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On August 7, the US Securities Exchange Commission (SEC) disclosed that the world’s largest pharmaceutical company Pfizer was involved in offering bribery to local governments, physicians and nurses in eight countries, including China.
One day later, Pfizer China published an announcement on its website, stating that the company has reached the agreement of amicable settlement with the US SEC and Pfizer would pay the fine of 60.16 million US dollars for the illegal behaviors of it and its subsidiary company Wyeth.
However, in this announcement, Pfizer did not use “bribery” to describe its behavior; instead, it chose the “disappointing improper payment issues”.
An expert in China’s pharmaceutical industry said that there were a lot of illegal rules infesting the industry chain from pharmaceutical companies to hospitals in the form of offering“commissions” or “communication fees” for government officials and physicians of China and some other countries.
The Hidden Truth
According to the SEC, employees and agents of Pfizer and its subsidiary companies in Bulgaria, China, Croatia, Czech, Italy, Kazakhstan, Russia and Serbia offered bribes to government officials and physicians of these countries to get the convenience in supervision and prescription and to improve the sale. In order to keep these illegal behaviors underground, Pfizer listed the related cost as the fees for sales promotion, marketing, training, business travel, clinic testing, freighting, meeting and advertising. Their behaviors have violated the Foreign Corrupt Practices Act (FCPA) of the US.
The FCPA was issued in 1977 and targeted all American companies and natural persons or foreign companies going public in the US if they were engaged in bribery or other corrupt practices in their overseas markets.
Then, the accusation letter of the SEC given to the circuit court of the Washing D.C. revealed that Pfizer’s bribery could date back to 2001.
That means that this pharmaceutical company has already “ignored” the serious “safety loopholes” of its sales compliance system of in eight countries, including China, which is its fastest growing market in the world for 11 years.
“What we can talk about now is limited to the contents in the announcement. We apologize that we cannot provide any further information at this moment,” Xi Qing, director of the Corporate Communication Department, said on August 8 during the interview with Chinese media. He also rejected to answer the question whether the Chinese government would punish Pfizer or not.
Moreover, Pfizer admitted in the announcement that the “improper payment behavior” was detected among some employees of the subsidiary companies Pfizer acquired in Croatia in 2004. Then, “the employees of Law and Compliance Department of Pfizer, external lawyers and auditors launched investigations in different places of the world which lasted years”.
The announcement also revealed that after acquiring Wyeth at the amazing 68 billion US dollars in 2009, Pfizer found in the due diligence investigations that the latter had improper payment behaviors in China, Saudi Arab, Indonesia and Pakistan.
The SEC accused Wyeth’s subsidiary company responsible for selling nutrients in China, Indonesia and Pakistan of bribing local physicians in the form of cashes, mobile phones and trips to encourage them to use Wyeth’s products and hiding the truth with false receipts.
“In order to increase the sales of drugs, employees of Pfizer’s subsidiary companies in China invited physicians to club-like meetings, including a lot of entertainment and leisure activities. In addition, Pfizer’s subsidiary companies in China also fixed scoring items, with which physicians could get scores based on the number of Pfizer’s products he/she issued. The scores could be used to exchange for medical books, mobile phones, teapots, glasses and so on,” said the SEC.
Though Pfizer never admitted the crime of“offering bribes” in the announcement, it indeed agreed to pay the fine of 15 billion US dollars, return the illegal profits of 16 million US dollars and reimburse the interest before punishment of 10.3 million US dollars to put an end to these“historical problems”. Meanwhile, Wyeth signed a sole agreement of civil amicable settlement with the SEC, according to which Wyeth will pay the illegal profits of 17.2 million US dollars and the interest before punishment of 1.66 million US dollars to “solve the issues of improper payment of the 4 subsidiary companies outside the US”. These fees totaled 60.16 million US dollars.
The Chain of Black Gold
“The commercial bribery in the pharmaceutical field is always a tumor in this industry. And governments of all countries in the world are putting efforts to remove it. However, due to the profits for companies, government officials and hospitals, some of these efforts turned out to be nothing,” said an expert. “In China, a chain of black gold covering from the pharmaceutical company to hospitals and even to governmental supervisory departments is becoming more and more stable.”
