Overview

A global pharmaceutical company was facing regulatory investigations across multiple jurisdictions due to whistleblower allegations concerning corruption within its China operations. The allegations suggested improper benefits were provided to healthcare practitioners (HCPs) and government officials, potentially violating the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA).

H&A was engaged by external legal counsel to conduct a comprehensive investigation into these allegations, focusing on travel and entertainment expenses and third-party vendor relationships in China.

Challenges

The pharmaceutical company faced several serious risks:

• Regulatory scrutiny from multiple jurisdictions, including the SEC and the UK Serious Fraud Office (SFO).
• Allegations of falsified travel and entertainment expenses to fund improper payments to HCPs and government officials.
• Use of third-party travel agents to inflate marketing event expenses and facilitate improper payments.

The company needed conclusive evidence to address regulatory concerns and mitigate legal liabilities.

Our Approach

H&A divided the investigation into two key work streams:

Work Stream 1: Employee Falsified Travel and Entertainment Expenses

We conducted a detailed investigation into expense claims submitted by employees, identifying patterns of falsified travel and entertainment events used to provide improper benefits to healthcare practitioners.

Work Stream 2: Third-Party Travel Agents and Event Inflation

We examined the role of third-party travel agents in facilitating improper payments by inflating or fabricating marketing event expenses. This included investigating potential collusion between travel agents and employees.

Our Investigation

1. Data Analytics and Risk Ranking

We began with data analytics on the company’s financial records, focusing on:

• Travel and entertainment expenses over a 7-year period.
• Third-party vendors, event organisers, and travel agents.

Our analysis helped risk-rank high-risk vendors and flag suspicious transactions for further review.

2. Forensic Accounting Review

We conducted a forensic review of more than 500 high-risk transactions to identify instances of:

• Falsified marketing events.
• Inflated cost items on event invoices.
• Suspicious payment patterns involving third-party agents.

3. On-the-Ground Event Verification

We deployed on-the-ground teams across China to verify the events and cost items in question. Our consultants:

• Visited event venues and interviewed vendors and organisers to confirm whether the events actually occurred.
• Verified event costs to identify inflated charges or fabricated invoices.

Findings

Our investigation revealed:

• A significant portion of events were falsified or inflated to fund improper payments.
• Over 28% of the reviewed transactions showed evidence of cost inflation or fabrication.
• Collusion between employees and third-party travel agents to inflate event costs and channel improper payments to healthcare practitioners and government officials.

Based on our findings, we calculated an estimate of falsified events and inflated expenses for the entire 7-year review period.

Outcome

Our work enabled the external legal counsel to provide the pharmaceutical company with:

• Comprehensive evidence to address regulatory investigations by the SEC and SFO.
• A clear estimate of the financial impact of falsified and inflated events.
• Guidance on remediation measures, including vendor due diligence processes and internal control enhancements.

H&A also supported the company in designing and implementing new compliance procedures to prevent future FCPA and UKBA risks.

Impact

• The company was able to proactively address regulatory concerns, reducing its risk of severe penalties.
• Internal controls were strengthened to reduce future exposure to FCPA/UKBA violations.
• The investigation provided the company with a roadmap for ongoing compliance improvements, particularly in third-party risk management.

This case highlights H&A’s ability to conduct large-scale corruption investigations in complex jurisdictions, helping clients mitigate regulatory risk and improve governance frameworks.