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Third party compliance for life sciences companies

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Third-party compliance is an increasing concern for growing life sciences companies as they expand into new markets. Third parties that engage in inappropriate activity present a number of serious …

Third-party compliance is an increasing concern for growing life sciences companies as they expand into new markets. Third parties that engage in inappropriate activity present a number of serious risks to the companies that use them. Whether the third party makes products for the supply chain, manages labs and research activities or manages sales operations, the companies using them must be aware of their exposure. This presentation will offer strategies for companies that need to better monitor transactions with vendors. We will place particular emphasis on international activity, which may be scrutinized under the Foreign Corrupt Practices Act (FCPA). Technology solutions to aid third-party monitoring will also be discussed.

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  • The following are the bribery and corruption risk indicators that are now included in the Voyager 2012 Risk indicators tool. Based on this understanding, the audit teams can assess the risk of illegal acts considering the client's industry, local business practices, cultural norms, and the maturity and robustness of the local regulatory environment.
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    • 1. CPE Credit is not available for viewing archived programs. Please visit http://www.grantthornton.com/events for upcoming programs. Third party compliance for life sciences companies: Issues and strategies to mitigate risk Original Broadcast Date: October 2013 © Grant Thornton LLP. All rights reserved.
    • 2. Presenters Lisa Walkush Bill Olsen Principal and Life Sciences Leader Advisory Services Philadelphia, PA Principal and U.S. AntiCorruption Leader Advisory Services Washington, D.C. Matt Ruble Director Advisory Services Philadelphia, PA © Grant Thornton LLP. All rights reserved. 2
    • 3. Third party compliance for life sciences companies Learning objectives • Define the issues and potential risks related to third-party relationships • Describe risk-mitigation strategies • Identify current trends in FCPA guidelines and enforcement • Indicate the benefits of implementing our Third-Party Integrity Framework © Grant Thornton LLP. All rights reserved. 3
    • 4. Third party compliance for life sciences companies Agenda • • • • • Global Corruption Overview Current Trends Life Sciences Specific Risk Third Party Program Development Compliance Program Development © Grant Thornton LLP. All rights reserved. 4
    • 5. Global Corruption Issues: FCPA Overview Foreign Corrupt Practices Act summary Congress initially passed the FCPA in 1977 in the wake of the Watergate scandal and after discovering that more than 400 corporations had made questionable or illegal payments to foreign officials to gain business or ease business processes. The FCPA’s goal is to prevent the bribery of foreign officials and encourage the establishment of certain accounting controls and practices. Two key provisions of the FCPA The anti-bribery provision prohibits U.S. companies and citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the U.S., from paying or offering to pay — directly or indirectly — money or anything of value to a foreign official in order to obtain or retain business. Books and records and internal controls provisions require issuers — any company, including foreign companies, with securities traded on a U.S. exchange, or otherwise required to file periodic reports with the SEC — to keep books and records that accurately reflect business transactions and maintain effective internal controls. © Grant Thornton LLP. All rights reserved.
    • 6. UK Bribery Act Overview UK Bribery Act 2010 The UK Bribery Act covers the whole spectrum of relationships, not just the bribery of officials like the FCPA. While there are similarities to the FCPA, the act is far broader in scope — with virtually all companies that conduct business in the UK subject to its strict regulations. The act applies to both public and private sectors. Penalties can be as severe as 10 years in jail and/or unlimited fines for individuals, companies and partnerships. Four key offenses: 1. Offering, promising or giving an advantage 2. Requesting, agreeing to receive or accepting an advantage 3. Bribing a foreign public official 4. Failing to prevent bribery © Grant Thornton LLP. All rights reserved.
    • 7. Third party compliance for life sciences companies Agenda • • • • • Global Corruption Overview Current Trends Life Sciences Specific Risk Third Party Program Development Compliance Program Development © Grant Thornton LLP. All rights reserved. 7
    • 8. Current trends Enforcement approach highlights Control person liability – Executives penalized even without alleged knowledge of illegal acts • Successor liability – Mergers and acquisitions • Dodd-Frank whistleblower protections • Recent DOJ Guidelines • DPA vs. NPA • Prosecution of third parties and individuals © Grant Thornton LLP. All rights reserved.
    • 9. Current Trends Source: 2012 Corruption Perception Index (Transparency International) Percentage levels of public sector corruption © Grant Thornton LLP. All rights reserved.
    • 10. Bribery and Corruption Risk Indicators Source: Corruption Indicators (SFO| Serious Fraud Office) • Entity directly or through agents or representatives enters into sales agreements or material transactions with foreign, government-owned entities, or other officials – Pressure to make quick or early payments to contracts • Entity has operations in higher-risk geographies • Operations conducted in higher-risk industries – individual may make unexpected or impulsive decisions accepting projects/contracts © Grant Thornton LLP. All rights reserved.
    • 11. Bribery and Corruption Risk Indicators Source: Corruption Indicators (SFO| Serious Fraud Office) • Weak or ineffective anti-bribery and anti-corruption compliance programs – Abuse of decision making power when dealing with certain contractors – Avoidance of independence checks – Missing documentation regarding meetings and decision process • The entity's competitors, partners, suppliers, agents or customers recently charged or being investigated for bribery or corruption violations © Grant Thornton LLP. All rights reserved.
    • 12. Bribery and Corruption Risk Indicators (con't) Source: Corruption Indicators (SFO| Serious Fraud Office) • Indications of possible bribery or corruption violations by employees, agents, contractors, or other affiliates – company procedures or guidelines not being followed – abnormally high commission payments being paid • The entity uses third-party agents, consultants, or intermediaries when performing general business in other countries © Grant Thornton LLP. All rights reserved.
