Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Selected Dirty Money episodes for corporate compliance

Dirty Money is a documentary series that premiered on Netflix in January 2018.  The series focuses on different case studies of corporate corruption.  The documentaries delve into the political and cultural causes behind the key events in each case, motivations of the individuals involved, and the way that society has been impacted by these situations, some of which remain under investigation or legal challenge.  While all the episodes are interesting to study for general themes of corporate compliance and/or ethical culture and organizational integrity, four of the episodes are especially relevant.


Round-up on compliance issues with blockchain technology

One of the hottest topics of 2017 is blockchain. This advancing technology is seemingly the possible solution to every business problem conceivable. Companies across all industries – as diverse as banking to food production and seemingly everywhere in between – are experimenting with how they might be able to use blockchain to make their reporting and related processes more reliable or efficient. Many are even contemplating how they may take advantage of blockchain to market software applications to other companies, hoping to enter the profitable fintech (financial technology), regtech (regulatory technology), or suptech (supervisory technology) markets.

But what is blockchain? Most famously, it is the core technological component of the well-known cryptocurrencies, such as Bitcoin or Ethereum. Simply put, blockchain is an open list of records (which comprise the “blocks”) which are securely linked together with cryptography. As the blocks are all linked together and independently identified with references to their linked blocks, the data contained therein is extra safe from individual manipulation or alteration. This is a decentralized computing system which is incredibly useful for recordkeeping and records management activities, especially those where security is especially important such as identity management and medical records.

Due to the broad desirability of a secure and adaptable record maintenance technology, blockchain, which was initially developed only less than a decade ago, has been a disruptive influence in many industries already. Across all business areas, companies are looking to blockchain for possible benefits, all relevant to compliance, to their reporting processes.

  • Transparency for pension fund reporting is one major potential use of blockchain. Following the Madoff scandal and other highly-publicized frauds in the investment management industry, there has been more pressure than ever in expectations for investor protection and reporting disclosures. Many pension funds have balked at public and supervisory demands for increased transparency due to the cost concerns for implementing additional reporting mechanisms in balance with very low profit margins. This reaction does not help to enhance trust between investor clients and this fraud-vulnerable industry. Therefore the decentralized, secure nature of blockchain offers appealing opportunities for filling this confidence vacuum. Blockchain-based platforms can get investors access to their own pension information without fears of data manipulation or increased cost burden on firms: How Blockchain is revolutionizing fraud prone industries
  • On a related note, banks and other financial institutions have borne much of the competitive pressure blockchain has created with the advent of cryptocurrencies – but they also stand to benefit from this, if they can make the best of it. Cryptocurrencies such as Bitcoin are a compelling alternative to the centralized, traditional banking system for customers who desire extra security or anonymity. While cryptocurrencies have been traditionally depicted as a safe haven for illegitimate or even illegal payment activities, the mainstream attention on them has created a broader appeal and audience for them. As a response to the interest their customers have shown in cryptocurrencies, banks have started to delve into the