China's GSK probe motivated solely by wish to curb corruption
Rick Tang says the Chinese investigation into GSK has only one motive - to determine if its business practices have flouted the law, and this should be a warning to all companies operating in China
The major pharmaceutical multinational GlaxoSmithKline is being investigated by the Chinese authorities for anti-trust and bribery offences. It is alleged that the company's management in China orchestrated an industry-wide bribery scheme to designate GSK's products as the "drugs of choice" for patients. The scheme involved paying bribes to professionals in the medical, hospital and pharmaceutical industry.
It is also claimed that prices were fixed, resulting in unreasonably high retail prices for patients. Bribes were channelled allegedly through a travel agency which supposedly organised overseas trips for the professionals to medical conferences and symposiums. A number of these trips never materialised. Such bribes were disguised as expenses for the bogus trips and charged to GSK China for reimbursement, thus hiding them from the internal controls of the company's UK head office.
If such allegations are proven, GSK will be criminally liable under China's Anti-Unfair Competition Law and the anti- bribery provisions of its Criminal Law.
Anyone who advises US or British multinationals knows that it is critical to have a strong legal and compliance department supported by robust internal audits and controls. This is because some countries have weak laws or lack the vigour to prevent or combat misconduct like bribery and anti-competition practices. The US and Britain have anti-bribery laws with extraterritorial jurisdiction, regulating the business conduct of their companies in overseas markets. Reputable multinationals doing business in China have robust systems and processes in place.
I assume a sizeable multinational like GSK had them in place, too. But its legal and compliance processes failed. According to media reports, 3 billion yuan (HK$3.8 billion) in bribes were paid under the scheme. This is not nickel-and-dime stuff.
We don't yet know how they got caught. What we do know is that the Chinese government is dealing seriously with this seemingly industry-wide problem. Thus, it was surprising to see in a recent op-ed on these pages, by Professor Kerry Brown, suggestions that China was "irritated" by GSK's profits, the inference being that this was the cause, or at least a cause, of the investigation by Chinese authorities. This is wrong; GSK was investigated because the alleged scheme is illegal.