According to the International Compliance Association, the term compliance describes the ability to act according to an order, set of rules or request[1]. Within the practice of Law, compliance means to act according to the applicable law, which might be fulfilling obligations imposed by commercial labour, tax, and administrative legislation -to name a few-, or refrain from engaging in operations or conducts that are prohibited by law, for example, giving gifts to public officials in return of a more favorable treatment.
One of the main challenges in compliance that pharmaceuticals face in Guatemala is to refrain from engaging in practices that could be considered as acts of corruption or criminal offenses performed by their employees, service provider or distributors.
Simply defined, corruption is any abuse of power for private gain[2] through the performance of systematic acts that contradict ethical business practices and good faith principles outlined throughout our legal systems. The performance of such acts of corruption is present in all spheres of business, including the public and private sector. While in the public sector an act of corruption is committed by any public official elected or appointed, in the private sector the act is performed by any person working not subject to a government contract. In both scenarios, a person acts by exceeding their authority to act according to law, pursuing their own advantage or another person’s advantage and causing harm to the interests of the State or natural or legal person[3].
In Guatemala, there is no conduct typified as a corruption crime in the Law, rather there are several practices typified in different laws as crimes, that aim to fight corruption. Such conducts may be performed in different scenarios and may involve acts that range from giving gifts of no scientific value to pharmacists, to discretionarily inviting physicians to conferences or bribing public officials responsible to awarding public procurement contracts.
During the past few years, investigations by the Public Prosecutor and by the International Commission against Impunity in Guatemala -CICIG, by its acronym in Spanish- have uncovered four cases in the health industry involving acts corruption sanctioned by Guatemalan Law[4], many of which have involved sales of pharmaceutical products in the public sector made by private companies by representatives, agents or distributors of foreign multinational pharmaceutical companies.
One of those cases, named Caso IGSS – PISA, relates to a public tender process in which the awarded company allegedly gave an un-authorized payment (comisión) to an adviser of the Guatemalan Social Security Institute (“IGSS” by its acronym in Spanish) in exchange for a contract being awarded to Droguería PISA de Guatemala, Sociedad Anónima (“PISA”). On the bidding process that originated this investigation, began on July 2014 when IGSS created a public bidding event that called for the provision of the service of peritoneal dialysis. One of the bidders in the process was the company PISA. On October of that same year, PISA was awarded the contract for this service. According to the investigation, an advisor of IGSS promised PISA’s directors that the public tender was going to be awarded to their company if they gave him a commission between 15% and 16% of the total amount of the agreement (USD 14,900,901.90 approximately). Fifty-one patients died; seventeen persons were prosecuted, and twelve were condemned to prison for the crimes of fraud and illegal fees.
As shown in IGSS-PISA case, companies in the pharmaceutical sector that sell product to State owned entities face the challenge of uneven conditions in public bidding processes, as it appears that major contracts are not awarded based on the merits of the offer but may involve the political challenges of dealing with persons that hold certain position of power may request un-authorized payments for their own benefit in exchange for the contract. In other words, there is a high risk that these companies will encounter scenarios which challenge their company’s ethical standards and good business practices and force them to make a decision of whether to bribe a public official in order to obtain business or to seek market opportunities elsewhere.
Companies seeking to conduct business in Guatemala should take special measures when contracting with the public sector, either directly or indirectly through agent or distributor. Seeking to increase its sales to the State, agents and distributors could commit several crimes, from bribing the public official[5] to get awarded, to financing electoral campaigns of political parties without following the amount limits and legal processes[6], aiming to get benefits if elected.
Committing the beforementioned crimes, to name a few, would not only affect the agent or distributor but also the multinational company that serves as supplier. Not only are their legal risks down the supply chain, but also reputational risks that are in many cases deadly to a company’s brand.
In addition, it is not only the local company that is at risk for criminal liability for the crimes committed, but the multinational company could also be sanctioned if it is incorporated in jurisdictions that have adopted stricter regulations to fight corruption abroad (e.g. Foreign Corruption Practices Act or FCPA, or Bribery Act of 2010).
Depending on the commercial relationship, there are several actions the multinational company that serves as supplier may take to prevent its distributors from engaging in corruption practices that could damage them:
- Perform periodic audits to identify any red flags;
- Include a provision in the distribution agreement obliging the distributor to comply with local law;
- Provide the distributor a compliance and good practices program or guide, and include in the agreement how to enforce it;
- Include as just cause for termination, the non-compliance with local law or the compliance and good practices program
Multinational companies seeking to conduct business in Guatemala and the region should not only care to comply with their own jurisdiction’s law, but also that their distributors and agents comply with their own local law. The proper measures to do so depends on a several number of factors, which should be analyzed on a case by case basis.
- International Compliance Association
- Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee: Fighting corruption in the EU of 2011[44].
- Anti-corruption Handbook for Business
- Asalto al Ministerio de Salud Pública; Ilegalidades en contratos administrativos del IGSS; Negociantes de la salud
- See article 442 of the Criminal Code of Guatemala, Decree 17-73.
- See article 407 “M” of the Criminal Code of Guatemala, Decree 17-73.
