Month: July 2021

Since 2017, the United Kingdom (UK) Competition and Markets Authority (CMA) has been investigating the UK pharmaceutical sector for possible anticompetitive agreements and concerted practices in relation to pharmaceutical products.  A recent action by the CMA provides some clarity regarding the CMA’s core concerns under the Competition Act 1998 (CA98).

On July 16, the CMA announced that it had imposed fines totaling more than £260 million on two UK pharma firms, Auden Mckenzie and Actavis UK (now Accord-UK) for two sets of CA98 violations.  First, the CMA reported that both firms had charged the National Health Service (NHS) “excessively high prices for hydrocortisone tablets for almost a decade.”  Accord-UK (and, for their respective ownership periods, its parent companies Intas and Accord and its former parent firm Allergan) were fined £155 million for charging the NHS excessive and unfair prices for hydrocortisone tablets for nearly 10 years, from 2008 to 2018.  Although Auden Mckenzie sold hydrocortisone tablets from 2008 to 2015, the CMA stated that Actavis UK (now Accord-UK) took over the business in 2015 “and is held liable for Auden Mckenzie’s conduct before that date.”

The CMA found that Auden Mckenzie and Actavis UK increased the price of 10mg and 20mg hydrocortisone tablets by more than 10,000 percent, compared to the original branded version of hydrocortisone, which the drug’s previous owner sold prior to April 2008.  As a result, the amount that the NHS had to pay for a single pack of 10mg hydrocortisone tablets rose from 70p in April 2008 to £88.00 by March 2016, and for a single pack of 20mg hydrocortisone tablets rose from £1.07 to £102.74 per pack over the same period.  Even after competitors entered the market and prices fell gradually, “Actavis UK continued to charge high prices and higher prices than its rivals.”

The financial impact on the NHS (and, by extension, UK taxpayers) “was significant. Before April 2008, the NHS was spending approximately £500,000 a year on hydrocortisone tablets. This had risen to over £80 million by 2016.”

These actions, in the CMA’s view, violated Chapter I of the CA98, which prohibits anti-competitive agreements and concerted practices between businesses that have as their object or effect the prevention, restriction, or distortion of competition within the United Kingdom.

Second, the CMA fined Accord-UK and Allergan (as former parent) an additional £66 million for paying two would-be competitors to stay out of the market.  According to the CMA,

Auden Mckenzie paid pharmaceutical companies Waymade and AMCo (now known as Advanz Pharma) not to enter the market with their own generic versions of hydrocortisone tablets. Waymade was set to enter with 10mg and 20mg versions and AMCo with a 10mg version. In exchange for staying out of the market, Auden Mckenzie paid the companies on a monthly basis – paying AMCo £21 million and Waymade £1.8 million in total over the duration of the relevant agreement. After taking over sales of hydrocortisone tablets in 2015, Actavis UK continued to pay off AMCo.”

The CMA also fined Advanz and its former parent Cinven a total of £43 million, and Waymade £2.5 million.

These actions, in the CMA’s view, violated Chapter II of the CA98, which prohibits the abuse of a dominant position by one or more companies which may affect trade within the United Kingdom or a part of it.

In its announcement, the CMA did not specify how it had calculated the fines.  Under the CA98, the CMA may impose a financial penalty on any business found to have infringed either the Chapter I or Chapter II provisions of up to 10 percent of its annual worldwide group turnover.  In these cases, the CMA explained only that “[i]n calculating financial penalties, the CMA takes into account a number of factors including seriousness of the infringement(s), turnover in the relevant market and any mitigating and/or aggravating factors.”

Antitrust and competition law compliance teams at pharmaceutical firms – not only in the United Kingdom – should include the details of these CMA actions in briefings to senior executives and in internal training sessions.  While pharma firms have often sought to blame the high costs of drugs on “middlemen”, future actions such as those highlighted in the CMA’s decision are certain to attract the attention of competition enforcement agencies.

For many cybercriminals, it has been an article of faith that Bitcoin is preferable to conventional currency in obtaining fraudulent or extortionate payments because Bitcoin is untraceable.  In recent weeks, however, law enforcement authorities in the United States and the United Kingdom have demonstrated that Bitcoin transactions, though anonymous while making their way through the blockchain, are indeed traceable.

