When bribes mean victims...

Let’s talk about murder.

It may seem like a funny way to start the new year, but recently yours truly just happened to get into a rather sharp debate over “small payments” and the pharma and medical equipment sectors—the crux of this being that bribes/backhanders are tantamount to killing.

Sounds extreme? Death usually does. But for every diluted antibiotic, resistance is built up. For every piece of key medical equipment that is overpriced through bribes or kickbacks, there is just one more clinic or hospital that cannot afford said equipment for its patients.

Which means sooner or later, a kid is going to die because the drugs did not work. Or because no dialysis machine is available.

This is not conspiracy theory, but a matter of statistics.

Which is why we should all inherently detest medical sector corruption. Call it murder, manslaughter or selfish negligence, it still ends directly or indirectly in killing.

So now you are thinking: “Well, I wasn’t expecting this. And so what if I’m a manager in the sector? What does this really mean for my business?

It means a great deal, but now that I’ve got your attention, let’s focus on the business side of medical sector risk and investigations. And allow me to admit that yes, we often caution not to fall for stereotypes. This is akin to chasing the red herring, which can cause wasted money, false accusations and personal harm.

Only in this region it does pay to keep one stereotype in mind: a creature I call for no better description the “sole-proprietorship silverback.”

For he is, directly or indirectly, a killer. And he may also cost you quite a bit of money.

Of silverbacks... and suicide

As a creature (and by using the word “creature” I am being kind), the silverback tends to fit the following parameters.

• He is all too willing to function independent of the full work contract.
• He typically is in his mid- to late-fifties.
• He has a wide distribution network, which comes in more than handy in the pharmaceutical or medical equipment sector.
• He likes to party.

Now if this stereotype sets off any red flags, well, maybe it should. The above caricature features quite regularly in regional investigations, whether local kickback scams are involved or wider Foreign Corrupt Practices Act (FCPA) infringements.

Don’t believe me? Here is a typical example (and possibly another tale of murder) in the story  of the late-Nenad B., a doctor in Serbia who triggered a wide-ranging pharmaceutical investigation involving players that perhaps I had better leave unsaid.

But the story goes like this:

• Police received a tip in 2007 about a certain Katarina R., a celebrity who eventually faced charges of embezzling funds at a breast cancer charity.
• Nenad B., a well-known doctor, was called to witness against her.
• In June 2010 police also arrested Nenad B. and filed charges against him and four colleagues that included running a criminal conspiracy in cancer drugs from 2007 to 2009. (Here it should be said that the mechanics of this are actually something we have often seen in the region, as using his position at a state-run institute Nenad B. “pushed” drugs for a fee, which, considering the big players involved, eventually sent shock waves running through the world of FCPA.) 
• It seemed that the tale was over. Nenad B.’s plight sent shock waves through the world of FCPA, and it appeared that more than one regional pharma player would face multi-million dollar fines.
• But then Nenad’s plight took a tragic turn when at 6:25 pm on Jan. 10, 2014 Nenad B. left his apartment to go jogging. Now keep in mind that he was already charged at the time—and that he was wearing an electronic tag, which was one of the conditions that had allowed him to go free on EUR 500,000 bail.
• The next day Nenad B. was found hanging from a tree in a local park. Police found a suicide note in the mailbox of his wife.

Now if we want to go the ultra-insensitive and cynical route, this is at its most basic level just the story of just another corrupt “silverback” who met a very untimely end. Then again, he was just one of a group of 10 Serbia-based doctors and drug company officials charged with taking or offering more than EUR 500,000 in bribes to persuade clinics to use specific drugs. And to add to the intrigue, Nenad B.’s “suicide” all but derailed “Operation Crab,” a police investigation that had nailed the corrupt group of doctors to begin with.

Thus we now jump to conspiracy theory: as you might guess, neither the family nor a number of officials behind the scenes believes that Nenad B. died by suicide.

That said, it did appear that Nenad B. was guilty: he had been linked to payoffs, endless parties and was basically living well beyond his means.

So there you have it: a tragic story of death and corruption.

And they happen all the time.

Don’t believe me? Try Romania where a corrupt group of doctors used diluted antiseptic solutions that allegedly caused the death of scores (if not hundreds) from antibiotic resistant staphylococcus infections.

Or try recent foundation busts in Poland that go straight to kickbacks for medical equipment.

Or more accurately, needed medical equipment.

Recognizing the risk...

