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Corporate Crime in the Pharmaceutical Industry PDF

225 Pages·1984·51.897 MB·English
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CORPORATE CRIME in the pharmaceutical industry CORPORATE CRIME By the same author in the pharmaceutical Inequality. Crime and Public Policy industry John Braithwaite Routledge & Kegan Paul London, Boston, Melbourne and Henley Contents First published in 1984 by Routledge & Kegan Paul pte 39 Store Street, London WC1E 7DD, England 9 Park Street, Boston, Mass. 02108, USA Preface 464 St Kilda Road, Melbourne, Vll Victoria 3004, Australia and Broadway House, Newtown Road, 1 Introduction: an industry case study of corporate crime 1 Henley-on-Thames, Oxon RG91EN, England 2 Bribery 11 Photoset in 10 on 12 Times Roman by Kelly Typesetting Ltd, Bradford-on-A von, Wiltshire 3 Safety testing of drugs: from negligence to fraud 51 and printed in Great Britain by Billing and Sons, Worcester 4 Unsafe manufacturing practices 110 ©John Braithwaite 1984 5 Antitrust 159 No part oft his book may be reproduced in any form without permission from the publisher, 6 The corporation as pusher 204 except for the quotation ofb rief 7 Drug companies and the Third World 245 passages in criticism 8 Fiddling 279 Library of Congress Cataloging in Publication Data 9 Strategies for controlling corporate crime 290 Braithwaite, John. Corporate crime in the pharmaceutical industry. Appendix Getting interviews with corporate executives 384 Bibliography: p. Includes index. Notes 389 1. Commercial crimes- Case studies. 2. Corporations Bibliography 408 Corrupt practices-Case studies. 3. Drug trade- United States - Employees - Corrupt practices- Case studies. Index 428 4. Professional ethics. 5. White collar crimes. I. Title. [DNLM: 1. Drug industry- Standards. 2. Crime. QV 773 B814c] HV6769.B7 1983 364.1'68 83-11149 ISBN 0-7102~9-8 v Preface This book is an industry case study of corporate crime. It attempts to describe the wide variety of types of corporate crime which occur within one industry. When I taught a course on corporate crime at the University of California, Irvine, in 1979 I found that students had an amorphous understanding of the subject as an incompre hensible evil perpetrated by the powerful. They were at a loss to describe particular examples. Part of the purpose of this book is to fill this gap by describing many examples of corporate crime, examples which show the depth and seriousness of the crime problem in the pharmaceutical industry. The book also bas an analytical purpose which is more important than its descriptive function. This is to use the pharmaceutical industry's experience to tentatively explore the effectiveness of different types of mechanisms for the control of corporate crime. Most of the chapters have a first section which describes several corporate crimes, followed by an interpretive section which uses information gained from interviews with corporate executives and others to cast light on possible policy implications from these case studies. Some of my informants will not be pleased with the way I have written the book. They will think it a one-sided account which focuses attention on pharmaceutical industry abuses to the exclu sion of all the worthwhile things the industry has achieved for mankind. After all, the pharmaceutical industry has been respon sible for removing tuberculosis, gastroenteritis, and diphtheria from among the ten leading causes of death in developed countries. Unfortunately, it is the job of criminologists to explore the seamy VII Preface side of human existence. If a criminologist undertakes a study of 1 Introduction: an industry case mugging or murder, no one expects a 'balanced' account which study of corporate crime gives due credit to the fact that many muggers are good family men, loving fathers who provide their children with a Christian upbring ing, or perhaps generous people who have shown a willingness to help neighbours in trouble. Yet criminologists are expected to provide such 'balance' when they study corporate criminals. The fact that I have not emphasised their good deeds does not mean that I am not greatly appreciative of the assistance and hospi tality afforded me by informants from the industry. I owe an intel lectual debt to many who have done previous research on the pharmaceutical industry. It would be impossible to mention all by name. Particularly useful, however, have been the investigative journalism of Morton Mintz of the Washington Post, the work on thalidomide of the Insight Team of The Sunday Times of London, The majority of people who work in the pharmaceutical industry and the scholarship of Milton Silverman and Gary Gereffi. subscribe to high standards of integrity and do everything in their Discussions and correspondence with Brent Fisse and Bud Loftus power to stay within the constraints of the law. In the course of this were influential in changing the direction of my thinking on key research, I met pharmaceutical executives who impressed me with dilemmas. I am also indebted to David Biles, Richard Gaven, Bill the sincerity of their commitment