Blood Profits

by Vanessa Neumann

  Coartem is an antimalarial drug that was supposed to be distributed free to the population of the endemic area in East Africa by the United Nations Global Fund to Fight AIDS, Tuberculosis and Malaria (aka the Global Fund). The Global Fund takes donated medicines from all the major pharmaceutical companies and sends them to countries that have a need and request them. In each country, there are local NGOs, clinics, et cetera—the “local implementing partners”—that distribute them to the local populations in towns and villages.

  While at Novartis, Jean-Luc had noticed that the amount of malaria pills Novartis was giving to Tanzania as part of the Global Fund program far exceeded the market size: the incidence of malaria is low in Tanzania. He also knew that other big pharmaceuticals were giving the country free malaria pills. In all, Tanzania was getting from the Global Fund much more than it needed. He wondered what Tanzania could be doing with all those excess medicines.

  He called the Global Fund and asked about its market assessments. It had not done any; it had simply responded to demands from the Tanzanian government.

  Then some British journalists doing a story on West Africa came across blister packets of Coartem openly for sale in the huge outdoor market in Cotonou, Benin, not too far across the border from Touba, Senegal. Local police officers openly collected their “tax” from the street vendors and let them carry on with their illegal sales.

  When the journalists contacted Novartis, seeking comment, Novartis obtained samples and checked the lot numbers. The lot numbers matched those distributed to Tanzania. Five thousand violent kilometers separate Cotonou, Benin, from Dar es Salaam, Tanzania. The batch numbers of some four hundred samples were collected in a subsequent on-the-ground operation, during which Novartis inspectors confirmed more disturbing facts: 73 percent were from East Africa, mainly Tanzania (51 percent), but they were also from Ethiopia, Kenya, and Malawi—these four countries’ governments received forty-five million free treatments in 2009 alone. Statistically, 25 percent of the freely distributed medications—more than ten million treatments—have been methodically collected and diverted for sale in informal markets of West Africa, generating a profit of about $60 million.1

  The charitable distribution chain of Coartem and other antimalarials is infested with transcontinental trafficking on a large scale. It can be assumed that this is the result of a sophisticated criminal organization, with high-level complicity and huge logistics. Novartis’s own investigation led it back to Tanzania’s capital, Dar es Salaam—specifically the warehouses of the Medical Stores Department of Tanzania’s Ministry of Health. This confirmed the Tanzanian government was complicit in the systematic predation or misuse of 20 to 30 percent of international antimalarial donations. In other words, corruption was the key facilitator, as it is to all illicit trade. Novartis even identified a regional industrial group suspected of providing logistical cover to the traffickers.

  Unfortunately, this was hardly the first scandal involving the Tanzanian government’s misappropriation of aid. But when Novartis brought the case to the local Interpol commissioner, he replied that he could do nothing.

  Jean-Luc Moreau asked him: “Why? Do you fear for your career?”

  “No,” answered the Interpol officer. “I fear for my life.”2

  The key node for this pan-African traffic in medical aid is the corruption of the regime of Senegalese president Abdoulaye Wade. Wade also leads the Confrérie des Mourides (the Mouride Brotherhood), a powerful Sufi Muslim organization headquartered in Touba, the site of the Great Mosque. The Mourides control a caliphate, ensuring both impunity for the smugglers and the spread of Sufi Islam. Aid for poor and sick Africans is partly funding a West African caliphate.

  Corruption is the decisive factor in successfully injecting fake drugs in the health chain of a country. Very often in the most exposed regions, the institutional interlocutors such as Interpol liaison officers are themselves linked to organized crime—like the Mauritanian Interpol officer imprisoned for heading a cocaine trafficking ring.3 The syndrome has been known since the Prohibition era in the US: in the Great Moonshine Conspiracy of Franklin County, Virginia, in the 1920s, the police became the protectors of the mobsters.