Because the products of multinational pharmaceutical companies are centralized in the field of prescribed patents, both the government approval for their entry into China and the prescriptions given by physicians in hospitals are very important for the final distribution of their products.
Therefore, in China, distribution with re- wards becomes the “normal measure” that nearly all pharmaceutical companies will take.
“Frankly speaking, it is the commission for sales,” said the aforementioned expert.“Due to the particularity of the pharmaceutical industry, especially the asymmetric information, the sales representatives of pharmaceutical companies presented physicians with“sales commissions”, which is definitely illegal and forbidden in every country.”
Multinational pharmaceutical companies swarmed into China from the late 1980s. When the Chinese medical market was growing at a high speed, the “academic marketing”for physicians also went through fast development.
“Promotion in hospitals and government affairs are the two most important things for us. The former is to increase our sales while the latter is to make our products able to be sold in China,” said a sales director of a multinational company. “If a product can get into the list of medical insurance or other government-funded items, it could be free of any worries about marketing and distribution in the Chinese market.”
In this circumstance, the commercial bribery in the medical field is getting serious. According to the statistical data of China’s Ministry of Commerce, the commission for sales in the pharmaceutical industry, which is considered commercial bribery, could eat away the national assets valuing about 772 million yuan annually, equal to 16% of the tax revenue from the pharmaceutical industry in the country.
“Several years ago, we usually organized a high-end academic review of Chinese physicians to overseas countries, or provide them with benefits in the form of technological service fees, consultation fees, counselor fees and sponsorship for publishing books. This expenditure could be also listed into the financial report in the name of “after-sale services,”said a former sales director of Pfizer China.
In the other countries and the US, the commercial bribe in the pharmaceutical field is also very outstanding. According to the data from the Department of Justice, Siemens Medical Group paid the bribe of 14.4 million US dollars from 2003 to 2007 for the given hospitals in the US, from which they gained the orders of medical devices valuing 295 million US dollars.
“The supervision over the relationship between physicians and pharmaceutical companies are getting stricter internationally. This is a clear trend,” Zuo Yuzeng, director of government affairs and media communication at the Pharmaceutical Research and Development Commission of the China Association of Enterprises with Foreign Investment. Presently, the regulation over the bribery of pharmaceutical companies is getting tighter day by day and they have to face great stress in that field.
One day later, Pfizer China published an announcement on its website, stating that the company has reached the agreement of amicable settlement with the US SEC and Pfizer would pay the fine of 60.16 million US dollars for the illegal behaviors of it and its subsidiary company Wyeth.
However, in this announcement, Pfizer did not use “bribery” to describe its behavior; instead, it chose the “disappointing improper payment issues”.
An expert in China’s pharmaceutical industry said that there were a lot of illegal rules infesting the industry chain from pharmaceutical companies to hospitals in the form of offering“commissions” or “communication fees” for government officials and physicians of China and some other countries.
The Hidden Truth
According to the SEC, employees and agents of Pfizer and its subsidiary companies in Bulgaria, China, Croatia, Czech, Italy, Kazakhstan, Russia and Serbia offered bribes to government officials and physicians of these countries to get the convenience in supervision and prescription and to improve the sale. In order to keep these illegal behaviors underground, Pfizer listed the related cost as the fees for sales promotion, marketing, training, business travel, clinic testing, freighting, meeting and advertising. Their behaviors have violated the Foreign Corrupt Practices Act (FCPA) of the US.
The FCPA was issued in 1977 and targeted all American companies and natural persons or foreign companies going public in the US if they were engaged in bribery or other corrupt practices in their overseas markets.
Then, the accusation letter of the SEC given to the circuit court of the Washing D.C. revealed that Pfizer’s bribery could date back to 2001.
That means that this pharmaceutical company has already “ignored” the serious “safety loopholes” of its sales compliance system of in eight countries, including China, which is its fastest growing market in the world for 11 years.
“What we can talk about now is limited to the contents in the announcement. We apologize that we cannot provide any further information at this moment,” Xi Qing, director of the Corporate Communication Department, said on August 8 during the interview with Chinese media. He also rejected to answer the question whether the Chinese government would punish Pfizer or not.
Moreover, Pfizer admitted in the announcement that the “improper payment behavior” was detected among some employees of the subsidiary companies Pfizer acquired in Croatia in 2004. Then, “the employees of Law and Compliance Department of Pfizer, external lawyers and auditors launched investigations in different places of the world which lasted years”.
