Life Sciences & Healthcare: countering bribery and corruption

Published on 1st Oct 2014

Welcome to the first of our updates on countering bribery and corruption in the Life Sciences and Healthcare sector, examining the regulatory regimes from across Europe.

UK: “Privatising” law enforcement – preventing fraud and recovering bribes

In the first of our updates on countering bribery and corruption in the Life Sciences and Healthcare sector, we look at a two recent developments illustrating the way in which English judges and regulators are shifting the role of law enforcement to businesses. We consider a potential extension to the Bribery Act 2010 which could be on the horizon in the UK and a recent case affecting the ability of companies to recover bribes received by individuals.

Extending the obligations on businesses

Most readers will be familiar with the UK Bribery Act 2010 which came into force in July 2011 and the offence under section 7 of failure by an organisation to prevent bribery. By way of brief recap, the offence will be committed if a person associated with the organisation bribes another person with the intention of obtaining or retaining business for the organisation unless the organisation can show that it put in place “adequate procedures” to prevent bribery. This is a strict liability offence meaning that there is no need to prove wrongful intention on the part of the organisation or its senior officers. The territorial scope of the Act is wide. It covers acts of bribery anywhere in the world and it gives the English Courts jurisdiction not only over UK incorporated entities but also other commercial organisations if they carry on part of their business in the UK.

In recent months, David Green QC, Director of the Serious Fraud Office, has been mentioning the possibility of extending the scope of the section 7 offence to economic crime more generally to increase the SFO’s reach on corporate criminality. On 3 September 2014 in a speech on economic crime, the Attorney General, Jeremy Wright QC MP added his support to this proposition stating “Government officials are considering proposals for the creation of an offence of a corporate failure to prevent economic crime, modelled on the Bribery Act section 7 offence.”¹

This would undoubtedly be a very significant change and it gives rise to difficult conceptual issues. It is unclear at present how wide the scope of an amendment would be and whether it would cover any economic crime perpetrated by any associated person. If drafted broadly such an amendment could result in a business, itself a victim of fraud committed by its own employee, being punished again for failing to prevent a crime against itself.

So what would it mean specifically for life sciences and healthcare businesses? Beyond the obvious, certain trends, as highlighted by a 2014 survey by professional services firm PwC (The Global Economic Crime Survey 2014)², suggest that this sector maybe exposed. The survey suggested that one in four of the 259 respondents in the pharmaceuticals and life sciences sector has experienced some form of fraud and that the sector is lagging behind other sectors when it comes to carrying out annual fraud risk assessments. The most common forms of fraud encountered are asset misappropriation and procurement fraud, alongside bribery and corruption. Significantly, the survey found that more serious economic crimes perpetrated within the sector came from the inside – from a company’s employees – rather than the outside.

If the existing strict liability offence is extended to cover wider fraud and economic crimes, more organisations in this sector may find themselves liable (not least for acts committed by their employees) and subject to prosecution.

Whether or not this proposal does get enacted into legislation, it is a salutary reminder of the importance of implementing effective systems to minimise the effect of fraud. Our anti-fraud checklist gives an overview of the sorts of issues to consider but careful consideration is required in relation to the risks specific to each business.

Recovering bribes from corrupt agents – FHR European Ventures v Cedar Capital Partners LLC

In the past, there has been much debate under English law as to whether a dishonest employee/agent of a business who accepts a bribe holds the money representing the bribe on trust for the business/employer or whether the business simply has a claim for compensation against the agent. The reason why this distinction is particularly important is because if the bribe is held on trust for the employer, the employer has a proprietary right over the bribe and the assets purchased with the proceeds of the bribe. If the employer has a proprietary right in the bribe, his rights take precedence over unsecured creditors and subsequent floating charges in the event of insolvency.  This puts the employer in a much better position when he is trying to recover the bribe compared with the employer simply being an unsecured creditor trying to recover an award of damages/compensation.

Furthermore, the fact that the employer/business has a proprietary interest also has important implications in terms of rules of limitation/time bars. If a claimant has a claim to recover a proprietary interest, there is no time bar on claims whereas claims to recover damages are subject to time limits. In fraud cases, this can be a very significant issue.

In the recent decision of the Supreme Court in FHR European Ventures v Cedar Capital Partners LLC³, the Supreme Court ruled unanimously that secret commissions and/or bribes are held on trust for the principal. This is an important step forward in assisting businesses trying to recover bribes received by employees and agents and it appears to be based as much on grounds of public policy as on pure legal analysis.


¹ 32nd Cambridge International Symposium on Economic Crime Attorney General’s keynote address – “Information – Shield, Sword and Achilles Heel in the fight against economic crime” (

³ FHR European Ventures LLP and others (Respondents) v Cedar Capital Partners LLC (Appellant) [2014] UKSC 45

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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