Drug manufacturer GlaxoSmithKline (GSK) faces allegations of funneling $489 million (3 billion yuan) through travel agencies to pay kickbacks to doctors, hospitals, and government officials to prescribe GSK drugs to patients.
Sales in China, the world’s hottest pharmaceutical market,
increased by 20 percent in 2012 to $1.5 billion, a miracle growth
story now under police investigation. Though one of the hottest
markets, it is also one of the most competitive, which
investigators see as a motive for the bribes dating back to 2007.
Chinese newspapers reported GSK had a network of travel agencies
working for them which acted as middlemen to carry out the
bribery.
"Each doctor had a credit card from the company. The kickbacks
were transferred to the cards the day after the drugs were
prescribed," one newspaper reported.
Laundering money through over 700 third parties enabled employees
to overstep the company’s gift giving limit of $50 per recipient,
Xinhua reported. Scores of doctors, hospitals, lawyers, and
government officials were showered with perks which included
travel, cash bribes, and even sexual favors, the Public Security
Ministry said.
Better than the rest
In 2012, the Britain-based company’s stock outperformed all its
competitors, almost 2 to 1. The stock rose 31 percent this year,
compared with an industry average of 17 percent, Bloomberg
reports.
The alleged bribes could help explain the super success of the
company, which has experienced a five year dividend growth of
6.79 percent.
“GSK’s marketing strategy includes many things that allow and
even encourage bribery activities,” Gao Feng, head of
economic crimes investigations at the Public Security Ministry,
told reporters yesterday in Beijing.
“Expenses for bribery are ultimately being covered by the
public,” Feng added, confirming a popular suspicion
corruption is linked to over-priced prescription medicine
and vaccines.
State news agencies report the transactions totaled nearly $5
billion, while other media outlets report only a fraction of the
amount.
Executives detained
Four Chinese executives have been detained and accused of bribe
collaboration. Those detained were identified by Xinhua News
Agency as Liang Hong, vice-president and operations manager;
Zhang Guowei, vice-president and human resources head; Zhao
Hongyan, legal affairs director; and Huang Hong, business
development manager. The news agency cited police as their
source.
The news agency broadcasted an interview with Mr. Liang, in which
he said he had authorization to approve an annual budget of
hundreds of millions of yuan.
The lead investigator on the case said GSK’s head of Chinese
operations, British national Mark Reilly, left the country on 27
June.
The investigation has been on-going for 6 months, and last week
state media reported Chinese police were investigating 60 foreign
and domestic drug companies to examine production costs vs. drugs
that are widely believed to be overpriced.
'Shameful'
In a statement GSK said it would fully comply with
the police investigations and that they ‘fully respect the laws
and regulations in China’ and they had stopped using agencies
identified by the police.
A promise was made in the statement to ‘put an immediate stop’ to
activities the company considers ‘shameful’ and a ‘breach’ of the
company’s values and standards.
Investigators interrogated the corporate representative of the
Shanghai Linjiang International Travel Agency, which admitted
their agency’s profit was directly connected to the GSK bribery
scheme in return for enticing kickbacks.
GSK is headquartered in Britain, but because of its sales
presence in the United States, could be liable to penalties under
US anti-bribery laws.
The company pleaded guilty and paid $3 billion to settle a US
criminal and civil allegation a year ago for illegal promotion of
prescription drugs and failure to report safety data.
Pfizer Inc., the world’s largest pharmaceutical company, settled
a foreign bribery case for $60.3 million.