Nixon Announces Resignation; GSK Just Resigns

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Nixon Resignation SpeechOn this day, 40 years ago, President Richard Nixon announced that he would resign the Office of the President, effective the next day on August 9 at noon. I can still remember my father instructing us to watch the resignation speech on television because, as he put it, it was history in the making. Before a nationally televised address to the country, Nixon said, “By taking this action,” he said in a solemn address from the Oval Office, “I hope that I will have hastened the start of the process of healing which is so desperately needed in America.” His action was hastened along by the Articles of Impeachment voted by the House of Representatives relating to his involvement with the Watergate Affair. With his resignation, Nixon was finally bowing to pressure from the public and Congress to leave the White House.

Yet, even before this truly historic speech and spectacle the next day of Nixon helicoptering off the South Lawn of the White House, Nixon had transformed the America we all lived in. One area that resonates up to this day is his opening with China. If it had not been for Nixon and his Secretary of State Henry Kissinger’s efforts, we might have waited a long time for an opening with China. But Nixon went there and opened China up to do business with the US and indeed the rest of the western world.

Unfortunately one of the much later fallouts from this visit and opening of China has been the corruption investigation by Chinese authorizes against western companies but most publicly the British pharmaceutical giant, GlaxoSmithKline PLC (GSK). And, more unfortunately, the bad news for GSK continues to trickle out into the press.

Next week, Shanghai’s No. 1 Intermediate People’s Court is scheduled to open a trial against Peter William Humphrey, a 58-year-old British national, and his wife, Yu Yingzeng, a 61-year-old American, on charges of illegally purchasing personal information about Chinese nationals. While the trial had originally been planned to be closed to the public, last month Chinese officials announced that the trial would be ‘open’ although the degree of openness is not completely clear.

Not only will the trial be open but the couple’s son, Harvey Humphrey, was allowed to visit his parents in their detention center in Pudong, Shanghai, for the first time since their arrest. The visit came after some fierce lobbying by the US and UK consulates. As reported in the online publication FiercePharma, in an article entitled “GSK private eyes’ son allowed first visit to parents in China jail as trial nears”, their son said, “They didn’t quite believe I was coming. They were quite overwhelmed. My mum was shocked. My dad held himself together,” the younger Humphrey told the paper. “It’s a bit unusual for the Chinese to do this. I feel something has changed in the Chinese approach to my parents.” Son Harvey had written to the GSK’s Chief Executive Officer (CEO) Sir Andrew Witte last December to “take a few minutes to raise my father’s case” during a visit to the country, he told the Financial Times (FT), “I understand everything is complicated in China but it seems my parents are paying a big price”. But at this point there is no word on what if any involvement GSK might have in his parent’s defense.

It may be that GSK is way too busy right now worrying about all the other issues surrounding bribery and corruption. In an article in the Wall Street Journal (WSJ), entitled “FBI, SEC Start Glaxo Inquiries Over China”, Christopher M. Matthews and Hester Plumridge reported that in late July “Glaxo received an anonymous email claiming its employees in Syria bribed doctors and pharmacists over the past five years to promote products including painkiller Panadol and toothpaste Sensodyne. The bribes took the form of cash payments, speaking fees, trips, free dinners and free samples, said the email, which was reviewed by The Wall Street Journal. The email cited names and dates. Syrian health officials allegedly received bribes from Glaxo employees to fast-track registration of its Sensodyne dental products, including cash payments and a trip to a 2011 conference in Rome, the email maintains. Glaxo employees also were involved in smuggling a narcotic product from Syria into Iran, the email alleges. The product in question, pseudoephedrine, is a raw ingredient of Glaxo’s congestion medicine Actifed.”

GSK once again reiterated its previously announced position that it was firmly against the payments of bribes by its employees. In response to the allegations of bribes paid in Syria the WSJ article said, “Glaxo said it would thoroughly investigate all claims made in the Syria email, and said it has asked the sender for more information. The company said it has zero tolerance for unethical behavior, adding, “We welcome people speaking up if they have concerns about alleged misconduct.”” Too bad GSK didn’t seek more information about its Chinese operations when the company’s internal investigation came up with no evidence of bribery and corruption.

Much more problematic for GSK is the fact that both the SEC and DOJ have opened formal investigations into allegations of bribery and corruption by the company. The WSJ piece notes, “Federal Bureau of Investigation agents have been interviewing current and former GlaxoSmithKline employees in connection with bribery allegations in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into Glaxo’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”

As readers of this blog will recall from previous posts, in 2012 GSK pled guilty and paid $3 billion to resolve fraud allegations and failure to report safety. The press release noted that the resolution was the largest health care fraud settlement in US history and the largest payment ever by a drug company for legal violations. The criminal plea agreement also included certain non-monetary compliance commitments and certifications by GSK’s US president and Board of Directors, which specifically included an executed five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services, Office of Inspector General. The plea agreement and CIA included provisions which required that GSK implement and/or maintain major changes to the way it does business, including changing the way its sales force is compensated to remove compensation based on sales goals for territories, one of the driving forces behind much of the conduct at issue in the prior enforcement action. Under the CIA, GSK is required to change its executive compensation program to permit the company to recoup annual bonuses and long-term incentives from covered executives if they or their subordinates, engaged in significant misconduct. GSK may recoup monies from executives who are current employees and those who have left the company. Additionally, the CIA also required GSK to implement and maintain transparency in its research practices and publication policies and to follow specified policies in its contracts with various health care payors.

The importance of the CIA for this anti-corruption investigation is that it not only applied to the specific pharmaceutical regulations that GSK violated but all of the GSK compliance obligations, including the Foreign Corrupt Practices Act (FCPA). In addition to requiring a full and complete compliance program, the CIA specified that the company would have a Compliance Committee, to include the Compliance Officer and other members of senior management necessary to meet the requirements of the CIA; the Compliance Committee’s job was to oversee full implementation of the CIA and all compliance functions at the company. These additional functions required a Deputy Compliance Officer for each commercial business unit, Integrity Champions within each business unit and management accountability and certifications from each business unit. Training of GSK employees was specified as a key component. Further, the CIA specifically state that all compliance obligations applied to “contractors, subcontractors, agents and other persons (including, but not limited to, third party vendors)”.

GSK is now under investigation, either internally or by anti-corruption regulators across the globe in at least four countries. Unlike other companies that have found systemic issues of bribery and corruption or systemic failures in internal controls, the allegations of bribery and corruption are not 10-15 years old. So today we commemorate Nixon’s resignation; and for GSK it may simply mean just resignation.

Topics:  Bribery, Chief Compliance Officers, China, Compliance, DOJ, FCPA, GlaxoSmithKline, SEC, White Collar Crimes

Published In: General Business Updates, Criminal Law Updates, International Trade Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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