On June 8, the U.S. Department of Justice announced that it had seized 63.7 bitcoins, valued at more than $2.3 million, that were part of the ransom that Colonial Pipeline paid to its ransomware attackers.  Shortly thereafter, on June 24 the London Metropolitan Police (Met) announced that it had seized £114 million – then the largest cryptocurrency seizure in the United Kingdom – in connection with an international money laundering investigation.

On July 13, the Met announced that it had set a new record for UK cryptocurrency seizures, with the seizure of nearly £180 million.  The Met indicated that this seizure was connected with the same investigation in which the £114 million seizure took place.  The focus and direction of that investigation are still unclear.  The Met reported, however, that a woman who had been arrested in connection with the £114 million seizure was “interviewed under caution” in relation to the discovery of the £180 million of cryptocurrency that was seized.

These incidents are significant accomplishments for law enforcement.  They may also be, for more astute cybercriminal organizations, a signal that they need to change their money laundering strategies.  Law enforcement, as well as anti-money laundering teams at financial institutions, will need to watch for such changes, which may include switching to other widely-recognized cryptocurrencies, more rapid extraction of funds from the blockchain, greater use of financial institutions in higher-risk jurisdictions to do so, and tighter controls over the criminals’ private keys.  In the meantime, law enforcement should take full advantage of the techniques it has developed to pursue crypto-related money laundering on a broader front.

Since 2018, the international aid sector has lived under the shadow of the long-running scandal involving Oxfam GB, one of the components of the global charitable confederation Oxfam.  At that time, initial media reports that Oxfam had covered up an investigation into the hiring of sex workers for orgies by Oxfam staff who were working in Haiti after the 2010 earthquake quickly led to a cascade of problems for Oxfam GB: a statutory inquiry by the Charity Commission for England and Wales, widespread international criticism, the loss of thousands of its donors, and ultimately a three-year ban on receipt of overseas development funding from the United Kingdom government.

Moreover, even though Oxfam GB regained its eligibility to bid for UK government funds this spring, almost immediately the UK government again suspended Oxfam GB’s eligibility when new allegations of Oxfam workers’ sexual exploitation and bullying of people in the Democratic Republic of the Congo came to light.  As a spokesman for the UK Foreign and Development Office explained, “All organisations bidding for UK aid must meet the high standards of safeguarding required to keep the people they work with safe.”

The Charity Commission has now taken the extraordinary step of issuing a formal regulatory alert to assist trustees of international aid charities in improving their safeguarding practices.  The Commission noted that international aid charities had delivered “tangible safeguarding improvements” in various areas, but cautioned that “further work is required to deliver transformative change.” It also stated that “[a]nalysis of recent safeguarding serious incident reports, including those related to activities in the Democratic Republic of the Congo, has also identified specific areas of ongoing risk.”

Accordingly, the Commission directed three sets of recommendations to trustees of international aid charities to achieve more effective safeguarding arrangements:

1. Strengthening safeguarding risk prevention and risk management measures: On this issue, the Commission advised that every trustee “should have clear oversight of how safeguarding and protecting people from harm are managed within their charity,” including monitoring performance with statistics and supporting information.  In particular, the Commission offered five key steps for trustees to consider:
   • “making sure policies, communications and ongoing performance management help maintain appropriate behaviours by charity staff and workers to each other and the beneficiaries they serve
   • joining the Steering Committee for Humanitarian Response’s Misconduct Disclosure Scheme to help protect charities and other organizations in the sector “from individuals who pose a safeguarding risk”;
   • exploring whether gender and diversity imbalances in a charity’s trustee board and senior management “are potential safeguarding risk factors which require proactive management”;
   • determining whether trustees “can use the sector-led safeguarding culture tool as part of developing and modelling a positive safeguarding culture”; and
   • reviewing the UK charity Keeping Children Safe’s “summary findings from safeguarding-specific central assurance assessments of charities” to identify any relevant lessons for a charity, such as whistleblowing and safeguarding risk management.
2. Improving reporting by local beneficiaries: On this issue, the Commission reported that it had recently contacted a sample of international aid charities “and found that several had not received any safeguarding reports from third parties or partner agencies.”  Recognizing that “underreporting of safeguarding incidents directly to international aid charities persists,” it offered four key steps for trustees to consider:
   • “giving victims and survivors, and their families and friends, a safe means to report their concerns and complaints”;
   • “designing reporting mechanisms that are sensitive to the local context, considering face-to-face reporting and safe spaces for witnesses and survivors to report”;
   • “where appropriate, using community-based organisations to hold open and frank conversations with beneficiaries about any concerns in a safe and trusted environment”; and
   • “reviewing the reporting arrangements in place with any third parties or partner agencies and assessing what steps can be taken to develop them.”
3. Developing management responses including victim and survivor support:  On this issue, the Commission urged trustees to ensure that support is available to victims and survivors.  It offered four key steps for trustees to consider:
   • “developing a survivor-centred approach to safeguarding that accurately reflects the range of potential harms faced and considers possible victim and survivor support services from programme/project conception”;
   • “clearly communicating what support is available to victims and survivors and how it is accessed”;
   • “acting quickly to prevent or minimise any further harm or damage when incidents or allegations occur”; and
   • “launching robust and timely investigations into allegations or concerns where they arise.”