  In Jean-Luc’s view, investigating after a crime is too reactive and, in the vast majority of cases, ineffectual, as the fake drugs are undetectable. Combating the illicit trade in pharmaceuticals requires a more strategic approach. To effectively disrupt or dismantle transnational networks that bridge at least two governments, one criminal organization, and one Islamic resistance group, a two-pronged approach is required. First, greater strategic and operational intelligence has to be collected. Second, pharmaceutical manufacturing firms and big NGOs and their implementing partners need to design a proactive risk-management system to better protect patients.4

  As of the end of 2015, the UN’s Global Fund had disbursed $33 billion in aid to governments and other local implementing partners5—all without any due diligence of the local distributor of the medical supplies. Sadly, it has been accepted that corruption is a part of the system of these governments.

  “As long as at least some of the help gets to the people who need it” is what one of them said to me as I sat in the Global Fund’s Geneva office, after the 2015 Easter week meeting of our OECD task force. I had taken the train from Paris to Geneva to see my friend Katie Silk, a former agent for MI-5 (the British equivalent of the FBI), who had done hard counterterrorism work in Iraq and Afghanistan before going to work for Jean-Luc at Novartis. When he left Novartis, so did she, and went to run investigations at the Global Fund. Katie’s task: to institute an effective due diligence program for the group’s inspector general.

  “They don’t get it,” said Katie when I arrived at the Global Fund offices to catch up with her. “Humanitarians just want to disburse aid. They don’t understand how it can fund bad guys. But they’re starting to.”

  The issue is not new; it has been raised by a number of credible voices. Zambian economist Dambisa Moyo has been railing against the scourges of foreign aid in Africa since 2009; renowned anticorruption activist Sarah Chayes (who lived and worked in Afghanistan for years) argues that aid from well-meaning NGOs is simply another revenue stream for kleptocratic ruling networks.6

  It is not surprising, then, that aid can end up fomenting the corruption and instability that caused the problems that afflict the populations that the aid workers are there to help. Not only does it fuel the corruption that justifies extremism in a citizenry who want to overthrow a corrupt and oppressive regime, but it also fuels the paternalism that keeps the criminally corrupt in power: it keeps the people suckling at the teat of that oppressive regime, by making them beg for handouts and promise fealty in order to get their food or medicine. In other words, the lack of due diligence in foreign aid engenders corruption that funds the violence that prompted the need for foreign aid in the first place: and, thus, a never-ending cycle of violence, bad governance, poverty, and dependency ensue.

  PHARMA’S GRAY MARKETS

  The Coartem case is a vivid example of supply chain diversion: real product (these were real medications) gets sent to the right person, but gets diverted. The Tanzanian government purposely got an oversupply and diverted what it got through criminal organizations, funding another regime with extremist religious views. That happens with many goods, and it is what we call the “gray market”—neither white (entirely legitimate) nor black (completely illegal). It starts out legal, and becomes illegal on its way to distribution. Those gray markets are in addition to the all-black markets of counterfeiting.

  The illicit trade in each industry is slightly different, but knowingly making fake medications is a nearly perfect crime. If someone sick takes a falsified medication and recovers, there is no investigation. If a sick patient dies, the underlying illness gets blamed. And die they do: the World Trade Organization has estimated that counterfeit antimalarial drugs kill a hundred thousand Africans annually, while seven hundred thousand dea
ths a year have been attributed to counterfeit drugs across the board. The number of individuals whose health has been jeopardized because they took a counterfeit drug could well be in the millions. This huge problem is growing.

  In the 2015 OECD publication Illicit Trade, the World Customs Organization estimates counterfeit medicines to be a $200 billion-a-year industry.7 The World Health Organization (WHO) estimates that 10 percent of medications sold are falsified; the figure can be as high as 50 percent in certain developing countries and on the Internet. That 10 percent represents around $75 billion a year, which is roughly equivalent to the traffic in heroin.8 China is the largest producer, and the United Arab Emirates (particularly Dubai) the biggest transshipment point. But the problem is everywhere, from sub-Saharan Africa to the United States, where the Food and Drug Administration, arguably the world’s most draconian drug regulator, reported an 800 percent rise in counterfeit medicines in the years between 2000 and 2006.9

  The definition of counterfeit medicines is just the first of many complications in the topology of the illicit pharmaceutical trade. Some countries do not have a definition; many have different definitions; some countries define it but do not criminalize pharmaceutical counterfeiting. The most standard definition since the 1990s is that of WHO: “A counterfeit medicine is one which is deliberately and fraudulently mislabeled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct ingredients or with the wrong ingredients, without active ingredients, with insufficient active ingredients or with fake packaging.”10 The critical aspect of the definition is the intention to deceive, to commit a crime: “mens rea,” in legal parlance. Unwitting sale or distribution of illicit medications is not criminalized.

