Big Pharma, and the life sciences sector more generally, has always been susceptible to corruption. In fact, Transparency International, the NGO working to end the injustices of corruption and promote transparency, accountability and integrity, published a report in 2016 identifying pharmaceuticals as standing out as a sub-sector that was particularly prone to being vulnerable to a plethora of economic crime including bribery and corruption, sanctions violations, money laundering, tax evasion, and of course fraud. 

With fraud the most common type of crime experienced in the UK, the Government has launched a number of programmes and initiatives to understand and tackle this type of financial crime. These include the Counter Fraud Functional Strategy 2024-2027 which looks at fraud against the public sector, as well as the Economic Crime Plan (2023-2026) and Fraud Strategy which look at establishing actions for both public and private sector parties.

During COVID-19 pandemic, COVID fraud became headline news, with the general public up in arms as it realized the ease at which it was carried out with little to no accountability. The Cross-Government Fraud Landscape Annual Report 2022 highlighted that, in 2020-21 alone, government departments and connected bodies reported £124.6m ($158.8m) of detected fraud. In a bid to tackle this, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) was introduced.

Transparency

The Act aims to deliver reforms on tackling economic crime and improving transparency over corporate entities. It follows the Economic Crime (Transparency and Enforcement) Act which passed in 2022. This allowed the government to move faster when imposing sanctions, created a register of overseas entities, and reformed the unexplained wealth order.

The ECCTA introduces the corporate criminal offense of Failure to Prevent Fraud which applies to all large-incorporated bodies, subsidiaries, and partnerships; large not-for-profit organizations; and incorporated public bodies.  As large organizations are defined by those that meet two of the following criteria: (1) a turnover of more that £36m ($46m), (2) a balance sheet of more than £18m ($23m), (3) more than 250 employees, the pharmaceutical industry will likely be affected across the board.

This new offense, which comes into force in September 2025, will mean that a relevant body may be guilty of an offense if an employee, agent, subsidiary or associated person commits a fraud offense intending to benefit the relevant body or person to which it provides a service. This legislation marks a clear shift from individual liability and responsibility and Big Pharma should implement robust fraud prevention procedures and ensure that all subsidiaries, senior executives, and board members demonstrate a strong commitment to tackling fraud.

Failure to do so could mean prosecution and the onus will be on the organization to prove, on the balance of probabilities, that reasonable procedures had been in place, or that there was not a reasonable expectation at the time to have them in place.

Though ECCTA is new, we can be sure that it will make it easier to prosecute companies and their officers for the actions of their employees or third-party contractors. It is worth noting that fines for breaching the legislation are unlimited and this could be very costly indeed for Big Pharma, which is known to have very deep pockets. The legislation does provide for prevention procedures that were introduced as a framework of six principles that should be adopted to avoid criminal liability, these are:

• top level commitment;
• risk assessment;
• proportionate risk-based prevention procedures;
• due diligence;
• communication (including training);
• monitoring and review.

However, we would urge companies to go further in strengthening their current internal governance, anti-fraud training, whistleblower protections, internal audits and using third-parties for due diligence.

There is no disputing that any investigation or proceeding under the act will likely cause a media storm which could spook investors, healthcare providers, and patients themselves. Any suggestion of misleading clinical results, false advertizing, or bribery to achieve medical approvals would clearly create massive negative publicity, ruin consumer trust and inevitably hit profits.

This reputational damage could harm the company in irretrievable ways even if ultimately found not to have breached any law. Public relations management from day one of any investigation would be of the upmost importance, as would strong legal representation both of which would be added short term expenses but could save the company millions in the long run.

Though the ECCTA is relatively new and still in the process of having various elements rolled-out over the next couple of years, there are no excuses for not implementing change ahead of the deadlines. Any involvement with this Act could, and most probably would, pull in other regulatory bodies such as the MHRA and/ or the FCA depending on the offence being investigated.

The broadening of corporate criminal liability, alongside the impending implementation of the Failure to Prevent Fraud Offence, highlights the importance of, at the very least, assessing exposure to fraud and other economic crime. Big Pharma must ensure that it carries out enhanced due diligence to evaluate who is performing services on its behalf and who could be exposing the company to unwanted risk and investigation.

Trevor Francis, Serious Fraud Partner at Blackfords LLP, a recognized specialist in serious fraud, serious crime, health and safety and regulatory investigations and proceedings. He is also the Managing Partner and Compliance Officer for Finance and Administration (COFA).