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The GSK Pharmaceutical Scandal in China
Posted on Oct 02, 2013 by Ailee Slater (G+)
President of China Xi Jinping has made multiple promises to stop corruption in his country. Before coming into power, the leader vowed to crack down on leaders who broke the law, and since taking office, Jinping has continued that anti-corruption rhetoric. Although skeptics say that Jinping is all talk and no action when it comes to changing China’s complicated connections with fraud, there is at least one area in which China is taking anti-corruption action – bribery of doctors by prescription drug companies.
A common problem in Chinese health care is that doctors are overworked and underpaid, while hospitals struggle for many reasons to make ends meet. Between economic constraints and complicated governance of the health care system, medical professionals will often be tempted to take bribes of all sorts – it’s common practice for doctors to accept red envelopes filled with money from patients looking to improve or expedite their medical care. When larger corporations get involved, doctors may be offered bribes to prescribe a certain brand of medication to patients, and hospitals might be given a similar financial incentive to work with the pharmaceutical company.
However, that sort of medical bribery is illegal – it’s illegal by Chinese law, and it’s also illegal in the United States and the United Kingdom, where most of the international drug companies operating in China are based. This summer, Chinese authorities have been performing a large scale investigation of the pharmaceutical company GSK (GlaxoSmithKline), to figure out whether or not the Chinese branch of the company broke laws multiple times by offering bribes to hospitals, doctors and other health care authorities.
A multinational health company, GSK has its headquarters in Britain; as the fourth largest pharmaceutical operation in the world, the business works with medical research and development, and promotes its health care products around the globe. The first GSK research facility opened in China in 2007, in Shanghai.
GSK is under investigation in China for doling out around $400 million USD in bribes. According to Chinese authorities, GSK masked the bribes by funneling money through travel agencies; eventually, the funds ended up with doctors and hospitals who then agreed to work with GSK and boost the company’s pharmaceutical sales.
The bribery charges were levied against GSK in July, 2013, and since then inquiries have been ongoing. At GSK headquarters, management denies having any knowledge of bribes or other corrupt practices. Corporate officials at GSK have said that if wrongdoings did occur, they were the fault of local Chinese GSK employees and committed without the knowledge or approval of the head office in Britain. GSK officials have expressed their desire to learn if bribery did indeed occur, and who was responsible for it. Corporate officials at GSK have also promised to cooperate with Chinese investigators in whatever way they can.
But despite these assurances from GSK heads, investigators and former Chinese GSK employees have indicated that the company should not be free from blame. The Ministry of Public Security in China has mentioned that one GSK manager in China, a woman named Huang Hong, told them that any corruption that may have occurred was encouraged by Mark Reilly, the former leader of GSK China. Hong apparently stated that Reilly’s growth targets were too high – set at a rate of 25 percent. With such lofty goals, some think that Reilly must have known employees would resort to illegal action in order to meet them. Hong and others have indicated that GSK executives are at fault, for making growth targets too difficult and then shifting the blame to lower-level employees when the corruption was made public. Adding to accusations against the GSK corporate office is the fact that Reilly left China just as the bribery allegations were coming to light, however GSK has said that Reilly’s departure was part of a pre-planned business trip, and that he is now remaining in the UK in order to help work out if or how corruption did indeed occur.
Of course, GSK is not the only pharmaceutical company operating in China that has recently come under governmental scrutiny. Chinese anti-corruption services have also targeted the drug groups Eli Lilly, Novartis and more, accusing these firms of using bribes to bring in business. Some commentators, such as Forbes’s Benjamin Shobert, have opined that China’s relative eagerness to prosecute foreign firms (compared to the hesitancy to address bribery between Chinese companies) may lead to a fall in foreign investment in the future. If firms from abroad see that foreign entities are subject to harsher scrutiny – while local companies are allowed to operate outside the legal system – Western groups such as GSK may be less likely to seek business in China.
At the moment, no official charges have been leveraged against GSK. However, on September 6, the United States Department of Justice announced that it would be investigating the bribery charges. Because GSK trades on the U.S. stock market, potential wrongdoing abroad could violate the U.S. Foreign Corrupt Practices Act, which prohibits businesses from engaging in bribery abroad. If the Department of Justice finds GSK guilty, the drug firm may be subpoenaed and eventually forced to pay fines and answer to law enforcement in the United States and the United Kingdom.