GSK may face US charges over graft

Lawyers say the British drug maker could pay record fine if prosecuted for alleged kickbacks to doctors and hospitals on the mainland

PUBLISHED : Friday, 09 August, 2013, 12:00am
UPDATED : Saturday, 10 August, 2013, 12:53am

New York-listed GlaxoSmithKline may pay a record amount in the United States to settle China-related corruption allegations, if it is charged under the Foreign Corrupt Practices Act (FCPA), given the extent of its alleged malpractices.

"There is a high likelihood that GSK will be prosecuted by the US authorities," said Daniel Roules, a Shanghai-based partner of US law firm Squire Sanders.

GSK could be charged under FCPA law because of its New York listing.

It could also be charged under the UK Bribery Act because it is a British company.

"If all the allegations by the Chinese authorities are true, and the US government decides GSK's compliance programme in China was a sham and never seriously enforced, GSK's settlement for violating the FCPA could potentially exceed all previous FCPA settlements centred exclusively on China," said Jerry Ling, a Shanghai-based partner at Jones Day, another US law firm.

"The allegations point to extensive involvement by and consent of the China-based management, and identify bribery schemes that are systemic and egregious."

Beijing alleges GSK funnelled nearly 3 billion yuan (HK$3.8 billion) in kickbacks to doctors, hospitals and other groups to prescribe its drugs. At least four senior Chinese GSK executives and 18 other employees of the company have been detained on the mainland.

"The allegations are troubling for GSK because the China-based management has reportedly confessed to authorising and participating in systemic bribery. GSK will have more difficulty proving it had sufficient controls to prevent corruption in China than Morgan Stanley, which was able to claim a single executive was acting without the knowledge of his superiors," Ling said.

Last year, Garth Peterson, a former Morgan Stanley managing director, was sentenced to nine months in a US jail for bribing Chinese officials in violation of FCPA. The US authorities did not prosecute the bank itself.

Compared with Peterson's actions, the allegations against GSK in China appeared widespread and systemic, Ling said.

Last month, GSK chief executive Andrew Witty said much of the blame for GSK's alleged misconduct in China appeared to focus on the four detained Chinese executives.

The fine GSK might have to pay to the US government could be hundreds of millions of dollars, in addition to any illegally obtained profits, Roules said.

Meanwhile, other foreign drug makers are being probed for corruption too.

French drug company Sanofi said yesterday it had "zero tolerance for any unethical practices" after a mainland newspaper reported allegations its staff had bribed more than 500 doctors in China.

An anonymous whistle-blower told 21st Century Business Herald that Sanofi staff had paid bribes totalling about 1.7 million yuan to 503 doctors at 79 hospitals in Shanghai, Beijing, Hangzhou and Guangzhou in 2007.

Separately, Danish drug maker Novo Nordisk said yesterday Administration for Industry and Commerce officials visited its production facility in Tianjin on August 1.