GlaxoSmithKline (GSK) has been fined $488.8 million after an investigation into a massive bribery network in China. The bribery network was an effort to get doctors and hospitals in China to use its products. Five former GSK employees were also sentenced to between two and four years in jail, though Chinese officials ordered the former employees deported instead of imprisoned, according ABC News, which confirmed that the fine was the steepest ever imposed by a Chinese court.
The Chinese authorities first announced the bribery network investigation on GSK in July 2013. Mark Reilly, former head of GSK Chinese operations, was found guilty of operating a “massive bribery network” in May 2014. Chinese police said they believed the GSK head of operations in China authorized his salespeople to bribe medical professionals since 2009. GSK funneled up to 3 billion Yuan into travel agencies, which acted as third party facilitators to bribe doctors and officials, according to ABC News. The amount of money GSK was accused of using in bribery funds was the exact dollar equivalent that the Chinese government fined GSK. The investigation began after a stream of anonymous emails in 2012 that alleged briberies authorized by GSK senior staff were sent to Chinese regulators, according ABC News.
Activities that are often viewed as bribery have been historically acceptable and expected in China, according to the Canadian Trade Commissioner Service, which also explains and warns Canadian business people about possible issues that can arise over the traditional practice of guanxi (关系), which is the historically revered practice in China of building relationships. The practice, according to the trade commissioner service, often included what could be considered bribery.
“Upon arriving in China, through networking and the hiring of local staff, you learn that the industry in which your company is involved is de facto controlled by a high ranking government official in China. You are encouraged to entertain and build a good ‘guanxi’ with this official in order to ‘ease’ your entry the Chinese industry. You are urged to take him and his associates out to lavish dinners and to present them with expensive gifts or money at appropriate Chinese holidays,” the Canadian Trade Commissioner Service explained.
Claims that activities that might be considered bribery have been historically expected in business exchanges in China were reinforced and explained in detail in an article in Corporate Secretary.
“It is well known that in China, business generally gets done at the dinner table and the lavishness of these dinners is considered a mark of your respect for the client. What is less commonly known is that Chinese businessmen love a good drink just as much as their UK counterparts. One client tells us her stories of nightly drinking sessions with her clients, involving the purchase of high-priced beers, wines and liquors – the more expensive the beverage, the more respect and ‘face’ for the client.”
When Chinese President Xi Jinping stepped in, corruption and bribery practices were a dominant issue. The president said that it poses a threat to Communist Party rule. Xi actually took on Bo Xilai, who, according to Bloomberg, is “serving a life sentence in prison for bribery and abuse of power.” The new leadership actively enforced anti-bribery regulations against companies. For example, GSK competitor Pfizer Inc. paid $60.2 million after investigations claimed the drug manufacturer also bribed healthcare professionals in China.
Daniel Chow explained in the Ohio State Law Journal how the historic practice has been tolerated, even after anti-bribery reforms set in.
“While China publicly denounces official corruption—that is, corruption that involves the Communist Party (Communist Party or Party) and government officials—petty corruption in a commercial setting involving private persons has been widespread and has been tolerated in the past by many PRC enforcement officials so long as it is kept discreet and private.”
In addition to historically expected bribery practices in business, according to ABC News, bribery is considered such an act of respect that it is common for patients in China to give doctors “red envelopes with cash as a blunt plea for them to do a good job on surgeries.”
“GSK Plc has reflected deeply and learned from its mistakes, has taken steps to comprehensively rectify the issues identified at the operations of GSKCI, and must work hard to regain the trust of the Chinese people,” a statement fromGlaxoSmithKline explained, despite GSK officials’ presumed awareness that the practice of bribery was, for a long time, an expected business practice that could indicate a show of respect towards potential clients.
[Photo adapted from images via WLU and BCCJ Acumen]