American Medical Devices and Diagnostics Manufacturers' Association

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American Medical Devices and
Diagnostics Manufacture's
Association

Guidelines for Ethical Relationships with Business Partners

Guidelines for Ethical Relationships with Business Partners

(Established June 27, 2022)

1.Preamble

In order to realize a society that puts “Patients First”, it is important that innovative, reliable, and effective medical devices and In Vitro Diagnostics (IVD) are continuously produced by medical device or IVD companies (hereinafter referred to as "Medical Device/IVD Companies"), and that they are stably supplied to medical institutions, etc., so that they can be used without delay when patients need them.

To ensure, and further promote, patients’ continuous and stable access to the medical devices/IVDs, Medical Device/IVD Companies often need to enter into contracts with third parties, which constitute the supply chain of medical devices/IVDs to medical institutions and play a very important role in the stabilization of the supply chain. In these guidelines, "Business Partners" refers to distributors, resellers, dealers, wholesalers, agents, brokers, and others. The roles of these third parties vary widely depending on the terms and conditions of the contracts, from just handling logistics, to purchasing and reselling medical devices/IVDs, or just promoting sales.

On the other hand, there have been reports of suspected compliance violations in areas related to Medical Device/IVD Companies’ businesses. Unfortunately, in 2021, there were reports of passing a bribe in the form of a donation to a third party by a medical device company, and this seriously undermined the trust of patients and the public in Medical Device/IVD Companies. In that particular case, it was reported that the medical device company shipped products to its distributor at a special discount price to pool funds there, and then those funds were used for the bribe in the form of a donation.

In order to realize a society that puts the “Patients First” and is also trusted by patients and other members of society, it is essential that Medical Device/IVD Companies establish relationships with Business Partners that are based on high business ethics criteria, and that they conduct business ethically together with their Business Partners. To achieve this, member companies of the American Medical Devices and Diagnostics Manufacturers' Association (hereinafter referred to as “AMDD”) must comply with the U.S. Foreign Corrupt Practices Act (hereafter referred to as "FCPA") and its guidelines, which are applicable to them and define the requirements for their transactions with Business Partners.

In light of these circumstances, we have decided to establish these guidelines in order for AMDD member companies (hereinafter referred to as "Companies") to conduct business ethically together with their Business Partners, based on high business ethics criteria, to continuously and stably supply innovative, reliable and effective medical devices/IVDs to medical institutions, and to enable patients to use them without delay when they need them. These guidelines will hopefully help Companies to develop ethical relationships with their Business Partners.

2.Important Points for Using the Guidelines

The purpose of establishing these guidelines is to serve as a useful reference for the desirable form when Companies establish ethical relationships with their Business Partners, in light of the requirements of the relevant laws and regulations such as the FCPA and its guidelines.

The important points for using these guidelines are as below.

  1. 1. These guidelines were established only as a reference for individual companies as they prepare operating procedures when establishing ethical relationships with their Business Partners. AMDD has no intention to obligate Companies to implement these guidelines. It is important for them to correctly understand the purpose and the significance of establishing ethical relationships with their Business Partners, and the requirements of the related laws and regulations such as the FCPA and its guidelines, and to proactively work against fraud.
  2. 2. We expect that the laws and standards related to these guidelines, including the FCPA, will be revised as necessary going forward. These guidelines are consistent with laws and standards as of the time of preparation, but individual companies will need to review their operating procedures to comply with any newly established laws or standards or any revisions to current laws or standards.

3.Guidelines

1.Written Anti-Corruption Policies and Procedures

(Commentary)

Not only are Companies prohibited from committing their own corruption, but they are also prohibited from having their Business Partners commit the prohibited acts of corruption as puppets.

"Corruption" refers to the provision of any value, not limited to money or monetary equivalents, that may violate not only the criminal law applicable in Japan, but also the FCPA, the Code of Ethics established by the AMDD, the Promotion Code established by the Japan Federation of Medical Devices Associations, the Fair Competition Code of the Medical Devices Industry in Japan established by the Japan Fair Trade Council of the Medical Devices Industry, and all other relevant industry codes.

