White Collar Crime Rampant in Drug Industry

Dr. John Braithwaite

Dr. John Braithwaite, founder of the Regulatory Institutions Network at Australian National University, said despite some short-lived reforms in the 1980s, corruption in the pharmaceutical industry continues to run rampant.

"The loss of life from illegal conduct in the pharmaceutical industry is greater than criminal conduct in the streets," Braithwaite said at a Beto Chair Lecture on April 7. "We do so much to address homicides on the street and so little to address homicides in the suites….Criminal conduct is not getting better, but worse. The pharmaceutical industry is associated with more deaths from drugs than those murdered by guns."

The Beto Chair Lecture Series at SHSU College of Criminal Justice, which was established in 1979, provides presentations by top scholars in the field of criminology and criminal justice, enhancing the learning experience for students and faculty alike. Braithwaite is the latest distinguished speaker to visit the College.

In 1984, Braithwaite published “Corporate Crime in the Pharmaceutical Industry,” an expose that revealed illegal practices in the pharmaceutical industry, including bribery, false advertising, fraud in the safety testing of drugs, unsafe manufacturing processes, smuggling and international law evasion. It was based on interviews with 131 senior executives in the industry in the U.S., the United Kingdom, Australia, Mexico and Guatemala.

Braithwaite is in the process of updating the book and found the problem is worst than ever. He said chief executives with two of the largest regulatory agencies in the world – China and the European Union – have been convicted of bribery. Fraud has been discovered in several major drug labs, where test animals who died or suffered significant side effects were replaced with healthy, live specimens. His earlier book documented a total of 62 physicians in the United States alone who were convicted of fraud in testing of drugs. Counterfeit drugs are a major problem in developing countries.

One of the issues with the pharmaceutical industry is the international nature of the business. Often drug companies will test new products in countries with the fewest regulations. Pharmaceutical companies rarely pay taxes, instead funneling their profits to tax havens in the Caribbean. They also set up company subsidiaries to diffuse the responsibility and accountability, Braithwaite said. Braithwaite said he found that several drug companies established executive officers who are scapegoats in case officials are prosecuted. "They were the vice president responsible for going to jail," he said.

One of the ways the U.S. is using to combat the problem is the False Claims Act, also known as the "whistleblower’s" statute. That law was used in 2009 to get the largest health care fraud settlement in history by the U.S. Justice Department. Pfizer Inc. was ordered to pay $2.3 billion in criminal and civil penalties for the widespread practice of marketing drugs for off-label uses not approved by the government.

In 1986, the False Claims Act was expanded to include the "privatization of enforcement," which allows private firms to file whistleblower cases and to bring their evidence to the U.S. Department of Justice to consider for prosecution. In turn, the private firms would get a portion of the penalties.

As part of the penalty process, the U.S. government is negotiating Corporate Integrity Agreements, which identifies future compliance obligations as part of a settlement or in exchange for an agreement not to seek exclusion from participation in Medicare, Medicaid and other federal health care programs.

Braithwaite said that restorative justice, which includes discussions among the various parties involved in the case, could be an effective tool to come up with a better plan to restore the integrity of the pharmaceutical companies. Braithwaite said the method could have been used to prevent the Enron scandal by restorative justice with earlier cases involving auditor Arthur Anderson; the global financial crisis by responding to patterns of mortgage frauds earlier and the BP Deepwater Horizon crisis by restorative justice for previous massive oil spills with deep water drilling in Australia. By understanding and studying the problem, solutions could be developed to head off a crisis.

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