GSK likely to avoid company-wide bribery charge in China
Chinese executives at GlaxoSmithKline set to face charges over bribery allegations – but company itself and British staff to avoid chargesPhoto: Reuters
12:07PM GMT 04 Nov 2013
GlaxoSmithKline, the British drug company at the heart of a bribery investigation in China, is likely to avoid a company-wide charge for allegedly funnelling up to £300m in kickbacks to doctors and government officials.
Instead, police are likely to charge some of its Chinese executives, according to reports citing legal and industry sources. Such an outcome would see Chinese police drop claims made in September that corruption was co-ordinated at a company level.
In avoiding a corporate charge, GSK is far less likely to face investigations under the US and UK’s tough bribery laws, which could have resulted in major fines and even disruption to its operations in China.
Police are also unlikely to lay criminal charges against Briton Mark Reilly, GSK’s former head of China operations, it is understood.
Mr Reilly is understood to be under a travel ban in China after voluntarily returning to assist authorities investigating the bribery claims, which allegedly date back to 2007.
The accusations are the most serious made against a multinational in China in years. GSK’s sales in China, one of its most important emerging markets, dived 61pc in the third quarter after hospital staff shunned visits by its sales teams in the wake of the probe.
The investigation has coincided with stepped-up Chinese scrutiny of how foreign firms do business in the world’s second biggest economy, with the spotlight especially on graft and pricing in the pharmaceutical and infant milk formula markets.
The police investigation into GSK is likely to be concluded around the end of November or in December, said a person with direct knowledge of the probe.
The sources noted it was difficult to predict what Chinese authorities would ultimately do.
But the most likely legal scenario was that they would charge Chinese GSK executives, said the person with direct knowledge of the investigation and two other sources familiar with the matter. The sources declined to be identified because of the sensitivity of the case.
Indeed, the Ministry of Public Security had tried to find evidence tying GSK as a legal entity to the alleged wrongdoing, but it was unlikely authorities would be able to prove its involvement at a corporate level, said the person with direct knowledge of the investigation.
“There will likely be big fines, but it’s unlikely GSK will be thrown out of the country,” the person said.
The Ministry of Public Security, which is spearheading the investigation, did not respond to requests for comment.
GSK has said some of its senior Chinese executives appear to have broken the law. It has also said it has zero tolerance for bribery, calling the allegations in China “shameful”.
“The investigation is ongoing and we are fully cooperating with the authorities. The investigation is subject to Chinese law and GSK respects this. As such, we are unable to comment further at this stage,” said a spokesman for GSK.
Lawyers said it would be extremely rare for the Chinese government to pursue a criminal case against a foreign company, but if one was charged, the result would likely be significant fines and disruption to its operations in China.
The State Administration of Industry and Commerce (SAIC) issues all firms in China a business license, which under extreme circumstances can be revoked.
“It would be unprecedented frankly. I don’t know any previous case in which the Chinese government has laid criminal charges against a foreign company,” said Daniel Chow, professor of law at Ohio State University.
Four executives from mining giant Rio Tinto were jailed in March 2010 for taking bribes and stealing commercial secrets in the most serious previous case against a multinational firm. The company was never charged.
Individuals found guilty of serious bribery can face 10 years to life in prison, according to China’s criminal code. A voluntarily confession can result in a sentence reduction.
If allegations of bribery are not found to be criminal but administrative in nature, authorities can fine individuals up to Rmb200,000.
Under Chinese law, action may be also be taken against managers with responsibility over a region or sector, although lawyers said this would also be unusual.
“For senior management to be charged you have to prove that this person has awareness or knowledge of the criminal act, or at least should have known but did not exercise his duty of care,” said the second source, a China-based lawyer with knowledge of the investigation.
“I’m not sure the government has the evidence supporting these allegations.”
Lawyers said any fines levied against GSK would depend on the severity of the charges against its executives.