In addition to the above, the various risk areas considered should also include venue fees, sponsorships, service fees, sales and marketing, samples and other business activities, and interactions with HCP, government agencies and civil servants. It is also desirable to have control of the series of processes related to these such as applications, approvals and payments.

This policy should state that it requires Business Partners to comply not only with anti-corruption measures, but also with Japanese laws, foreign laws (where applicable to Japan), domestic and overseas industry self-regulation, corporate ethics codes, and corporate policies. Companies should also spread awareness of and require compliance with the details of those documents and the matters to be observed, not only among their own employees and those of their affiliates who are involved with the Business Partner, but also at the Business Partner and among a wide range of stakeholders. The policy should be disclosed and distributed electronically or physically together with documents describing the ethical values of the Companies, such as its ethical norms, code of ethics or code of conduct.

2.Risk Assessment

(Commentary)

The FCPA guidelines emphasize the development and implementation of a company-specific compliance program different based on actual risk assessment. Risks vary according to factors such as the region, industry type and size of Business Partner, so there is no compliance program that can be applied uniformly. Rather than investing management resources in low-risk areas, it is necessary to implement compliance measures that effectively reduce risks in high-risk areas.

Evaluation items such as the following can be used in risk assessments. However, the following is not a comprehensive list and it is possible to reduce the number of evaluation items or to add other items that the Companies consider important.

  1. The Corruption Index of the country where business is conducted(Note)
  2. The extent to which the Companies can manage the activities of the Business Partner
  3. The sales volume of the Business Partner
  4. Whether the Business Partner conducts re-outsourcing to another company (For example, to a corporation or individual that does not have a direct contract with the Companies, but may intervene between the Business Partner and the end customer, depending on the nature of the transaction (hereinafter referred to as "Secondary Agency, etc."))
  5. The extent to which the business of the Business Partner depends on the business of the Companies
  6. The extent to which the business of the Companies relies on the Business Partner
  7. The contents of the operations by the Business Partner that benefit the Companies (Whether it simply receives orders from hospitals and sells the designated products, or it is engaged in activities such as the promotion of the products of the Companies or on-site witnessing, etc., and whether it has a particularly close relationship with a hospital so that it may act for the benefit of the hospital, etc.)

(Note) A good reference is the Corruption Perceptions Index provided by Transparency International.

If a Business Partner is identified as a high risk as a result of a risk assessment, it is advisable to make a decision on whether or not to conduct the transaction, and, even if it is determined that a transaction can be conducted at that stage, it is advisable to increase the frequency of detailed due diligence and ordinary audits, and to provide frequent compliance training. As Companies have limited human resources, the benefits of conducting a risk assessment are thought to be large, because it is possible to reduce the due diligence and ordinary audits for Business Partners that are identified in the risk assessment results as being a relatively low risk.

On the other hand, due diligence and ordinary audits can sometimes detect new risks, so it is ideal to construct the process as a whole, with the due diligence, ordinary audits and risk assessments reflecting each other’s findings.

3.Due Diligence Program

(Commentary)

In order to establish an effective compliance system, it is necessary to conduct a risk assessment in advance and then perform due diligence on Business Partners based on the results of the risk assessment before entering into a contractual relationship. It is expected that these processes will be established as a due diligence program.

Due diligence is based on the level of risk identified through risk assessment and should be a risk-based approach that takes into account the content and size of transactions. To conduct due diligence, it is necessary to understand the eligibility and relevance of the Business Partner (whether the Business Partner has the capabilities to perform activities for the Companies (its personnel, size, years of operation, etc.), whether the Business Partner accurately and appropriately prepares and maintains books and records that reflect transactions and the disposition of assets, and whether dealing with the Business Partner is rational (the products to be sold, sales prospects, etc.)), as well as matters related to the Business Partner such as its business reputation, the existence of past violations of laws and regulations, the existence of relationships with government officials, the existence of a conflict of interest, and the status of its compliance systems, including internal controls. It is even more ideal if Secondary Agency, etc. are also included in the scope of due diligence.