potential for the blockchain technology. Some has invested in tech start-up companies concentrating on various blockchain applications while others have delved more deeply into relationships with fintech partners. At this point banks’ proprietary efforts have mostly been restricted to in-house research on potential use of blockchain, but inevitably competitive momentum will start to drive larger institutions toward developing their own projects in this space. These developments are likely to encourage efficiency, inspire leaner and more innovative business models, and serve the regtech and suptech goals of increasing cooperation with regulatory authorities. Ultimately this could help to modernize and improve the persistently staid and legacy-driven banking industry into a bolder and more transparent business model:  How banks and financial institutions are implementing blockchain technology
  • The advertising industry is newly subject to regulatory scrutiny with the upcoming EU privacy directive, the General Data Protection Regulation (GDPR). This law will apply to any organization doing business in, using technology in, or targeting the citizens of, any EU country, so it has a broad global reach. The GDPR will impose new requirements for handling and controlling private data, including protective and disclosure obligations. Therefore blockchain-based solutions, which can be both secure against manipulation or leakage, and distributed with open access so that users making disclosure requests can see the information directly for themselves. This will help to reduce the burden of this reporting as well as improve cost margins rather than coming up with expensive and vulnerable in-house solutions or outsourcing the reporting to third-parties with their own attendant risks: How Blockchains Can Help the Ad Industry Comply With the GDPR
  • Commercial aviation is another industry looking to blockchain systems to help with its risks – this time in cybersecurity management. Airlines and support companies rely a lot on IT systems to do everything from fly and direct aircraft to book and manage passenger travel. These systems are highly imperfect, as system outages and computer crashes that lead to flight cancellations and stranded passengers show in the news each year. They are also vulnerable to cybersecurity risks where intruders could breach personal data, disrupt airline operations, or corrupt and steal client and aircraft information. Storing and protecting this data within vulnerable or old/legacy systems poses many cybersecurity challenges. The concept of tamper-proof blockchain technology is therefore compelling to the aviation industry for these obvious reasons. Blockchain could help to keep operational data safe and protect companies from cyberattacks. More importantly, pressure to adopt it could drive aviation companies to make the difficult yet very important technological updates and improvements to their systems which will serve safety and regulatory concerns alike: How Blockchain, Cloud Can Reinforce Cybersecurity in Commercial Aviation
  • The pharmaceutical industry has long been vexed by inaccurate and unreliable supply chain tracking. It is especially vulnerable to stolen and counterfeit medication entering the supply chain untracked and finding its way to patients, putting their safety at risk. Tracking medicine with blockchain could change all this. A consortium of pharmaceutical companies, including major firms Genentech and Pfizer, are already collaborating together on a tool called the MediLedger Project, which seeks to manage the pharmaceutical supply chain and track medicines within it to ensure that drug deliveries are recorded accurately and transparently. This would take the current complicated and inefficient network of software management in the supply chain to the next level, securing the supply chain with an integrated and decentralized blockchain system. It could also enable sharing of essential information from companies to partners and customers without exposing sensitive business information, a challenge in the industry so far: Big Pharma Turns to Blockchain to Track Meds