  Based on confidential counterfeiting reports received between January 1999 and October 2000, the World Health Organization grouped the counterfeits into six categories:11

  • Products without active ingredients (32.1 percent)

  • Products with incorrect quantities of active ingredients (20.2 percent)

  • Products with wrong ingredients (21.4 percent)

  • Products with correct quantities of active ingredients but with fake packaging (15.6 percent)

  • Copies of an original product (1 percent)

  • Products with high levels of impurities and contaminants (8.5 percent)

  The term “falsified” medicines has come into common usage in discussing this trade to separate its discussion from anything to do with the intellectual property debate surrounding “branded”-versus-“generic” medications, as well as to separate the deliberately falsified from the “substandard.” Falsified medications are deliberately fraudulently produced; substandard medicines are legitimately produced by the authorized manufacturer, but “do not meet national pharmacopeial standards because of errors in the quality or quantity of raw materials or in manufacturing.”12 The former is a deliberate criminal attempt to deceive; the latter results from poor quality control. Since their origins are different, so are their solutions.

  According to the Pharmaceutical Security Institute, in 2012 counterfeiting incidents rose 2.2 percent over the prior year to 1,664 new counterfeiting incidents reported, involving 207 different pharmaceutical products, which impacted the legitimate supply chain in forty-seven separate countries. With or without mens rea, the results of counterfeit medicines infiltrating the legitimate supply chain and being administered by health authorities can be disastrous:13

  • 1990, Haiti: a cough suppressant mixed with a toxic solvent killed eighty-nine people

  • 1995, Niger: counterfeit meningitis vaccines administered to fifty thousand people by health authorities during an epidemic killed twenty-five hundred of them

  • 2009, Nigeria: fake pediatric paracetamol syrup killed eighty-four children

  • 2016, China: a scandal involving corrupted measles, mumps, and rubella (MMR) and meningococcal disease vaccines sold to three hundred distributors is labeled a “genocide” by the Chinese people

  As per capita GDP rises, so does the use of higher-quality medications, but then, that also opens the branding path for counterfeits. In wealthier countries, the Internet makes their consumption much easier: thirty-six million Americans are estimated to have bought medications online without a valid prescription.14 In the US—as everywhere—the problem is spread in both the very-expensive-but-particular markets (like when counterfeits of Roche’s Avastin cancer drug were found in the US health care system in February 2012) and in the more popular markets (like counterfeits of the diet drug Alli or Botox,15 which were made in concentrations far too high, putting people at risk of paralysis and death). “Somewhere around $10,000 GDP per capita, substandard drugs become less significant than counterfeits.”16 A broad cross-section of Novartis medicines, for instance, has been counterfeited, including: Glivec (cancer), Exelon (Alzheimer’s), Diovan (high blood pressure), Neoral (immunosuppressant for organ transplants), Zometa (bone cancer), Femara (breast cancer), Optalidon (pain), and Coartem (malaria).17

  Like other cases of illicit trade, the transnational trade in illicit falsified medications is a global business that encompasses multiple players, that is facilitated by corruption, and that has a business model that mimics that of the legitimate manufacturers.18 The illegitimate manufacturer will use machines similar to his legitimate counterpart’s to produce similar pills and similar packaging, with ingredients that may be completely false, or authentic but inadequate, contaminated, or degraded. The illegitimate marketing division often infiltrates the supply chain by managing the covert distribution to trick inspectors, wholesalers, and downstream retailers. Sophisticated bookkeepers will launder the illicit financial gains.

