily made available to governments for new product approval. Italy was frequently mentioned as the country where such bribes, often only a few thousand dollars, were passed to the Ministry of Health. Many pirate manufacturers are allowed to operate in Italy in violation of international patent agreements. Guatemalan executives also said it was common there for government officials to hand over new drug registration documentation to local firms in exchange for a`few hundred quetzals [dollars]'. The local firm then submits exactly the same research data on the safety of the drug in order to have its product approved. The product it manufactures, possibly in a bath tub, may bear little resemblance to the product to which the submitted safetytesting data relates. Any set of data which carefully meets all the legal requirements will suffice to get a permit number to print on all bottles. In Guatemala no one is going to check whether the contents of the bottle correspond to the information in the product registration documents. To begin with, the government does not have a testing laboratory.

Then of course there is the more straightforward kind of industrial espionage where employees sell secrets directly to their company's competitor. On some occasions the crime is in response to a bribe to the spy, and on other occasions the employee initiates the espionage. A disgruntled employee of Merck stole the process for making alphamethyldopa (`Aldomet'), an anti-hypertensive drug. The competitor who was offered the plans turned them down and notified Merck. Most notorious among the pharmaceutical spies was Dr. Sidney Martin Fox, a former employee of Lederle Laboratories, the Cyanamid subsidiary. He set up a spy ring which sold microfilm copies of secret documents and stolen cultures of micro-organisms to six Italian drug firms. Fox and his associates are believed to have been paid 35,000 by one firm alone. Along with five confederates, Fox was convicted and imprisoned under the Federal Stolen Property statute by a New York court in January 1966....

The consequences of these companyagainst--company crimes are less serious than when consumers are the victims.

Talking to executives about bribery

I had more difficulty in getting executives to talk about bribery than any other subject. There were a couple of spectacular instances of being evicted from offices when I pushed too hard on this sensitive issue. The first problem was that most respondents genuinely knew nothing about the subject. A quality assurance manager or medical director in Australia or the United States typically leads a sheltered life, moving from office to laboratory to office, with occasional ventures into the manufacturing plant. When I tried to talk to these people about bribery all I achieved was a loss of rapport for the things which they could tell me something about. Experience therefore taught me to limit discussions of bribery to top management, finance, marketing and legal personnel. The public relations staff were also not particularly effusive on the subject.

Even within this select subsample I frequently decided not to raise the ugly issue lest a fragile rapport be shattered. In the early interviews, the subject was broached with a standard line: `I've read a lot in the newspapers about Lockheed and bribing foreign government officials. Do you think many of your competitors in the pharmaceutical industry engage in that sort of activity?' And I would get a fairly standard answer: `The pharmaceutical industry deals with serving the public more than any other industry. We're in the business of saving human lives, and that leads to higher ethical standards than you'll find in any other industry.' Alternatively: `Look I won't deny that there was a time when bribery did go on, but not any more, not the reputable companies.' End of discussion.

So I followed a different approach, essentially a `no babe in the woods' strategy. `I know that most of the major pharmaceutical companies, including your own, have disclosed to the SEC [Securities and Exchange Commission] the making of corrupt payments in many parts of the world. I've spoken to people at the SEC who interview companies on such matters and they tell me that the practices are still widespread. Why do large corporations feel they have to do this sort of thing?' In other words, `I'm no babe in the woods, I know you do it, but why?' The approach almost never failed to elicit a lengthy and revealing discussing. Among the 27 US executives on whom I tried the `no babe in the woods' approach, none denied that bribery had been widespread in the past among American pharmaceutical companies, and only 6 denied that bribery was still common today among American pharmaceutical companies. Of the 21 who felt that bribery still was common, however, only I felt that it was as common today as it had been in the past.

The great advantage of the 'no babe in the woods' approach was that it gave respondents little to lose by speaking truthfully. So long as I did not select an overly sensitive mark, I found that it did not engender aggression so much as respect: here was someone on whom they were not wasting their time, someone who knew a little about the subject. The usual public relations blurb would be a waste of time, and thank God for that! Relieved of the burden of having to express the company line, some of them genuinely enjoyed the rare opportunity to talk seriously about a dilemma which troubled them with a person from outside.

The extent of bribery

The offices of the US Securities and Exchange Commission (SEC) are gold-mines of information about 'questionable payments' by American corporations.... The wealth of information arises largely from the SEC's voluntary disclosure programme. Companies which participated in this programme were led to understand that such participation would lessen the likelihood that the overloaded SEC staff would proceed with enforcement action against them. No formal guarantee against prosecution was given, however. Under the voluntary programme, the company conducts a detailed investigation of corrupt payments by employees under the auspices of `persons not involved in the activities in questions', and then makes available to the SEC staff `all details concerning the questionable practices uncovered'. In the public disclosures the SEC generally allowed companies to protect their business contacts by describing events while withholding the names of the recipients and the countries where corrupt payments were made. . . .

Researchers who have engaged in detailed scrutiny of the corruption revealed by the SEC disclosure programs all agree that the pharmaceutical industry is revealed as having one of the worst records. ,w

- John Braithwaite

In 1976, Upjohn filed a financial report with the U.S. Securities and Exchange Commission revealing questionable company payments amounting to $4,245,949 in 29 countries between 1971 and 1976. According to Upjohn spokesperson Elizabeth Clark, the voluntary disclosure and a pledge not to continue such payments were offered in exchange for an SEC promise not to prosecute. Following are excerpts from that Upjohn disclosure statement. (There is no indication that these payments were used to secure Depo-Provera sales.)

"In the initial report filed with the Securities and Exchange Commission on March 27, 1976, the Company stated that, although the investigation was still in progress, the information at that time indicated that since January 1, 1971, payments totaling $2,710,000 had been made to employees of foreign governments, or to persons who appear to have been serving as intermediaries for such employees, for the purpose of obtaining sales to government agencies or instrumentalities. Further investigation has disclosed additional payments of this type of $914,000. In addition, questionable payments of $474,000 were made to numerous non-governmental hospital employees during the five-year period in one foreign country. Thus the total payments related to sales are $4,098,000. . . . In addition, since 1971 payments totaling $145,579 have been made to the Company's foreign business. The Company has not determined the legality of the payments described in this paragraph under the applicable foreign laws.

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