There are many potential advantages from a compliance perspective to blockchain, which has the potential to enhance transparency, protect privacy, address various process-driven risks, and strengthen cybersecurity controls, among other benefits. As the technology advances time will tell how broad the applications of blockchain may be across these diverse industries with similar needs for compliance risk management.


Whistleblowers in the pharmaceutical industry

This is the second of a three-part series profiling whistleblowers in different industries. This started with October 24’s post looking at the financial services industry, including UBS, HSBC, and Citigroup. Today’s post will be focused on the pharmaceutical industry, looking at whistleblowers who exposed fraudulent sales and marketing practices, ethical issues in the development and research phase, and more. The third and final post in this set on next Tuesday will be about whistleblowers who exposed high-profile corporate fraud in major companies such as Enron and General Electric.

Whistleblowers in the pharmaceutical industry make an important contribution to protecting consumer safety when they come forward to raise concerns about business practices in their organizations. Corporate misconduct in this industry has direct impact on patient care and individual health. Therefore the actions of whistleblowers can serve to not only shed light on fraudulent or abusive actions by organizations or individuals within them, but also to prevent future harm to scientists and researchers working in the business, third party partners within their supply chain, and end-user consumers.

  • Jim Wetta, AstraZeneca: Jim Wetta was a sales employee at AstraZeneca who blew the whistle over misleading marketing practices for the antipsychotic drug Seroquel. AstraZeneca had been approved by the US Food and Drug Administration only for treatment of schizophrenia and bipolar disorder. However, the company took on a major sales effort to market Seroquel for off-label use by children under the care of psychiatrists and elderly people suffering from dementia. The company used continuing education seminars, mandatory for doctors to maintain their licenses to practice medicine, to market the off-label uses of the drug which were not previously approved by the FDA. In 2010, AstraZeneca settled with the Department of Justice for $520 million and faced thousands of product liability claims over the marketing of Seroquel. Check out this New York Times article for more information on what happened in this drug marketing case. 
  • Robert Rudolph, Eli Lilly: Robert Rudolph also worked in sales, in his case Eli Lilly. Along with eight other whistleblowers, he went to the federal government with evidence of illegal sales practices by Eli Lilly in the marketing of Zyprexa, a drug approved, like Seroquel, for use in treating schizophrenia and bipolar disorder. In 2001, the company began to market Zyprexa for a variety of off-label uses, especially in the elderly. Apart from this marketing process, Zyprexa representatives also took names from patient lists at doctors’ offices to try to get them to switch to Zyprexa, a blatant privacy violation. Further, throughout this time the company inflated the stock price by counting drug samples as sales. Rudolph, a long-time employee at Eli Lilly who was at the end of his career, saw the corporate culture changing in a bad way and felt that the pervasion of these practices into the business needed to be stopped. In 2009, Eli Lilly agreed to a $1.4 billion fine in a DOJ settlement. For an idea of the reputational risk this case caused Eli Lilly, take a look at this 2009 opinion piece on the dangers of the company’s practices to society.
  • John Kopchinksi, Pfizer: Like Wetta and Rudolph, John Kopchinski was a sales representative, in his case at Pfizer. In 2003, Kopchinski filed a “qui tam” lawsuit under the False Claims Act, which allows whistleblowers to aid the government in recovering money stolen in frauds that resulted in the government losing money. Kopchinski exposed evidence that Pfizer was promoting 13 drugs, most prominently the arthritis drug Bextra, for off-label uses that the FDA had previously rejected and unapproved doses. Kopchinski was fired by Pfizer after reporting his claims, but continued with the lawsuit until 2009. Pfizer went on to settle with the government for $2.3 billion. For more about Kopchinski’s legal battle with Pfizer, read this 2009 NPR piece.   
  • Adam Resnick, Omnicare: In another qui tam lawsuit filed under the False Claims Act, in 2006 Adam Resnick sued Omnicare, a pharmacy providing drugs to nursing homes, for Medicare and Medicaid fraud carried out in a series of kickback schemes with nursing home operators. This corrupt practice could potentially lead nursing home administrators to make decisions about what kind of drugs they give to residents not based upon patient care, but rather based upon what pharmaceutical supplier has enriched them in exchange for their continued business. Omnicare and the involved facilities settled their cases with the government in 2010. Resnick himself has a challenging past: he was a compulsive gambler who went to prison for check-kiting which led the collapse of the bank where he worked. As part of his rehabilitation from engaging in fraud he dedicated himself to exposing it instead. For more information on the Omnicare case, look to this 2010 article from the Chicago Tribune.
  • Cheryl Eckard, GlaxoSmithKline: Cheryl Eckard was a quality assurance manager for GlaxoSmithKlein. In 2002, she reported evidence that the company was selling defective and mis-identified drugs from its Puerto Rico plant. Eckard lost her job in 2003 after repeatedly complaining, but the FDA and DOJ found so many issues in the plant that GlaxoSmithKlein became an example for other pharmaceutical companies for what not to do. Due to products being mixed up in the manufacture and distribution process, the antidepressant Paxil and diabetes medication Avandamet were tainted. Some of the pills fell apart while others did not have the active ingredient required for them to be effective treatment. The factory where they were made did not have an effective quality controls framework in place. GlaxoSmithKline paid $750 million to the DOJ for their oversight shortcomings. For more information on the production problems Eckard exposed, read this 2010 article from the Guardian.

The process for creating, manufacturing, and distributing pharmaceutical products is long and complex, with many decision points where individuals may make choices in a narrow ethical frame or a limited context which prevents them from seeing the consequences of unethical actions or even the existence of better possible choices. Whistleblowers can help to demystify this process and illuminate for public scrutiny the problems in the design of the system that may cause good people to make bad decisions.