to the public welfare much more Gibson, Roy Harvey, Katherine Pitt, Ivan Potas, Peter Rheinstein, than many of the industry's critics in politics, regulatory agencies, Bruce Swanton and Grant Wardlaw for critical comments on earlier the public interest movement, and academia. drafts of the manuscript. Valerie Braithwaite accompanied me to many pharmaceutical Valerie Braithwaite and Gil Geis provided great assistance companies, forever constraining me from driving on the wrong side during the American fieldwork stage of the research. Appreciation of the road. One day, as we drove back to New York, she said: 'But is also due to Janina Bunc and Annette Waters for their painstaking these people are so nice, John. Do you think they really are and accurate typing of the manuscript. I am grateful to the corrupt?' My initial response was: 'You've spent the day being Australian-American Educational Foundation for support with a shown around and taken to lunch by the company's public relations Fulbright Fellowship to conduct the fieldwork and to the Australian staff. They're paid to be nice. Some people in these companies get Institute of Criminology for supporting the project in Australia. paid a lot of money because they're good at being ruthless bastards, and others get big money to entertain people like you because they're good at being nice.' But really that was an inadequate answer. Irrespective of what they're paid to be, most of them in fact are principled people. There are three types of principled people in the pharmaceutical industry. First, there are those who directly participate in company activities which do public harm, but who sincerely believe the company propaganda which tells them that they are contributing to the improvement of community health. Second, there are people who perceive the company to be engaging in certain socially harmful practices and fight tooth and nail within the organisation to stop those practices. Third, there are people who have no direct viii Introduction: an industry case study of corporate crime Introduction: an industry case study of corporate crime contact with socially harmful corporate practices. The job they do that ordinary people appear willing to do when asked to play the within the organisation produces social benefits, and they do that role of industry decision-makers. Hence, when people die as a job with integrity and dedication. Most of the principled people in result of the kinds of socially irresponsible manoeuvres of the pharmaceutical companies are in this last category. Consider, for Up john board in this case, to suggest that it happened because the example, the quality control manager who is exacting in ensuring Up john board is made up of evil men does little to advance explan that no drug leaves the plant which is impure or outside specifica ation of the phenomenon. tions. It might be that the drug itself causes more harm than good The unquestionable artificiality of laboratory role-playing because of side-effects or abuse; but the quality control manager experiments may nevertheless share some of the very artificiality does the job of ensuring that at least it is not adulterated. which is the stuff from which immoral corporate decisions are In hastening to point out that not all pharmaceutical executives made: are nice guys, I am reminded of one gentleman who had a sign, 'Go [T]he usual restraints on antisocial behavior operate through a for the jugular', on the wall behind his desk. Another respondent, self-image: 'I can't see myself doing that.' In an institutional arguably one of the most powerful half-dozen men in the Australian setting, however, that isn't being done by me but through me as an pharmaceutical industry, excused his own ruthlessness with: 'In actor, a role player in an unreal 'game' that everyone is 'playing' business you can come up against a dirty stinking bunch of crooks. (Stone, 1975: 235). Then you have to behave like a crook yourself, otherwise you get done like a dinner.' People in groups behave in ways that would be inconceivable for Nevertheless, most corporate crimes in the pharmaceutical any of them as individuals. Groupthink (Janis, 1971) and what industry cannot be explained by the perverse personalities of their Arendt (1965) referred to as 'rule by nobody' are important in perpetrators. One must question the proclivity in an individualistic corporate decision-making which results in human suffering. culture to locate the source of evil deeds in evil people. Instead we Bandura (1973: 213) explained the basic psychology of 'rule by should 'pay attention to the factors that lead ordinary men to do nobody'. extraordinary things' (Opton, 1971: 51). Rather than think of [One] bureaucratic practice for relieving self-condemnation for corporate actors as individual personalities, they should be viewed aggression is to rely on group decision-making, so that no single as actors who assume certain roles. The requirements of these roles individual feels responsible for what is eventually done. Indeed, are defined by the organisation, not by the actor's personality. social organisations go to great lengths