July 16, 2014 10:00 pm
GSK admits to 2001 China bribery scandal
GlaxoSmithKline faces further scrutiny from US prosecutors after it emerged that staff were caught bribing Chinese officials more than a decade ago.
The revelation comes as US and UK authorities investigate allegations that GSK employees bribed doctors and officials more recently to boost drug sales in China.
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The Financial Times has learnt that GSK also found problems with its China vaccine business in 2001 that led to the firing of about 30 employees.
The US Department of Justice, which is investigating the current allegations, will take a close look at the earlier scandal, said a former senior DoJ official who asked to remain anonymous. If it found a pattern of such behaviour, the justice department was likely to take a tougher stance towards the company, legal experts said.
Two people familiar with the 2001 scandal said GSK found that staff were bribing Chinese officials and taking kickbacks. The company acknowledged the matter for the first time to the Financial Times, but said it had dealt with the issue rigorously.
Timothy Blakely, a partner at the US law firm Morrison & Foerster, said US prosecutors would have to examine the 2001 case under justice department guidelines to see whether there was a pattern of behaviour.
“It is something that a prosecutor would have to take into account,” said Mr Blakely.
GSK asked PwC to investigate the case when the corruption suspicions emerged. “These matters occurred over 12 years ago. We believe appropriate investigation and action was taken at the time,” it said.
One member of the PwC team in 2001 was Peter Humphrey. Now an independent investigator, he is being held in China on charges of illegally buying private information in connection with GSK’s current scandal.
The rapid move to hire PwC in 2001 contrasts with the response to the current scandal. After a whistleblower made allegations against the company last year, GSK first relied on an internal probe with external legal and auditor support. That inquiry found no evidence of systemic corruption, although some staff were dismissed for expenses irregularities.
GSK has since hired Ropes & Gray, a US law firm, to conduct an external inquiry. In May, Chinese police said they had evidence of “massive and systemic bribery”.
“We have zero tolerance for unethical behaviour,” GSK said. “We investigate any allegations put to us and take action where necessary.”
The earlier scandal came the year after GSK was formed via a merger of Glaxo Wellcome and SmithKlineBeecham. In late 2001, Paul Carter, GSK’s new China head, asked PwC to investigate after suspicions of corruption emerged, including the fact that two staff had been detained in China without him being told.
PwC confirmed the suspicions, and Mr Carter fired the Chinese head of vaccine sales in China. Mr Carter left GSK in 2005 long before the current problems emerged. He declined to comment.
Chris Baron, the general manager for the vaccines unit in 2001, denied knowledge of the bribery at the time. He was suspended and, soon after, left the company.
Mr Baron said PwC concluded he had “no personal involvement or knowledge” related to the bribery. But he said “there was some debate as to whether I may have been insufficiently diligent to spot the matter earlier”.
At the time of the 2001 incident, Sir Andrew Witty, GSK chief executive, was the company’s head of Asia-Pacific, but his responsibilities excluded China. GSK said Sir Andrew “was not involved in and was not aware of” the case at the time.
Sir Andrew has tried to cast GSK as a leader in ethical reforms since it was hit with a record $3bn DoJ fine for marketing abuses in 2012. But his clean-up effort, including measures to cut the link between sales volume and pay for marketing personnel, has been overshadowed by the latest scandal in China.