In a landmark case, a Chinese court has fined GlaxoSmithKline’s China subsidiary (GSK China) US$ 492 million dollars for bribing doctors and hospitals to prescribe its products. The record fine followed a one day closed door trial.
The court also convicted Mark Reilly (GSK China’s former head of operations) and four other former GSK China executives of bribery offences. The court, however, suspended their prison sentences, which ranged between two to four years.
China news agency Xinhua reported that the court found that GSK China’s management promoted an aggressive sales culture and allowed, and in some instances encouraged, sales representatives to bribe physicians to boost sales revenue. The court also found that the company’s financial compliance department facilitated the company’s bribery activities, whilst its legal department covered them up.
The court’s verdict followed a 10 month police investigation into allegations of bribery on the part of GSK China, in which investigators reported widespread payments (along with gifts and free travel) to physicians and hospital personnel to boost sales revenue, which payments inflated the price of GSK China’s drugs.
Chinese authorities had previously accused GSK China in July 2013 of funneling bribes to doctors via travel agencies. More specifically, authorities alleged that GSK China organised sham conferences and training sessions, and conspiring travel agencies would, in turn, provide bogus receipts and invoices to GSK China employees for these conferences and training sessions, which monies would be reimbursed to the GSK China employees and used to pay bribes. The bribes would then presumably be falsely recorded in GSK China’s accounting records as conference or training fees to evade detection by GSK China’s anti-bribery internal controls.
The investigation into GSK China (and subsequent verdict) is the latest example of China’s increased efforts to curb corporate crime, and follow China’s levy of fines against other MNCs for alleged anti-competitive practices in recent weeks.
Despite the fact that the court has rendered its verdict, GSK remains subject to scrutiny by other enforcement authorities. The US Securities and Exchange Commission and Department of Justice are investigating GSK for potential violations of the Federal Corrupt Practices Act, including potential violations of the anti-bribery and accounting provisions of that act. The UK Serious Fraud Office is also investigating the pharmaceutical company for breaches of the UK’s Bribery Act.