to devise sophisticated Understanding how 'ordinary men are led to do extraordinary mechanisms for obscuring responsibility for decisions that affect things' can begin with role-playing experiments. others adversely .... Through division of labor, division of Armstrong ( 1977) asked almost two thousand management decision-making, and collective action, people can be students from ten countries to play the roles of board members of a contributors to cruel practices and bloodshed without feeling transnational pharmaceutical company. The decision facing the personally responsible or self-contemptuous for their part in it. board was a real-life situation which had confronted the Upjohn company: 1 should it remove from the market a drug which had been There are a large number of psychological studies demonstrating found to endanger human life? Seventy-nine per cent of the that members of a group will risk more as group members than they management student boards of directors not only refused to with will as individuals (Stoner, 1968; Wallach et al., 1964; Bernet al., draw the dangerous drug. but also undertook legal or political 1965; Wallach and Kogan, 1965; Burnstein and Vinokur, 1973; manoeuvres to forestall efforts of the government to ban it. 2 This Cartwright, 1973; Muhleman et al., 1976; Shaw, 1976). Psycholo was the same action as the Upjohn board itself took, an action gists call this tendency for cautious individuals to support more which 97 per cent of a sample of71 respondents classified as 'socially hazardous group decisions the 'group risky shift phenomenon'. 3 irresponsible' (Armstrong, 1977: 197). Using delaying tactics to The phenomenon is far from ubiquitous, however. When cautious keep a dangerous but profitable drug on the market is something choices are more socially desirable, group pressures can actually 2 3 Introduction: an industry case study of corporate crime Introduction: an industry case study of corporate crime produce a cautious shift (Madaras and Bern, 1968; Fraser et al., In contemplation of experiments with a new soporific drug, we 1971). would appreciate your procuring for us a number of women .... Another variable which distinguishes individual from corporate We received your answer but consider the price of200 marks a decision-making is the distance in space and time between the woman excessive. We propose to pay not more than 170 marks a hazardous decision-maker and the victim of the decision. When a head. If agreeable, we will take possession of the women. We New York board meeting decides to continue marketing a danger need approximately 150. ... Received the order of 150 women. ous drug in a Third World country, the victims could hardly be more Despite their emaciated condition, they were found satisfactory. remote from the killers. Milgram's (1965) experiments showed We shall keep you posted on developments concerning this that people were more willing to administer electric shocks when experiment. ... The tests were made. AU subjects died. We they were less likely to see or be seen by the victim of the shock. shall contact you shortly on the subject of a new load (Glover, Another experiment in a somewhat more naturalistic setting 1977: 58). (Turner et al., 1975) found that victim visibility inhibited aggres sion. While extrapolation from the research of psychologists to the Borkin (1978) has documented in horrifying detail how today's real world of transnational corporations is problematic in the leaders in the international pharmaceutical industry brutalised its extreme, such work lays a foundation for understanding how it slave labour force in their quest to build an industrial empire to is possible for decent people to do indecent deeds. Without offer match Hitler's political empire.5 After the war, the Allies insisted ing explanations of predictive value, the psychological literature that none of the convicted war criminals be appointed to the boards at least succeeds in rendering seemingly implausible events of the new I.G. companies. Once Allied control loosened, how plausible. ever, Hoechst in June 1955 appointed Friedrich Jaehne, one of the This book documents abominable harm which group decision twelve war criminals sentenced to imprisonment at Nuremberg, to making in the pharmaceutical industry has caused on many occas its supervisory board. In September of that year he was elected ions. The 'collective evil' of many pharmaceutical companies is Chairman. Bayer appointed Fitz ter Meer, sentenced to seven years manifest even though so many 'nice people' work for them. Hoechst at Nuremberg, as Chairman of its board in 1956. and Bayer, the largest and third largest companies in world phar Later it will be seen how another of the top five companies, maceutical sales respectively, and both among the world's largest Switzerland's Hoffman-La Roche, built upon massive profits it thirty corporations, are descended from Germany's I.G. Farben made between the two world wars from sales of heroin and company. I. G. Farben ranks with the Standard Oil Trust as one of morphine to the underworld. It will also be demonstrated how five the two greatest cartels