  HOW TO EXPLOIT SUPPLY CHAIN GAPS: THE CASE OF RXNORTH

  The RxNorth.com case is a prime example of how illicit pharmaceutical traders purposely make the supply and distribution chains much longer and more complicated than normal business interests would require they be, in order to conceal actors and complicate enforcement. Jean-Luc described the process of illicit distribution (and the challenges it poses for law enforcement) vividly in his congressional testimony.19

  In May 2006, Customs officers at London Heathrow Airport in the United Kingdom seized a shipment from Dubai, en-route to the Bahamas which contained several thousand packs of eight confirmed counterfeit pharmaceutical products from seven companies, including more than 3000 packets of a counterfeit Novartis medicine for hypertension.

  The counterfeit products had been manufactured in China, transported by road to Hong Kong, flown to Dubai where they were stored in a duty free warehouse before being shipped to the Bahamas via the UK. Based on information provided by the pharmaceutical industry, local authorities in the Bahamas executed a search warrant at the destination address where additional counterfeit drugs were seized, including more of the counterfeit Novartis hypertension drug as well as a fake Novartis treatment for Alzheimer’s.

  The counterfeiting facility in the Bahamas was a fulfillment center established by RxNorth, an Internet drug Web site. The facility processed orders placed on the Internet by American and Canadian patients and shipped pre-addressed orders for RxNorth to mail forwarders based in the UK and the Netherlands Antilles. The products were then shipped from the UK or Netherlands Antilles direct to individual customers in the United States and Canada. These routes were used in order to reduce suspicion and avoid Customs inspections.

  In August 2006, the Food and Drug Administration issued a warning to consumers not to buy or use prescription drugs from certain Web sites, including Rx North. In September 2006, RxNorth.com informed prospective customers that responsibility for order fulfillment would be transferred to Canadadrugs.com. Canadadrugs.com had previously been implicated in incidents of counterfeit pharmaceutical products and later became the center of another international counterfeit drug scandal, mainly affecting U.S. patients.

  Follow
ing investigations in all of the countries impacted by Rx North, a Dubai-based trading company general manager and three co-defendants were convicted in the United Arab Emirates and imprisoned for terms ranging from one to eight years. Two men in the UK were also prosecuted and convicted for their roles in the RxNorth operation. Andrew Strempler, a Canadian citizen, pleaded guilty in the Southern District of Florida for his role in a scheme to defraud consumers purchasing pharmaceuticals online through his ownership of RxNorth. In January 2013, he was sentenced to 4 years in prison and also ordered to pay a forfeiture of $300,000 and a fine of $25,000. He was also ordered to pay restitution to the companies whose products he counterfeited.

  As in almost all forms of illicit trade, pharmaceutical counterfeiting and supply diversion is also facilitated by diaspora networks, which provide access to shipping and distribution. An established African Bakongo diaspora in Guangzhou, China, arranges the manufacture of the drugs with local facilities as well as the shipping for the fake medicines under covering loads to Africa through a complex structure of export and import companies with associated sister companies in recipient countries in Africa. The associated tribal networks in Africa ensure the passage of counterfeit product upon arrival and distribution to illicit street retailers.20

  “A CRIME AGAINST HUMANITY”

  The main policy objective of pharmaceutical companies has now become the implementation of effective transnational legislation. Roger Bate (a scholar on the illicit trade in pharmaceuticals) illustrates why such international legislation is needed. For simplicity’s sake, let’s turn it into an illustrative fictional example.

  If a counterfeiter from country A (call it “Albania”) produces and exports fake drugs to country B (call it “Burma”), normally only Albania has the authority to prosecute the criminal, because that criminal act occurred in its territory. Even if lots of people die in Burma as a result of taking the fake medicines, Burma, the recipient country and home of the victims, likely has little criminal jurisdiction over acts ancillary to the counterfeiting, such as fraud or smuggling. Not only are fraud and smuggling not the same crime as counterfeiting, it is nearly certain that the smuggling and the fraudulent sales were not committed by the same person or group of persons as the counterfeited manufacturing, and these crimes likely do not carry an appropriate penalty. Without an international agreement to treat medicine counterfeiting as a serious crime, the courts and police of the two countries will likely not cooperate. As a result, medicine counterfeiters have practical immunity.21