The announcement also revealed that after acquiring Wyeth at the amazing 68 billion US dollars in 2009, Pfizer found in the due diligence investigations that the latter had improper payment behaviors in China, Saudi Arab, Indonesia and Pakistan.
The SEC accused Wyeth’s subsidiary company responsible for selling nutrients in China, Indonesia and Pakistan of bribing local physicians in the form of cashes, mobile phones and trips to encourage them to use Wyeth’s products and hiding the truth with false receipts.
“In order to increase the sales of drugs, employees of Pfizer’s subsidiary companies in China invited physicians to club-like meetings, including a lot of entertainment and leisure activities. In addition, Pfizer’s subsidiary companies in China also fixed scoring items, with which physicians could get scores based on the number of Pfizer’s products he/she issued. The scores could be used to exchange for medical books, mobile phones, teapots, glasses and so on,” said the SEC.
Though Pfizer never admitted the crime of“offering bribes” in the announcement, it indeed agreed to pay the fine of 15 billion US dollars, return the illegal profits of 16 million US dollars and reimburse the interest before punishment of 10.3 million US dollars to put an end to these“historical problems”. Meanwhile, Wyeth signed a sole agreement of civil amicable settlement with the SEC, according to which Wyeth will pay the illegal profits of 17.2 million US dollars and the interest before punishment of 1.66 million US dollars to “solve the issues of improper payment of the 4 subsidiary companies outside the US”. These fees totaled 60.16 million US dollars.
The Chain of Black Gold
“The commercial bribery in the pharmaceutical field is always a tumor in this industry. And governments of all countries in the world are putting efforts to remove it. However, due to the profits for companies, government officials and hospitals, some of these efforts turned out to be nothing,” said an expert. “In China, a chain of black gold covering from the pharmaceutical company to hospitals and even to governmental supervisory departments is becoming more and more stable.”
Because the products of multinational pharmaceutical companies are centralized in the field of prescribed patents, both the government approval for their entry into China and the prescriptions given by physicians in hospitals are very important for the final distribution of their products.
Therefore, in China, distribution with re- wards becomes the “normal measure” that nearly all pharmaceutical companies will take.
“Frankly speaking, it is the commission for sales,” said the aforementioned expert.“Due to the particularity of the pharmaceutical industry, especially the asymmetric information, the sales representatives of pharmaceutical companies presented physicians with“sales commissions”, which is definitely illegal and forbidden in every country.”
Multinational pharmaceutical companies swarmed into China from the late 1980s. When the Chinese medical market was growing at a high speed, the “academic marketing”for physicians also went through fast development.
“Promotion in hospitals and government affairs are the two most important things for us. The former is to increase our sales while the latter is to make our products able to be sold in China,” said a sales director of a multinational company. “If a product can get into the list of medical insurance or other government-funded items, it could be free of any worries about marketing and distribution in the Chinese market.”
In this circumstance, the commercial bribery in the medical field is getting serious. According to the statistical data of China’s Ministry of Commerce, the commission for sales in the pharmaceutical industry, which is considered commercial bribery, could eat away the national assets valuing about 772 million yuan annually, equal to 16% of the tax revenue from the pharmaceutical industry in the country.
“Several years ago, we usually organized a high-end academic review of Chinese physicians to overseas countries, or provide them with benefits in the form of technological service fees, consultation fees, counselor fees and sponsorship for publishing books. This expenditure could be also listed into the financial report in the name of “after-sale services,”said a former sales director of Pfizer China.
In the other countries and the US, the commercial bribe in the pharmaceutical field is also very outstanding. According to the data from the Department of Justice, Siemens Medical Group paid the bribe of 14.4 million US dollars from 2003 to 2007 for the given hospitals in the US, from which they gained the orders of medical devices valuing 295 million US dollars.
“The supervision over the relationship between physicians and pharmaceutical companies are getting stricter internationally. This is a clear trend,” Zuo Yuzeng, director of government affairs and media communication at the Pharmaceutical Research and Development Commission of the China Association of Enterprises with Foreign Investment. Presently, the regulation over the bribery of pharmaceutical companies is getting tighter day by day and they have to face great stress in that field.