in world history. After the Second World of America's largest pharmaceutical companies laid the founda War, the Allies broke up l.G. into effectively three companies: tions for their industrial empires by international price-fixing Hoechst, BASF and Bayer.4 Twelve top I.G. Farben executives arrangements throughout the 1950s which kept the new 'wonder were sentenced to terms of imprisonment for slavery and mistreat drugs', the broad spectrum antibiotics, beyond the financial reach ment offences at the Nuremberg war crimes trials. I.G. built and of most of the world's population. operated a massive chemical plant at Auschwitz with slave labour; Contemporary observers of pharmaceutical corporations offer the I. G. facilities at Auschwitz were so enormous that they used little solace that the industry's present is much less sordid than its more electricity than the entire city of Berlin. Approximately recent past. Clinard et al. 's (1979: 104) comprehensive study of 300,000 concentration-camp workers passed through I.G. corporate crime in American business found pharmaceutical Auschwitz. At least 25,000 of them were worked to death (Borkin, companies to have more than three times as many serious or 1978: 127). Others died in I. G.'s drug testing program. The follow moderately serious law violations per firm as other companies in the ing passage in a letter from the company to the camp at Auschwitz study. Indeed, it will be argued that the pharmaceutical industry has demonstrates the attitude of I.G. Farben to the subjects of its drug a worse record of international bribery and corruption than any testing: other industry (Chapter 3), a history of fraud in the safety testing of 4 5 Introduction: an industry case study of corporate crime Introduction: an industry case study of corporate crime drugs (Chapter 4 ), and a disturbing record of criminal negligence in That is, marketing a drug with harmful side-effects was judged to be the unsafe manufacture of drugs (Chapter 5). a crime deserving longer terms of imprisonment than robbery, This book is not directed at how to change people in order to aggravated assault, burglary, larceny and automobile theft. The prevent such crime, but at transformations to institutional finding is surprising because marketing a drug with dangerous side arrangements and the law as crime-reduction strategies. The unfor effects is not even an offence unless the product is actually banned tunate reality with white-collar crime is that courts, and sometimes or there has been criminal negligence. the public, tend to excuse it because the individuals involved are Also interesting was the finding that US respondents were sincere and eloquent in justifying their behaviour. They are often relatively less punitive toward this conduct than respondents excused because they are paragons of success, pillars of respect from all of the remaining seven countries. The US was the only ability who may be prominent in charity work or the church. While country in which marketing a drug with harmful side-effects was such reactions deserve condemnation because of their class bias, judged as deserving less punishment than rape. In Sweden, even questions of individual blameworthiness will not loom large here murder was judged as deserving less punishment than selling a drug until the concluding chapter of the book. The focus will be on the with harmful side-effects. On average, US respondents favoured structural preconditions for the crime rather than on the criminal. over five years' imprisonment for drug company executives who Following Sutherland (1949), I take the view that to exclude civil perpetrated this 'offence'. For those who support a 'just deserts' violations from a consideration of white-collar crime is an arbitrary model of criminal sentencing, and 1 am not one of them, there is obfuscation because for many of the types of illegal activities dis reason to favour a lot of drug-company executives being put behind cussed in this book provision exists in law for both civil and criminal bars. prosecution of the same conduct.6 Moreover, while some of the This book is an industry case study of corporate crime which practices discussed are civil matters in some parts of the world, they attempts to understand the mechanics of the range of types of are criminal in others. In general, the civil-criminal distinction is a corporate crime common in one industry sector. Such a study was doubtful one (Frieberg, 1981). Thus, corporate crime is defined calculated as the sort most Likely to advance our understanding of here as conduct of a corporation, or of employees acting on behalf corporate crime as a social phenomenon. Social science passes of a corporation, which is proscribed and punishable by law. The through what might be roughly classified as four stages after a conduct could be punishable by imprisonment, probation, fine, problem seriously grabs the attention of scholars for the first time. revocation of licence, community service order, internal discipline At first, scholarship is limited to armchair conceptualising of and order or other court-imposed penalties discussed in this