    • 13. Third party compliance for life sciences companies Agenda • • • • • Global Corruption Overview Current Trends Life Sciences Specific Risk Third Party Program Development Compliance Program Development © Grant Thornton LLP. All rights reserved. 13
    • 14. Life sciences companies and risks In almost every country across the world, healthcare is a socialized program. Hospitals are government entities and doctors and other healthcare professionals are government employees. Pharmaceutical companies with a global reach are especially exposed to risk in this environment. © Grant Thornton LLP. All rights reserved.
    • 15. Pharmaceutical and medical device companies FCPA As of today, the Department of Justice and the SEC have prosecuted eighteen drug and device companies for FCPA violations. Three companies have publicly disclosed declinations (of course, there may be more which were never made public). And sixteen companies are currently under investigation. Source: JD Spura Law News © Grant Thornton LLP. All rights reserved.
    • 16. FCPA Settlements Pharmaceutical and medical device companies FCPA Settlements in Millions 4.5 2013 142.2 2012 70 2011 23 2010 18.6 2009 0 20 40 © Grant Thornton LLP. All rights reserved. 60 80 100 120 140 160
    • 17. Top 10 FCPA settlements Pharmaceutical and medical device companies Settlements 80 70 60 50 40 30 20 10 0 Johnson & Johson (2011) Pfizer (2012) Eli Lilly (2012) © Grant Thornton LLP. All rights reserved. GE (2010) Biomet (2012) Smith & Nephew (2012) 17 Novo Nordisk (2009) Orthofix (2012) Diagnostic Products (2005) Phillips (2013)
    • 18. What can today's pharmaceutical and medical device companies do mitigate the risk of corruption in their businesses? Proactively remediate risk by globally identifying, assessing, investigating, and training existing and proposed new third party intermediaries. © Grant Thornton LLP. All rights reserved.
    • 19. Third party compliance for life sciences companies Agenda • • • • • FCPA/UK BA Overview Current Trends Risk Management Third Party Program Development Compliance Program Development © Grant Thornton LLP. All rights reserved. 19
    • 20. Third party due diligence programs • Develop a standardized on-boarding process for new third parties • Assess the risk of existing third parties relationships • Identify Business Sponsors within the business to manage the third party relationships and their contracts • Configure a technology solution complete with efficient workflow capabilities and robust business-specific reporting • Develop contracting system and training program for third parties © Grant Thornton LLP. All rights reserved.
    • 21. Existing Relationships • Address/Examine Data Privacy concerns • Extract, cleanse, and standardize third party data existing in business's systems, databases, etc. • Confirm relationship status • Conduct risk assessments and investigations • Analyze risk and recommend remediation of any red flags identified within the investigative risk reports • Issue contract to mitigate any existing or potential risk © Grant Thornton LLP. All rights reserved.
    • 22. New Relationships • Completes and submits onboarding forms to initiate the onboarding process of a new third party relationship • Examine risks of the proposed relationship – name check – geographic risks – relationship risks • Risk score is determined and categorized as low, medium, or high • Any high risk relationships are sent for further investigation © Grant Thornton LLP. All rights reserved.
    • 23. New Relationships (con't) • Once investigative report is generated, the risks present are analyzed and any identified red flags – make determination whether to proceed with engaging third party relationship • Issue contract to mitigate potential risks • Train third party contact(s) on both business and governmental compliance policies and procedures © Grant Thornton LLP. All rights reserved.
    • 24. Third party compliance for life sciences companies Agenda • • • • • Global Corruption Overview Current Trends Life Sciences Specific Risk Third Party Program Development Compliance Program Development © Grant Thornton LLP. All rights reserved. 24
    • 25. Top recommendations Establishing an effective and sustainable compliance program 1. 2. 3. 4. 5. Strong tone at the top Alignment with DoJ "best practices" Strong internal global support network that includes legal and HR teams Create awareness around developing a culture of compliance through effective communication and training Keep your finger on the pulse through ongoing monitoring and reporting of all programs and implement corrective actions © Grant Thornton LLP. All rights reserved.
    • 26. Recent DOJ Guidance Hallmarks of Effective Compliance Program • • • • • • • • • • Commitment from senior management and clearly articulated policy against corruption Code of Conduct and Compliance Policies and Procedures Oversight, Autonomy, and Resources Risk Assessment Training and Continuing Advice Incentives and Disciplinary Measures Third-Party Due Diligence and Payments Confidential Reporting and Internal Investigation Continuous Improvement: Periodic Testing and Review Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition Integration © Grant Thornton LLP. All rights reserved.
    • 27. Sustainable program: Representative timeline Create: Understand current state. Operationalize: Roll out all elements of Maintain: Integrate all processes Build approach Use external expertise (where needed) program. Finish all ―existing Third-Party‖ work. into business-as-usual 4. Carry out Action Plan to address risks 3. Design and implement a strategy to respond to identified risks 5. Report on results 2. Identify and assess risks All new and existing ThirdParties in common management process/program 1. Establish strong company management systems Program Management & Governance Change Management © Grant Thornton LLP. All rights reserved.
    • 28. Comments? Questions? © Grant Thornton LLP. All rights reserved. 28 28
    • 29. Presenters Lisa Walkush Bill Olsen Principal and Life Sciences Leader Advisory Services Philadelphia, PA Principal and U.S. AntiCorruption Leader Advisory Services Washington, D.C. Matt Ruble Director Advisory Services Philadelphia, PA © Grant Thornton LLP. All rights reserved. 29
    • 30. Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser. © Grant Thornton LLP. All rights reserved. 30
    • 31. Thank you for viewing this presentation. Visit us online at: www.GrantThornton.com twitter.com/GrantThorntonUS linkd.in/GrantThorntonUS © Grant Thornton LLP. All rights reserved.