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Anti-Bribery / Anti-Corruption and Compliance at MSD Serbia

GABRIEL DINA MILOS ANDROVICCountry Manager Compliance Officer

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Putting Patients First

“We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear.” - George W. Merck, 1950

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MSD’s Guiding Principles

• Pursuit of scientific excellence

• Dedicated to putting patients first

• Committed to the highest standards of ethics and integrity

• Contributing to our neighbors, employees, and communities where we live and work

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Corporate Social Responsibility at MSD

• MSD’s core business is to discover and develop new medicines and vaccines that can make a difference in people’s lives. Our commitment to corporate social responsibility is integrated into our business and extends to how we achieve this goal.

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Challenges for Ethics & Compliance managers

• Getting employee buy-in and commitment to true ethical behavior • Fighting against the existing ‘turn-a-blind-eye’ culture, and the way

‘business has always been done’ • Keeping abreast of ever increasing legislation and ensuring that new

requirements are always met • Managing an effective compliance program in a resource constrained

environment • Managing rapidly changing stakeholder expectations • Educating, monitoring and managing activities of third parties to

ensure compliance • Defining ‘adequate’ for your company’s compliance efforts, how do

you know you’re doing enough?

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ROLE OF COMPLIANCE OFFICER

• Compliance Officer Manages and Ensures Implementation of Effective Compliance, by undertaking that:– Standards, policies, procedures and processes are in

place– Communication, training and education are implemented– Monitoring occurs periodically– Enforcement and disciplinary actions occur as necessary– Provide training and communication – Provide compliance advice so that business and function

managers can make informed decisions about their projects and initiatives

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KEY ELEMENTS OF MSD’S COMPLIANCE PROGRAM

• FCPA elements, including: – Sponsorships of healthcare professionals (HCPs)– Hiring HCPs– Grants, donations and charitable contributions– Meals, gifts, hospitality– Fair market value– Third-party due diligence– Aggregate spending controls for HCPs/Institutions

• Data Privacy

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MSD’ COMPLIANCE TOOLS AND RESOURCES

• Ethics code of conduct (internal and industry)• Regular and comprehensive staff training, • Integration of ethics issues in performance reviews,• High-level oversight tasked with ethics and

compliance as a function, • Office of Ethics, EIRR policies, and Advice Line, • Monitoring, auditing, and enforcement mechanisms,

and• Collecting metrics to show impact

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COMPLIANCE - VALUES• Observing and Enforcing on Permanent Basis:

– Local Laws and Regulations;– Internal Codes, Guidance and Procedures;– Ethics in Business;– Industry Specific Codes of Ethics and Standards; – Foreign Corrupt Practices Act

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US’ Foreign Corrupt Practices Act• FCPA prohibits offering or providing anything of value (such as money or

benefits) to a foreign government official in order to improperly influence an official decision with respect to the company's business or to obtain or retain business

• This act applies to all employees of US based companies and covers their activities, both within and outside the U.S.

– US public companies with shares listed on a US stock exchange– Any company that has its principal place of business in the US or is

organized under the laws of the US– US citizens, green card holders, and US residents– Directors, officers, agents and employees of any such company– Applies to MSD and all of its employees worldwide

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FCPA OBJECTIVES• Imposing Liability on the Companies for Acts of Third-party Agents:

– Distributors– Suppliers– Customs Agents– Other Agents that Act on Behalf of the Company

• Anti-Bribery Provisions – ‘anything of value’– Government Official– to obtain or retain business, acquire improper advantage

• Books and Records Provisions – Maintain books, records & accounts that in reasonable detail, accurately & fairly reflect the

transactions– Cannot disguise improper payments as legitimate expenses (e.g. consulting expenses,

charitable donations, etc.)

• No dollar threshold or materiality threshold for a violation of the FCPA

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• Very broad definition– Any officer or employee of a government or any

department or agency or instrumentality of the government including government-owned or controlled businesses

– Includes spouses and other immediate family members of foreign officials

– Examples in Healthcare:• Ministers, officials and staff• Regulatory and customs agents• Healthcare professionals employed by public

hospitals

Who is a “Government Official”?

