A Chinese court found GlaxoSmithKline's local subsidiary guilty of bribery and fined the company nearly $500 million, capping a scandal that has shaken China's pharmaceutical industry.
Chinese authorities accused GSK of bribing hospitals and doctors, channeling illicit kickbacks through travel agencies and pharmaceutical industry associations — a scheme that brought the company higher drug prices and illegal revenue of more than $150 million between 2009 and 2012.
In a rare move, authorities also prosecuted the foreign-born executive who ran Glaxo’s Chinese unit. After a one-day trial held in secrecy, the court sentenced Glaxo’s British former country manager, Mark Reilly, and four other company managers to potential prison terms of up to four years. The sentences were suspended, allowing the defendants to avoid incarceration if they stay out of trouble, according to Xinhua. The verdict indicated that Mr. Reilly could be promptly deported. The report said they had pleaded guilty and would not appeal.
Chinese authorities began investigating the company in 2013, laying bare a tale of intrigue involving a mysterious sex tape, whistleblowers, private investigators and a culture of bribery and graft in China's vast medical industry.
When the accusations first emerged last year, the company said that employees were “outside of our systems of controls.” It said the scandal involved a few rogue Chinese-born employees. But the case escalated in May, when Chinese police accused Mr. Reilly of orchestrating a “massive bribery network.” Mr. Reilly and two Chinese-born executives, Zhang Guowei and Zhao Hongyan, had even bribed government officials in Beijing and Shanghai, they said. The names of the other defendants are Liang Hong and Huang Hong.
Some legal experts said they feared the suspended sentencing for Glaxo employees doesn't send a strong enough signal to the pharmaceutical industry, which has been rife with corruption in China. "The case is quite influential, and senior executives should have gotten substantive punishment rather than suspension," said lawyer Yue Shenshan. "It doesn't set a good example for future, similar cases."
Glaxo said in a statement that it “fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities.” “GSK P.L.C. sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people.”
According to Glaxo the Chinese fine would be funded out of existing cash resources, and the charge would be included in its third-quarter update. While the total fine is large, it is dwarfed by Glaxo's annual free cash flow of some £4 billion.
Separately, Glaxo has been investigating claims that its employees bribed doctors in Iraq, Jordan, Lebanon and Syria.
One uncertainty for Glaxo now will be whether it will face further fines in the U.S. or U.K. The U.K.'s Serious Fraud Office opened a criminal investigation into the commercial practices of Glaxo in May. The U.S. Securities and Exchange Commission and the Justice Department are investigating the company, according to people familiar with the matter.
Source: New York Times
Wall Street Journal
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