In due diligence, a comprehensive evaluation is conducted using information such as information that is widely and generally available, credit information and other information from external research companies, and information obtained by requesting direct submission from the Business Partner. For the information obtained by requesting the Business Partner to submit it directly, it is possible to use the document created by the AMDD Legal Compliance Committee as “ The Model Questionnaire for Trading Partners regarding FCPA Compliance” (https://amdd.jp/about/compliance/training/).

If a red flag surfaces during due diligence, the precision should be increased to identify the risks and the risks should be addressed. (A red flag is an issue that should be addressed. For example, if a case of bribery, bid rigging, or other violation of the Antimonopoly Act is found, or if shareholders include medical personnel or their relatives, and a conflict of interest is predicted in transactions with the medical institution concerned.) If the result of this is that the risk is at an unacceptable level, then the Companies must not conclude the contract with the Business Partner, must terminate the contract, or must not renew the contract.

Companies are also expected to update their due diligence on ongoing relationships with Business Partners. For example, it is recommended to conduct due diligence for a Business Partner on a regular basis, such as when renewing the contract, or after a period set based on the risk assessment.

4.Written Contracts

(Commentary)

Conditions such as a. to h. below are conceivable as contents that enable Companies to implement anti-corruption measures. The conditions a. to d. are in response to requests from the U.S. Department of Justice and it is highly recommended that they are included in a contract.

  1. Representation and warranty/pledge of bribery prevention
  2. Compliance with the anti-corruption laws in Japan and overseas (where applicable to Japan), domestic and overseas industry self-regulation, ethics codes and corporate policies, etc.
  3. The right to implement independent audits and monitoring, including access to relevant books, records, contracts and other documents
  4. Terminate a contract as a result of a violation of applicable anti-corruption laws and regulations or the representation and warranty/pledge regarding them
  5. Obligation of Business Partners to take compliance training
  6. Obligation to give advance notice or obtain approval when re-outsourcing to a Secondary Agency, etc. or changing the Secondary Agency, etc.
  7. Prompt notification of breach of contract
  8. Right to exercise due diligence at the time of contract renewal

Furthermore, when there is a Secondary Agency, etc., that is not a direct party to the contract, it is more ideal if the contract agreed between that Secondary Agency, etc., and the Business Partner with the direct contract with the Companies includes content that enables the Companies to implement the prevention of corrupt acts. It is also more ideal if it is possible to conduct direct due diligence and risk assessments on the Secondary Agency, etc., and to obtain a representation and warranty/pledge of bribery prevention from the Secondary Agency, etc.

In any case, as stated above, it is extremely important to specify the content that will enable the implementation of anti-corruption measures in some form of written documents, such as contracts, prior to commencing transactions. If a Business Partner refuses to conclude such a written document, or is reluctant to do so, then the Companies should reconsider commencing or continuing transactions and other relationships with that Business Partner based on that fact.

5.Training and Education

(Commentary)

Companies are encouraged to make an effort to prevent corruption by providing regular opportunities for training and education on compliance with laws and regulations to Business Partners who purchase and sell the products or services of the Companies, or who do not purchase the products or services, but are engaged in the promotion of the sales of those products or services. It is also desirable to ensure that this training and education is provided not only to the Business Partners who conclude a direct contract with the Companies, but also to all Secondary Agency, etc., who are involved in the end user's purchase of the Companies' products and services. In this case, it is desirable that the Companies or Business Partner takes the necessary action to provide the training and education opportunities to the Secondary Agency, etc.

