Foreign pharma executives mull China exit after GSK graft probe

Charges filed against the British company's chief spread fear among foreign managers

PUBLISHED : Saturday, 14 June, 2014, 4:19am
UPDATED : Saturday, 14 June, 2014, 6:13am

The mainland's crackdown on corruption in the pharmaceutical sector has frightened foreign executives so much that some fear they could be jailed and have asked their lawyers if they should leave the country for six months. Others are thinking of going for good.

While the crackdown has been building for a year, police shocked the foreign business community a month ago when they filed corruption charges against Mark Reilly, the former China head of British drugmaker GlaxoSmithKline.

The Briton, who has been barred from leaving China, could face decades in prison.

The charges against Reilly had prompted some senior executives to look at all contingencies.

"Many of our clients are asking about personal liabilities and insurance, with executives asking if they are put in jail, what will happen to their families and how the company will provide protection for them," said John Huang, the Shanghai-based co-founder and managing partner of law firm MWE China.

Police said a year-long investigation found GSK made billions of yuan from schemes to bribe doctors and hospitals. Two senior Chinese executives were also charged.

Britain's biggest drugmaker has said the accusations were "deeply concerning" and that it had zero tolerance for bribery. Reilly's whereabouts are unknown.

Huang and two pharmaceutical executives said some managers were reconsidering the legal risks involved in holding any position where they were responsible for some of the thousands of marketing and sales staff that global firms employed across China.

Investigators have focused on those staff and how they deal with poorly paid doctors and administrators in public hospitals.

Lawyers said some executives and in-house counsel had sought legal advice about leaving China to avoid getting caught up in any future probes. Some top managers were actively pursuing career options outside China.

Others were contemplating a more temporary escape until the worst blew over. "They are thinking about leaving China short term, staying out of the country on a three or six-month rotation," said another Shanghai lawyer.

Lawyers said executives had sought advice on relocating to Singapore, Hong Kong and other destinations.

Some international firms were also finding it harder to attract staff to China, said two pharmaceutical executives.

While formal charges have been levelled only against GSK executives, virtually all big drugmakers in China have come under scrutiny from police or regulators.

Most recently, Swiss drugmaker Roche said last month its Hangzhou office was visited by anti-graft watchdog the State Administration for Industry and Commerce.

Several global drugmakers including Novo Nordisk, Eli Lilly and Roche have also changed their China heads in the past year. The three firms said the moves had nothing to do with the crackdown.

GSK replaced Reilly in July last year after the investigation into the company was announced.