GSK China hit with record fine, apologizes

Source:Xinhua Published: 2014-9-19 18:25:57

The China branch of British drug maker GlaxoSmithKline (GSK) has been fined 3 billion yuan (489 million US dollars) for paying bribes, a verdict the firm "fully accepts" in a contrite statement.

In Friday's closed-door trial, Changsha Intermediate People's Court in central China's Hunan Province ruled the firm guilty of "bribing non-government personnel" and imposed the fine, the biggest ever by a Chinese court. Five individuals with the firm were sentenced to between two and four years in prison with reprieves.

GSK China, known in the court statement as GSKCI, "resorted to bribery to boost sales of its medical products and sought benefits in an unfair manner," the court statement read.

"[The firm] bribed, in various forms, people working in medical institutions across the country, and the amount of money involved was huge. Five senior executives actively organized, pushed forward and implemented sales with bribery," it said.

Among the five, Mark Reilly, a British national and former manager of GSK China, has been given three years with a four-year reprieve and will be expelled from China.

Another three, namely former human resources director Zhang Guowei, former vice president and operations manager Liang Hong and former legal affairs director Zhao Hongyan, were given two to three years with reprieves ranging from two to three years. Former business development manager Huang Hong received three years in prison with a four-year reprieve for both giving and receiving bribes.

According to the court, sentences of the five were reduced since they confessed the facts fully and were considered to have given themselves up.

The verdicts were read in the presence of relatives of the defendants, people from various walks of life and some reporters. The defendants have chosen not to appeal.

Company apology

Following the verdict, the company posted an apology on its Chinese website, saying that it "fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities."

GSK "sincerely apologizes to Chinese patients, doctors and hospitals, and to the Chinese Government and the Chinese people" and "deeply regrets the damage caused."

It also apologized for harm caused by its illegal private investigation.

The apology described the events as a clear breach of GSK's governance and "wholly contrary to the values and standards we expect from our employees."

The company will continue to invest in China and support research. It will continue to develop new medicines in China and increase access to its products in rural areas "through greater expansion of production and through price flexibility."

Fair trial

As a matter of procedure, the court statement noted that the British Embassy in China was kept informed of the investigation throughout, and that both prosecutors and the court provided British national Reilly with translators during the entire process to ensure that he thoroughly and accurately understood his legal rights and interests. Reilly appointed two Chinese lawyers to represent him during the trial.

The people's procuratorate in Changsha first tabled the case to the court on Sept. 4 and the court approved GSKCI's wish to have the case heard behind closed doors on the grounds of business confidentiality.

The court found that from 2009, Reilly, then head of GSK China, advocated a "sales-led" philosophy in the company, which bred a thirst for sales expansion in an ambience of ignorance with regard to Chinese laws and regulations. The company employed a large number of salespersons, restructured its departments and allowed its employees to bribe hospital staff.

Departments of human resources, finance, compliance, and IT support were encouraged to support the policy and the company's legal affairs department helped cover up the activities.

Marketing personnel of the company bribed medical staff by inviting them to meetings sponsored by the company both in China and abroad and making payments to them in the name of traveling expenses or lecture fees. Bribes also included free trips.

The bribes were accounted for as "conference fees", "reception fees" or "promotion fees".

GSK revenue in China increased from about 3.9 billion yuan in 2009 to 6.98 billion yuan in 2012.

"The investigation was an unprecedented, arduous and complicated battle for us," said Chen Yaosong, a police investigator in Changsha. Investigators have travelled to more than 10 provincial-level regions across China and collected more than 100,000 pieces of evidence.

Procuratorial agencies sent prosecutors with the investigation team to ensure the probe was carried out in accordance with law.

In June and August, prosecutors rejected the case twice on the basis of insufficient evidence, according to prosecutor Li Fenglei.

Prosecutors provided all the evidence in digital form to the defendants' lawyers and other judicial documents were provided with English translations, Li said. Translation was also available for Reilly throughout the trial.

Rule of law

"The verdict is a warning," said Lu Yiwen, a Changsha citizen. "It will help remove the underhand practices that plague China's medical sector."

"The sentence is by no means a signal of a worsening investment environment in China," said Chen Jing, a local legislator in Changsha.
"It indicates that China will be more vigorous in fighting corruption and improve market conditions."

"The investment environment must be protected by the rule of law, and rule of law is a guarantee of the market economy," said Wang Feiyue, a law professor at Changsha's Central South University.

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