News that the British former head of GSK in China is suspected of encouraging employees to offer incentives to clients in return for business has set the cogs whirring globally in terms of the implications for non-Chinese businesses and financial institutions.
Corruption harms the masses by placing personal or corporate interests ahead of the public good. In some countries this means that vital road networks take years to complete instead of months, that communities are uprooted and left homeless and sometimes stateless in favour of profiteering. When it comes to pharmaceuticals, it means that people suffer and die because they are not getting the right medicine. This report from NPR explains how corruption in the Ukraine has prevented HIV patients from receiving the correct drugs.
The GSK case
Mark Reilly, GSK China executive charged with corruption
Mark Reilly stepped down as the Senior Vice President and General Manager of GSK China/HK Pharmaceuticals and Vaccines in July 2013 when news of the corruption probe first emerged . He joined the firm in 1989, holding ‘commercial and financial positions of increasing responsibility’, through a finance director’s role to end up at top management level, according to his LinkedIn profile. Some sources report he has been arrested, others are unclear on his status.
The Independent mentions the following points:
Reilly is charged with ordering employees to form a “massive bribery network” that forced up drug prices and created more than $150 million (£89 million) of illegal sales, according to police.
Investigators claim that secret payments were made to doctors, hospital staff and government officials.
Two Chinese executives, Zhang Guowei and Zhao Hongyan, were also accused of bribing officials in the industry and commerce departments of Beijing and Shanghai, the official Xinhua news agency reported, quoting police in Hunan province.
British Prime Minister, David Cameron, lobbied on behalf of GSK during a visit to China in 2013. GSK is co-operating with the authorities in China, the pharma giant reported in a press release.
Chinese law is notoriously riddled with loopholes. Laws are often drafted broadly to allow the court and prosecutors to interpret them on a case by case basis. In 2011, the People’s Republic of China’s (PRC) Criminal Law reportedly amended to prohibit bribes made to foreign officials and to officials of international public organisations. Furthermore, in 2013 the PRC introduced a few thresholds and sentencing guidelines for courts. Bribery committed by an individual will be prosecuted if the bribe is worth more than CNY10,000 (USD1,603) and more than CNY200,000 (USD32,000) if committed by a unit of a company. As an aside, USD1600 is reportedly the salary paid to the Chinese Premier Xi Jingping and to high ranking state officials. A UK law firm has produced this useful guide for financial institutions on how to prepare for requests for information and dawn raids connected to corruption probes in China.
GSK is British company and Reilly is a British citizen and under the UK Bribery Act, both could be investigated. In July 2013, GSK’s lawyers briefed the UK Serious Fraud Office on the case.
US companies and US citizens are subject to the FCPA; the act’s extra-territorial provisions. Doctors at government-owned or managed hospitals are also considered to be foreign officials under the FCPA. THe US Department of Justice reportedly began looking into whether it could prosecute GSK under the FCPA back in 2013.
Still, for every dark cloud there are silver linings. The GSK case has reportedly spurred compliance spending by around 40 per cent in China.
convictions.
Financial Crime Asia 