Wednesday, May 14, 2014

China: Authorities Charge GSK of Ordering Execs to Commit Bribery, US$500 Million Possibly Involved

According to AFP, Chinese authorities have accused a top GlaxoSmithKline (GSK) executive of ordering employees to commit bribery, following a 10-month probe into the embattled British drugmaker, state media said on Wednesday (May 14).

Police in Changsha said that Mark Reilly, GSK's former head of China operations, had "pressed his sales teams to bribe hospitals, doctors and health institutions" in order to gain billions of dollars in illegal revenue, Xinhua news agency said.

Reilly and two other GSK executives, Zhang Guowei and Zhao Hongyan, also allegedly bribed Chinese government officials in Beijing and Shanghai, Xinhua reported. Changsha police have handed the case over to prosecutors, it added. 

COMMENT: I strongly urge all global companies operating in one or more nations abroad to make themselves intimately familiar with the US Foreign Corrupt Practices Act (FCPA) and formally designate a person by name as  their FCPA compliance officer.

To determine how to avoid getting into trouble with the FCPA see: 

http://www.sgrlaw.com/resources/trust_the_leaders/leaders_issues/ttl15/836 

Moreover, I additionally urge all companies operating abroad, if they don't have an internal legal department, to outsource compliance responsibilities to a reputable law firm that has been thoroughly vetted from a standpoint of any prevailing conflicts of interest.

In June 2013, authorities detained four Chinese GSK executives on allegations that employees used nearly $500 million in bribes to boost sales.

Reilly, a British national, had left China days after the detentions and investigation were announced.

Within weeks, though, Reilly returned to China in order to "help further with the investigation," GSK said, although he was barred from leaving China.

Police said that company staff had offered bribes to officials and doctors, with physicians allegedly earning a 7-10% cut from sales of GSK drugs they prescribed, Xinhua reported.

GSK staff were also suspected of taking kickbacks from travel agencies to organize conferences, some of which were fake.

Reilly and other GSK executives "tried every effort to cover the illegal sale practice during regular checks by regulatory authorities," Changsha police said.

China's healthcare sector is widely considered to be riddled with graft, given the opaque tendering system for drug reps' and physicians' low salaries. 

The inquiry was launched at a time when China initiated sweeping probes into alleged malpractice by foreign firms in various sectors, and against the backdrop of an anti-graft campaign backed by President Xi Jinping to root out official corruption.

A total of 46 suspects are involved in the case, Xinhua said, and dozens of GSK's local employees have been arrested.

Also being held are foreign fraud investigator Peter Humphrey and his wife, Yu Yingzeng, who were detained in Shanghai last summer on charges of illegally obtaining personal information.
Humphrey is the British founder of Shanghai-based risk advisory firm ChinaWhys, while Yu, an American citizen, worked as its general manager.
ChinaWhys did work for GSK, although the connection went unmentioned by state broadcaster China Central Television (CCTV) last summer when it paraded the duo after their arrest and aired a televised "confession" by Humphrey.