AMDD regularly provides standard training on FCPA and other applicable laws and regulations for Business Partners in Japan. Companies or Business Partners are encouraged to use this training to provide training and education opportunities to the Business Partners and secondary agencies, etc., that they conclude a contract with regarding the business activities of the Companies.

6.Monitoring/Ordinary Audits

(Commentary)

The situation of the Business Partner will be constantly changing, so even when Companies have performed due diligence and concluded a contract, this is not the end of the process. From the viewpoint of a risk-based approach, in addition to emergency audits in the event of misconduct, it is desirable that Companies also conduct regular monitoring and ordinary audits appropriate for the risk of the Business Partner.

The specific methods for the monitoring and ordinary audits must be decided by the Companies based on comprehensive consideration of the Business Partner risks and findings. The method may be limited to internal documents such as contracts, or may go as far as to include interviews with the Business Partner or verification of Business Partner documents (such as internal regulations, approval authority tables, accounting books, etc.). These efforts for monitoring and ordinary audits of Business Partners by Companies in accordance with the Business Partner risks are already implemented in the medical devices industry in Japan.

In the event that a Business Partner is found to have previously committed a violation of laws and regulations, etc., it is desirable to require the Business Partner to provide documentation certifying compliance with laws and regulations in relation to its situation of compliance with Japanese laws, foreign laws (where applicable to Japan), the Fair Competition Code of the Medical Devices Industry in Japan, domestic and overseas industry self-regulation, corporate ethics codes, and corporate policies, etc.

Many medical device Business Partners are members of the Japan Association of Health Industry Distributors, which is a member organization of the Japan Fair Trade Council of the Medical Devices Industry, so it is thought that they have a certain level of understanding of the Fair Competition Code of the Medical Devices Industry in Japan and have prepared a compliance system in accordance with the scale of their business. On the other hand, the companies and individuals (the so-called agents and brokers) that engage in company sales promotion activities for the benefit of the company often do not belong to a member organization of the Fair Trade Council of the Medical Devices Industry in Japan. It is therefore thought desirable for the Companies to conduct more careful monitoring and ordinary audits of these parties regarding their understanding of the Fair Competition Code of the Medical Devices Industry in Japan and their internal compliance systems.

7.Appropriate Corrective Action

(Commentary)

A Business Partner may be found to have violated relevant laws and regulations or to have engaged in unethical conduct (hereinafter referred to as a “Violation”) after the Companies have already performed an appropriate risk assessment and due diligence, concluded a contract and entered into a business relationship with that Business Partner. The circumstances of these discoveries are various, such as self-reporting from the Business Partner, news reports on investigations, etc., or the acquisition of information by the sales department of the Companies.

When a Violation by a Business Partner is discovered, it is desirable for the Companies to take corrective action commensurate with the nature and form of the Violation. Specifically, when considering corrective actions, it is expected that the Companies will use a risk-based approach and will use methods such as visiting the Business Partner for an investigation or having the Business Partner submit a report, in order to gain an understanding of the nature of the Violation (if it is a violation of laws and regulations, such as bribery, accounting fraud, or a violation of the Antimonopoly Act, a violation of industry self-regulation, such as the Fair Competition Code of the Medical Devices Industry in Japan, or a violation of an ethics code or corporate policy) and the form of the Violation (whether it is organizational or not, whether it is repeated and continuing or not, and its relevance to the business transactions with the Companies).

If, as a result of the study, it is determined that the nature and form of the Violation is serious and that the risk of continuing transactions with the Business Partner cannot be corrected, then it is necessary to take measures such as terminating the transactions or cancelling the contract. Even if a decision is made to continue the transactions, it is recommended that corrective action is taken, such as requesting preventive measures from the Business Partner and implementing reports on progress, training by the Companies, and the suspension of transactions and suspension of rebates, etc., until these actions are completed.

4.Reference Information

The following is a list of information related to these guidelines. Use this information as needed by the Companies. Please note that AMDD does not officially endorse the reference information introduced.

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