Check back next week, Tuesday November 14, for the final post in this three-part feature on whistleblowers in historical events. Next Tuesday’s post will discuss individuals who exposed fraudulent business practices in landmark cases of corporate fraud and bad business practices.


Martin Shkreli and unethical leadership

“Pharma bro,” financier, and entrepreneur Martin Shkreli is as well-known for his controversial antics on social media and in the press as he is as a biotech CEO. Shkreli gained public attention in 2014 and 2015 for acquiring the rights to market drugs and then hugely raising prices, first at Retrophin with Thiola and next at Turing Pharmaceuticals with Daraprim. In August 2017, Shkreli was found guilty on two counts of securities fraud and one count of conspiracy to commit securities fraud by a jury in New York after standing trial where he was accused of defrauding investors in a Ponzi scheme.

Shkreli gains and sustains attention by modelling reprehensible conduct and immature, immoral behavior. His entire persona is calculated to shock and outrage, promoting a confident attitude in the face of ethical and even legal wrongdoing. The prominence of such a flamboyantly, defiantly negative character presents an affront to the conventions of compliance and ethics in business.

  • Shkreli is far from alone in his controversial and ethically questionable pricing and business practices, though his attention-seeking behaviour and criminal prosecution has kept him in the spotlight. He’s also joining other corporate wrongdoers in his business at exploiting opportunities for profit typical in the pharmaceutical industry, despite their effects later on consumers:  Newly Convicted ‘Pharma Bro’ Martin Shkreli Shined a Light on Pharma’s Biggest Scandals
  • And, despite Shkreli’s preciousness and loud belief that he is a genius, he can also be seen as just another fraudster in a long American tradition of trusting bad people because of a cultural eagerness for innovation and disruption:  There Is Nothing New Under the Sun, Martin Shkreli Edition
  • Emotional intelligence is a popular term in management theory, borrowing ideas from psychology to suggest that leaders who understand their own emotions and those of others, and sensitively incorporate this information into their decision-making and leadership style, are more capable. Typically this is used to inspire positive behaviour like better communications or more sustainable business strategy. Shkreli is a defiant example of the opposite effect, claiming brilliance yet totally disregarding emotional interdependence and the greater good of society. In his mold, ethical behavior and integrity have no relevance to his sense of personal victory:  The Emotional Intelligence of ‘Pharma Bro’ Martin Shkreli
  • Time will tell what the sentencing outcome will be for Shkreli’s recent criminal convictions (many legal commentators think he will receive limited jail time, Shkreli’s defense team has suggested he may serve none at all), but a guilty verdict which would subdue some people has made this famous misbehaver even more boastful:  Martin Shkreli’s lawyers fail to corral bragging ‘pharma bro’ ahead of sentencing
  • Can Shkreli’s legal team convince him that his “people skills” need to be improved to keep him out of prison in the future? Seems unlikely, as his reputation of being bold, odd, and obnoxious gets him attention and keeps him relevant, which seemed to have been appealing to the investors he defrauded, some of whom made money anyway because of side agreements with him. Clearly he sees himself as another peculiar but brilliant business visionary, pointing out the danger in the cult of personality around difficult and immoral leaders who mistreat their employees and partners and use eccentricity as a pretense for selfish, unethical behavior:  Martin Shkreli’s Lawyer: ‘Pharma Bro’ Has an Image Problem

Even through his criminal prosecution, Shkreli seeks and thrives off the attention he gets for acting out in poor taste. He uses moral relativism and the “everyone else is doing it” defense for his unethical and fraudulent behavior, and the profits he gains for himself as the justification.   His financial success should not be admired or enabled by any organization wishing to sustain a business while contributing to a more transparent and responsible society for the future.

Corporate cultures must not reward this type of person with commercial partnerships or philosophical support; while they may make profits, they do so through scheming to deceive and defraud. People like Shkreli are the true rare bad apples that narrow the ethical framework and make the right choices problematic for the otherwise good people they influence.