Now that we have belabored the point, what does this mean for you?

Hopefully… very little. But the above-mentioned modus operandi is so often-repeated in the region that the stereotype is worth picking out. In the case of Nenad B., a doctor used his network and influence to "market" the drugs of key pharma players. He was not directly employed by such players, but he was allegedly quite well-compensated. He was also known for living the high life, and when the party came crashing down so, potentially did the reputation of major, international companies.

And as said, up until the suicide, the tale of Nenad B. is nothing new. More specifically, it tends to go as such:

1. A legitimate company hires an elder-statesman sales type with a distribution network that is both profitable and wide ranging.
2. While functioning in this “official position” he actually runs his business out of a sole proprietorship or another entity. This has traditionally been translated by “employer” (and the victim typically quite willingly accepts this) as smart tax avoidance.
3. Typically, this “elder statesman” has a semi-communist past, is more than charming and seems to both tremendous contacts and influence over local operations.
4. That said, any real digging—and maybe not much digging is necessary—reveals rumors of kickback and bribes and worse.

By this point, some of you may indeed recognize the type. And some among you can relate to the risks mentioned above. In short, you as an “employer” soon become dependent upon the silverback simply because he does bring in sales. But along with this, there is the rather alarming risk that, once entrenched, this doctor/salesman may simply up and move his network to a competitor. Meanwhile, middle men seem to pop up everywhere (especially when medical equipment is involved). Bearing in mind that even a deal such as selling four pieces of equipment for the price of three may be (in the eyes of FCPA investigators) considered part of a government bribe, the dangers to your company are high indeed.

Then there is another rather disturbing issue: in many cases nobody can really get a handle as to what this doctor/sales rep legitimately makes on the side. In one recent case in the Czech Republic, prosecutors found that doctors were in effect renting office wall space. Put simply, they were charging advertising rates for those calendars and pharmaceutical posters that are so popular in local clinics.

Hey, you’ve got to admire the creativity.

In the above case (and in so many others) the key risks went back to FCPA fines--and the truth is that it is difficult to find an international pharma or medical equipment producer that has not fallen victim to “distributor issues." For US companies, a silverback’s political links alone could ring alarm bells. Worse, those same political contacts combined with said professional’s “life-experienced” and willingness to "dig in under stress" could very well mean an ugly and damaging fight should the company decide to “set him free.”

Which means the best strategy is to never get into this situation to begin with.

• In other words, do your due-diligence. Double-check those contracts and don’t let your sales rep run uncontrolled.

Warning signals...

Sometimes the truth is hard to uncover. So as a parting shot, let me challenge you to think about the following:

• Is your silverback linked to various non-profit foundations? You may find that he is linked to a variety of such foundations, and you may need to do some background checks here.  Think about it—anyone who has ever been involved in a successful foundation also knows just how much time, energy and brain power they use up. Membership in multiple foundations while still selling effectively is fairly impossible. Likewise, prosecutors in the region are attuned to this, and when you see stacked foundation boards (as in long-running friendships and big-ticket deals) take a second gander.
• Does he push for key middle men in medical equipment deals? Medical equipment is notoriously difficult to price, but comparing prices in the region may surprise you.
• Is he back on the travel circuit? Junkets are actually not quite a thing of the past. They are tempting and lo, man is weak. There is education and there is paid education. At a certain age never the twain should meet.
• Does he seem entirely too in-the-know with regard to tenders? Keeping up with tenders and filing timely, competitive tender submissions is a helluva lot of work. If he can manage this in free wheeling (and chaotic) fashion, you should probably ask just where his knowledge is coming from.
• Does he bring up political connections—or does he seem to have too many? And when it comes to middle men, what do the commissions look like? Has he ever inexplicably fought for a higher commission for a middle man (and you may find that he fights quite hard, as this is his kickback at stake)?

Not to create needless paranoia, but in fact, this is an abbreviated list. Still it is worth considering, as again, this is the medical sector--a sector that is now specifically being targeted by prosecutors and FCPA investigators. For some this may mean money, profits and even kickbacks—but in the end, immunity, quality of life and even life itself always comes at a cost.

 It's just a question of how much we are truly willing to pay.

By Preston Smith, CEO, Corporate Due Diligence and Investigation (CDDI), ul. Jerozolimskie 81 15.01 Warsaw, Poland. Det. license: RD-69/2016. For more information contact: [email protected]