British pharmaceutical giant GlaxoSmithKline has been hit with the biggest fine ever imposed by the People’s Republic of China for allegedly bribing doctors and others in China’s medical system to use and prescribe the company’s drugs. And, this came about after the company illegally collected personal data on a number of Chinese nationals.
The British drugmaker incurred a three billion Chinese yuan penalty – roughly $489 million – the largest ever fine imposed by Beijing.
It was announced this month on the same day, GSK China Investment Co. Ltd. issued a formal apology “to the people of China.” The company stated that “GSK plc fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities.”
The 15-month-long investigation by the economic crimes unit at China’s Public Security Ministry found that the drugmaker funneled bribery payments through a reported network of some 700 travel agencies. According to Bloomberg, health care professionals were given “travel and meeting expenses, and sexual favors.”
The CEO of GSK’s China unit, Mark Reilly, was given a three-year, suspended prison sentence and ordered deported from the country. Four other senior GSK China managers were also convicted and given suspended sentences. All say they will not appeal their sentences.
Chinese authorities also say that Reilly, along with GSK China Vice President Zhang Gouwei and the China subsidiary’s legal affairs supervisor, Zhao Hongyan, acted in 2012 to attempt to bribe police and other officials in Beijing, Shanghai, and other cities to try to impede or stop the Public Security Ministry’s investigation.
The company’s massive fine follows the August sentencing of British investigator Peter Humphrey, who worked for GSK. He was sentenced to two-and-a-half years in jail, fined nearly $33,000. He also faces deportation after serving his sentence for illegally collecting private information on Chinese nationals.
His wife, Yu Yinzeng, drew a two-year sentence and a nearly $25,000 fine for her role in this crime. The couple was not cooperative with Chinese prosecutors, claiming that the three Chinese sub-contractors who collected data were paid for their services, not for the information.
One of Humphrey’s targets was a former GSK China employee, Vivian Shi, who is a well-networked daughter of a senior Communist Party official. The London Telegraph reports that GSK suspected her of being a driving force behind Beijing’s corruption investigation of the company.
GSK says it “apologizes for the harm caused to individuals who were illegally investigated.”
The company also announced that it will pay this nearly half-billion-dollar fine in cash and take a charge against its third-quarter earnings.
“A heavy punishment is necessary to rescue the pharmaceutical sector [in China],” said Liao Mingtao, a senior partner at the Hui Ye law firm in Shanghai, She told the South China Morning Post that “It was not just GSK that paid the price, and it was a lesson that all the other players, including the foreign and domestic companies, should learn.”
In its apology statement, GSK said “the illegal activities [of GSK China] are a clear breach of GSK’s governance and compliance procedures and are wholly contrary to the values and standards expected from GSK employees.”
While GSK’s China case has been resolved, the company may face further probes from Britain’s Serious Fraud Office, which launched a probe in May 2014, and also in the United States from both the Securities and Exchange Commission and the Justice Department, which may address GSK’s behavior through prosecution under the Foreign Corrupt Practices Act.
GSK is also facing similar bribery claims in Jordan, Iraq, Syria, Lebanon, and Poland according to Reuters.