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Related to Payments:

• Excessive or unusually high compensation in light of services performed• Request for unexplained/undocumented increase in compensation

during agreement term• Request for payments to third parties• Donations to entities affiliated with third parties• Comments describing or suggesting improper payments, or payments

for reasons other than providing a service

THINGS RAISING CONCERN - 1

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Related to Documentation:

– Lack of written agreement– Incomplete/inadequate transaction documentation – Open long term agreements that are not being utilized i.e.

consultant agreements, yearly agreements

Related to Individuals:– Close relationships to governments officials

• close relative or financial/ownership interest– Representative or consultant recommended by government

official – Government Official insists on nondisclosure of relationship

THINGS RAISING CONCERN - 2

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• “Everyone pays bribes” or “this is customary in this country”• “We had no choice – either pay up or lose the deal”• “We can’t control what our agent does on his own time with

his own money”• “The non-US government is aware of the payments”• “Don’t look at me – the joint venture partner/agent/foreign

subsidiary did it”• “My supervisor approved it”• “I didn’t know the payments were going to government

officials”

NON-ACCAPTABLE DEFENSES

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• Degree of influence or discretion a Government Official may exercise with respect to the company’s business

– What is the persons’ role with the government?– Does the company have any upcoming business that could be affected by

this persons’ role– It should be documented what the persons’ role is and either how

company’s business could be impacted, or if there is no impact• The existence of a legitimate, transparent, and documented business

purpose and the absence of the appearance of corrupt intent– Well articulated and documented objective for each activity – Ensure the business opportunity does not lead anyone to believe there is

a potential for improper influence– Well articulated and documented rationale for selection of the

Government Official to be engaged by Merck

CASE BY CASE ASSESMENT

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• Evaluation of the activity – Does it require specialized expertise (e.g. input for scientific matters), or is

it a promotional speaking engagement?– How was the person selected to be engaged for the activity?– Would anyone misunderstand the intent / objective of the activity to be

something other than what is intended?• Evaluation of the cost and nature of payments and / or benefits being

provided as well as the cumulative payments / benefits– Payment for services must be fair and reasonable and within fair market

value– How the benefit is provided (appearance, employer notification/approval,

transparency) is important– What payments and / or benefits have been paid to the person over the

last 12 months?

ACTIVITIES IN PROCESS

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• Impediment to Effective Competition– Negates Competition and Open Market Forces;– Less Quality Products;– Less Variety Offer;– Less R&D;– Less Investments/Entries;– Higher Exit Rate;– Increased Business and Operational Costs;– Lower Productivity and Employment

EFFECTS ON MARKETS

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• Costs for the non-compliant ccompanies is rather low

– Sum paid to the bribed individuals often insignificant to the value of business;

– No detrimental fines introduced against the companies violating provisions on• Anti-corruption; • Public Procurement;• Conflict of interest; • Codes of conduct;

• Costs for the State Budget High– Costs incurred for the State due to the lack of

Competitive, Fair and Objective Process

COSTS OF CORRUPTION - SERBIA

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• Larger fines and increased penalties• Penalties for the undertakings not just responsible individual• Fines for the companies violating anti-corruption and anti-bribery provisions

to be based on their annual turnover• Private enforcement procedure open for the state/companies/individuals

damaged by corruption behavior • Structural remedies

– Termination of corruption based agreements– Black listing of companies for certain period from doing business with the

state• Behavioral remedies

– Obligation to devise a robust compliance program, pre-approved by the authorities

– Obligation to introduce effective, comprehensive, and well communicated policies and procedures

– Effective training and awareness program

MEASURES TO SECURE COMPLIANCE

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• Larger fines and increased penalties– Siemens AG - $800 million to US, $500 million to

Germany; corporate monitor 4 years– Halliburton - $402 million; corporate monitor 3 years– BAE Systems - $400 million– ABB Ltd. (a Swiss power and automation company) took

an $850 million reserve in connection with a US investigation into “suspect” payment

– Over the past two years, the US government has collected almost 1.5 billion dollars in fines in foreign bribery cases

INCREASED SCRUTINY = LARGER FINES = MORE

COMPLIANCE