GlaxoSmithKline is being fined for $490 million by a Chinese court for allegations of bribing hospitals and doctors.
The record penalty reveals how GSK bribed doctors and hospitals to promote the company’s products.
Mark Reilly, GSK’s former head of Chinese operations, received a three-year suspended prison sentence and will deported from the country.
A number of other GSK executives have also received suspended prison sentences. This allows the defendants to avoid going to jail under the condition that they they stay out of trouble, according to the Xinhua news agency.
Xinhua said the verdict was given after a lengthy one day trial at a court in Changsha.
The GSK investigation was first announced by Chinese authorities last July. It has emerged as one of the biggest corruption scandals to target a foreign firm in years.
According to GSK, is has “published a statement of apology to the Chinese government and its people”.
Sir Andrew Witty, chief executive of GSK, said:
“Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK.”
“We will also continue to invest directly in the country to support the government’s health care reform agenda and long-term plans for economic growth.”
Analysts have said that the case will take the company time to recover its Chinese commercial operations.
There is growing sentiment that Chinese officials are cracking down on foreign business as a means of discriminating against foreign firms and helping Chinese companies succeed.
However Xinshu said that the GSK case has opened peoples eyes that “an open China is not a lawless one.”
David Zweig, the director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology, said:
“It’s very hard to do business in the Chinese health care and pharmaceutical sectors without doing payoffs. Everyone else pays bribes. Glaxo just got caught.”
The court wrote that Glaxo “offered money or property to non-government personnel in order to obtain improper commercial gains, and has been found guilty of bribing non-government personnel.”
The London-based company says the fine will be paid through existing cash resources. Related costs and charges will be included in its third quarter update, it added.
A message to all foreign firms
Many multinationals have been subject to increasing pressure in China, with more and more investigations being carried out on large foreign companies conducting illegal practices in the country.
GSK has said that it has learned its lessons. Particularly, that foreign firms need to be aware eye of the fast changing political and regulatory weather in China if they are to prosper, or even survive, in what is now known as a promising yet perilous market.
Bad year for GSK
GSK is being investigated for corruption in several countries.
Since then, the company has been the target of several probes and fines across the world.
- Sex tapes: in June 2014, GSK confirmed it received sex tapes of Mark Reilly, former head of GSK China, with his Chinese girlfriend at his apartment in Shanghai. Secretly-filmed video had been emailed to several GSK executives, including the CEO. Mr. Reilly had been accused of instructing his sales people to bribe hospital officials and doctors.
- UK fraud probe: in May 2014, the Serious Fraud Office (SFO) announced that it had started an investigation into GSK’s commercial practices. The SFO invited people to contact it through its secure and confidential reporting channel.
- Settles with US court: GSK reached a $105 million settlement in June 2014 with the San Diego County Superior Court for allegedly misrepresenting its asthma drug Advair and anti-depressants Paxil and Wellbutrin.
- Jordan & Lebanon bribery claims: in April 2014, GSK said the activities of a small number of its employees were being investigated in Jordan and Lebanon.
This year, investigations are also underway in Poland and Iraq.
