CORRUPTION

GlaxoSmithKline

Beijing weighing large fines against GlaxoSmithKline

Government accused drugmaker of creating a culture that encouraged widespread bribery

PUBLISHED : Wednesday, 04 September, 2013, 12:00am
UPDATED : Wednesday, 04 September, 2013, 10:02am

The central government is considering whether to slap massive fines on GlaxoSmithKline (GSK), after accusing the drug giant's London headquarters and its former China chief, Mark Reilly, of fostering an aggressive sales culture that indirectly encouraged widespread bribery on the mainland.

"We should learn from the practice of other countries in imposing astronomical fines," the Ministry of Public Security said on its website yesterday.

GSK paid the United States government US$3 billion last year to settle charges of illegal drug promotion, failure to report safety data and false price reporting. It was the biggest fine of a drug firm in US history.

The ministry said that in recent days more people have given testimony about bribery and other illegal acts in connection with GSK, in addition to an earlier group of people who had been detained.

"In the past few years, GSK's UK headquarters gave us extremely high annual sales growth targets of as much as 25 per cent, far above the industry average of 7 to 8 per cent," a GSK China-based general manager, Huang Hong, said on the ministry's website. She was one of several people questioned by the ministry regarding the case. "With such unreasonable targets, if we do not resort to illegal measures, it's very difficult to achieve such high sales growth. Mark Reilly changed the company's objective to sales being king."

Reilly headed the British drug firm's China operations until July. Huang said that after Reilly became GSK China pharmaceuticals general manager in 2009, he created sales teams to serve major clients. The Ministry of Public Security has not explicitly accused Reilly or GSK's London headquarters of corruption.

To please major clients, GSK sponsored seminars for them, Huang added. "The entire industry knows, at every event, there were vacations or expensive gifts, sometimes cash directly given [to clients]," she said.

The ministry said: "The problems of international drug giants in China are not as simple as some isolated employees and third parties committing unethical acts. Beneath the guise of compliance, there are massive and wanton actions throughout the country that are shocking."

As a British firm, GSK is subject to the UK Bribery Act, while as a New York-listed firm it must comply with the US Foreign Corrupt Practices Act (FCPA).

To avoid being prosecuted under the UK Bribery Act and FCPA, GSK must show the corruption was limited to isolated acts by some bad apples working outside GSK's controls, which is how GSK chief executive officer Andrew Witty has portrayed it.

"We expect GSK to be subject to investigations by the US and UK authorities," said Daniel Roule of US law firm Squire Sanders. "If it's found by US and UK investigators that GSK had compliance programmes but didn't implement them effectively, then GSK will have a problem."

A GSK spokesman said: "The reports published today relate to the ongoing investigation by the Chinese authorities. The issues identified would be a clear breach of our corporate values."