All of the Commission alert’s recommendations are salutary.  What the alert omits to address is that charities’ trustees and senior leaders must also unequivocally state, in codes of conduct and periodic internal training, that any form of exploitation, such as sexual or financial, of beneficiaries is strictly forbidden and may result in severe disciplinary action, including termination.  The future credibility of the international aid sector will depend substantially on how well aid charities communicate their commitment to safeguarding vulnerable populations and demonstrate that commitment through concrete action.

With the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), it is a U.S. federal crime for commodities traders to engage in “spoofing.”  Spoofing is a trading practice that involves the placement of bids to buy or offers to sell futures contracts and cancellation of the bids or offers prior to the deal’s execution.

Because spoofing can result in massive market manipulation, U.S. enforcement authorities have vigorously pursued enforcement actions against companies and individuals for systematic spoofing.  In 2020, for example, the U.S. Commodity Futures Trading Commission imposed a record $920 million fine on J.P. Morgan Chase & Co. for engaging in spoofing and market manipulation over at least eight years.  In addition, the U.S. Department of Justice, which has authority to prosecute criminal spoofing violations, has prosecuted a variety of spoofing cases against U.S.- and foreign-based commodities traders.

Two recent sentences of London-based commodities traders show the Justice Department’s continuing commitment to prosecute spoofing, as well as the vagaries of the sentencing process in U.S. federal courts.  On June 25 and 28, respectively, two former Deutsche Bank commodities traders, James Vorley and Cedric Chanu, were each sentenced to one year and a day imprisonment.  The cases against Vorley and Chanu were part of a larger Justice Department investigation of Deutsche Bank for Foreign Corrupt Practices Act and spoofing-related violations that resulted in corporate resolutions with Deutsche Bank involving more than $130 million in criminal and civil penalties.

Vorley and Chanu, who had been precious metals traders with Deutsche Bank in London, were indicted by a federal grand jury in Chicago on spoofing-related charges.  Both men were convicted after a five-day trial in 2020, based on evidence that they and other Deutsche Bank traders engaged in a scheme to defraud other traders on the Commodity Exchange Inc.

Although the federal prosecutors had recommended a sentence of 57 to 61 months’ imprisonment, the Chicago U.S. Probation Office (which, among other functions, formulates independent sentencing recommendations for federal judges in that judicial district) reportedly recommended no prison time for either defendant.  Despite – or perhaps because of – the prosecutors’ vigorous opposition to the Probation Office recommendations, the sentencing judge imposed sentences on each defendant that were less than 25 percent of the minimum sentences that prosecutors had sought.

Firms engaging in commodities trading should take note of three lessons to be learned from the Vorley and Chanu cases. First, these prosecutions show that the Justice Department has authority to prosecute traders for spoofing, regardless of where the traders are physically located, if it can show the effect on U.S. markets, use of U.S. financial channels, or communications to or from the United States in furtherance of the spoofing scheme.  Second, the Varley and Chanu sentences should not be taken as an indication of probable sentences in future cases.  Under the U.S. Commodities Exchange Act, a conviction for spoofing can result in up to ten years’ imprisonment.  Finally, firms should use these cases as an opportunity to review their compliance programs and make sure that their internal controls are effective in detecting possible ongoing spoofing activity.