book. theorising about the phenomenon. Then empirical work begins: Types of conduct which are subject only to damages awards without first with qualitative case studies; then with statistical studies (which any additional punishment (e.g. fine, punitive damages) are not themselves see refinement through descriptive to correlational to within the definition of corporate crime adopted hece. Most of the causal analyses); and finalJy, rigorous experimental studies are corporate crimes discussed in this book were not punished by law attempted in which key variables are strictly controlled. even though they were punishable. It hardly needs to be argued that we are not yet ready for experi If one measures the seriousness of crime according to public mental studies as we could not begin to guess which would be the indignation against the offence in the community at large, then this key variables to control. Most observers would agree, however, book is about serious crime. This view is confirmed by a cross that theorising about corporate crime cannot advance much further national study of attitudes to the seriousness of crime among 1,909 until it becomes better informed by empirical work. The question is respondents from eight countries (Scott and AI-Thakeb, 1977). A whether researchers should be jumping ahead to statistical studies drug company executive allowing his company to market a drug of corporate crime or if research resources should be concentrated 'knowing that it may produce harmful side-effects for most indi in qualitative case studies. My view is that statistical studies are viduals' was rated in the United States as committing a crime more perhaps as premature today as they were when Sutherland (1949) serious than all of the FBI index offences except murder and rape. undertook the first statistical study of corporate crime. Without a 6 7 Introduction: an industry case study of corporate crime Introduction: an industry case study of corporate crime qualitative understanding of the contours of corporate crimes and executives to whom the Australians answered. One research goal how they unfold, we cannot begin to comprehend what lies behind was to explore the diffusion of accountability for law violations the quantitative descriptions. Moreover, the liberal use of quotes between headquarters and subsidiaries in transnational corpor from pharmaceutical executives throughout the text will attempt to ations. In the end, however, I took interviews where 1 could get illuminate the social construction of the phenomenon by the actors them. In some cases, the headquarters interviews were done first, themselves. and subsidiary interviews later. A total of 131 interviews were An industry-wide case study of corporate crime has been chosen conducted-75 in the United States, 15 in Australia, 10 in Mexico, 9 in preference to a more detailed study of a particular offence or in Guatemala and 2 in the United Kingdom. Almost half of these a particular company partly because the latter are more vulnerable interviews were with executives at the level of chief executive officer to withdrawal of co-operation by vital informants. More impor of a subsidiary or a more senior person at headquarters. tantly, at this stage of the intellectual development of the field, a Researchers tend to overestimate the difficulties of getting inter faltering attempt to paint a broader canvas is justified so that the views with top executives about corporate crime. One of the work might have relevance to the important conceptual ground significant informants in this study was the president of a major work being laid by jurists working from their armchairs. Having transnational who enjoyed an annual remuneration from the completed the study, I am more convinced than ever that a superior company of over US$700,000. Most interviews were longer than an understanding of a particular crime in a particular firm is gained hour in duration, but 13 lasted for less than thirty minutes. Table 1.1 when the researcher has a grasp of how the industry works as a lists the locations of the formal interviews with executives. whole. In addition to these formal interviews, attempts were made to ask The present work is international in scope. Meaningful research executives questions after they had given evidence before the Ralph on transnational corporations is difficult within one set of national Enquiry into the pharmaceutical industry held in Australia during boundaries. Disproportionate emphasis will be placed on data from 1978. These fleeting question and answer sessions provided no the United States, which, in addition to being the largest manufac information of value. Much more valuable were the interviews with turer of pharmaceutical products, is the domicile for half of the informants who had left the industry, officers in the Pharmaceutical world's top fifty pharmaceutical corporations. Principal sources of Manufacturers Associations [PMAs] in each country visited (except data were interviews with informants, both within the industry and Guatemala), public interest activists, and officers in regulatory outside it, and public documents (transcripts of evidence at trials, agencies in the United States, Australia and the United Kingdom. company documents lodged with regulatory agencies, transcripts of These supplementary interviews to generate leads from other government investigations of the industry). In the United States, 1 sources were almost equal in number to the formal industry inter had the pleasure of wading through some 100,000 pages of Congres views. Nevertheless, the industry interviews were the more sional oversight hearings. These were goldmines of information. important source of information. An appendix sets out the strate Particularly valuable were the. Kennedy Subcommittee transcripts. gies which were used in soliciting and conducting these interviews. I am indebted to Senator Kennedy's staff for allowing me full access None of the informants is identified by name. to the Senate Judiciary Committee files during my month in With corporate crime research, it is wrong to assume that all one Washington. Scouring these files, in combination with the inter must do is get senior executives to 'come clean'. The full story must views, enabled me to piece together the organisational decision be pieced together and cross-checked from multiple sources. No making processes lying behind some of the abuses revealed in the executive, no matter how senior, knows anything like the full story Senate hearings. of illegal behaviour in the pharmaceutical industry. Executives The original strategy for interviews with executives was to meet often make it their business not to know about certain things going with people at the level of chief executive officer or second in on below them in the organisation. Often it is part of the job of command of Australian subsidiaries of American transnationals, lower-level executives to ensure that their superiors are not tainted and then to interview in the United States the headquarters with knowledge of illegal conduct. Moreover. senior executives 8 9 Introduction: an industry case study of corporate crime TABLE 1.1 Formal interviews with pharmaceutical executives. 2 Bribery 1978-80 World rank m Countries pltarmaceutical m which sales. 1977 No. of mruviews Company (Gereffi. 1979) Domicile interviews conducted 1-1 oechst-Rousse I I Germany 2 Guat. us Merck 2 4 US. Mex .. Aust. Bayer 3 Germany 6 US.Guat. Ciba-Geigy 4 Switzerland I Au~t. Hoffman-La Roche 5 Switzerland 5 US. Aust. us Warner-Lambert 7 2 US. Aust. us Pfizer 8 I Aust. us Sandoz 9 Switzerland 3 us L•lly 10 12 US, Mcx. us Upj ohn II 2 Guat .. Aust. Squibb 13 us 6 Aust. A worldly-wise moral relativism seems to have been the reaction us Bristol-Myers 14 5 US. Guat .. Aust. from many following the Lockheed scandal of the mid-1970s. If the Takeda 15 Japan 2 us us accepted practice in Saudi Arabia is to give the royal family a piece Schering-Piough 17 7 US. Aust. Glaxo 18 UK 2 UK of the action when they buy some aircraft from you, then who are us Abbott 19 12 US. Guat., Aust. Americans or Britons to say that their ways of doing business are us Johnson & Johnson 21 5 US. Guat., Aust. us morally superior? In any case, Americans perceive the high Cyanamid 23 2 US. Au~t. ICI 26 UK I Aust. purposes of American foreign policy and national security as SmuhKiine 27 us 3 us advanced if fighters are bought from Lockheed rather than from a Wellcome 28 UK 3 Guat., Aust. us foreign power. G. D. Searle 29 9 US, Mcx .. Aust. Baxter-Travenol 30 us 3 US. Aust. Bribery has a less acceptable gloss if its purpose is to persuade a 3M 38 us I us health official to allow a dangerous drug on to the market; or, failing us Richardson-Merrell 40 3 US, Aust. us that, to entice a customs officer to allow the banned product into the Sterling Drug 41 4 Aust. Syntex 43 us 6 US, Mex. country. Bribing an inspector to turn a blind eye to an unsanitary A. H. Robins 44 us 6 US, Aust. drug-manufacturing plant can hardly be rationalised as in the American Hospital Supply Unranked us 7 us national interest. It will be shown that these types of bribery are Allergan Unranked us 4 US. Aust. common in the international pharmaceutical industry. Bribery is Anabolic Unranked us I us defined as the giving of rewards beyond those allowed by law to ICL Unranked us I us entice a person with a duty of trust to pervert, corrupt or com TOTAL= 131 promise that trust. Extortion is defined as the soliciting of a bribe. The concern of this chapter will not be with minor 'grease' payments to get bureaucrats to do the job they are paid for, but with what have neither the time nor much incentive to snoop around trying to Reisman (1979: 75) bas called 'variance bribes'. find out about criminal behaviour within other companies. Hence, Many of the payments to ministers and officials by pharma this book seeks to inform not only the general public but also ceutical companies are extorted by the recipients. Conversely, pharmaceutical executives. respondents told of many situations where it was the company which initiated the illegal transaction. Irrespective of the allocation of guilt between the two parties. the point remains that here we are 10 11

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