The Glaxo-China Bribery Scandal: A New Policeman Walks The Beat

When it comes to allegations of foreign bribery, what a difference a week can make. Just over ten days ago, a new player in the world of international bribery – the Chinese Ministry of Public Security – announced that it was investigating senior executives in the Chinese division of British pharmaceutical company GlaxoSmithKline for allegedly offering bribes to officials and doctors in order to boost company sales. GSK responded at the time with the respect and deference that one would anticipate, stating that it takes “all allegations of bribery and corruption seriously” and that it would fully cooperate with the Chinese authorities. Regarding the merits of the allegations, however, GSK stated that the company had already conducted an investigation and “found no evidence of bribery or corruption of doctors or government officials.”

Now, in a story that continues to evolve rapidly, GSK appears to have acknowledged the misconduct that the Chinese authorities alleged. On Monday of this week, Abbas Hussain, the President of Emerging Markets for GSK, issued a statement indicating that “certain senior executives of GSK China who know our systems well appear to have acted outside of our processes and controls, which breaches Chinese law.” Mr. Hussain went on to say that GSK “share[s] the desire of the Chinese authorities to root out corruption where it exists,” and promised to work together with China’s Minister of Public Safety to “take all necessary actions required as this investigation proceeds.” In the meantime, the Chinese authorities reportedly have detained four China-based GSK executives, prohibited another executive from leaving the country, detained the founder of a company that worked with GSK, and questioned an AstraZeneca employee regarding that company’s relationship with a travel agency that may have been used as a means of funneling bribes.

To be sure, the Chinese authorities have not yet filed any formal charges, and the unfolding of events makes it difficult to offer definitive thoughts on the scope or significance of these recent events. Nonetheless, even at this early point, a few observations can be made.

First, it was not so long ago that the United States Department of Justice tightly held the reins of investigations relating to overseas bribery. In fact, in November 2009, then-Assistant U.S. Attorney General Lanny Breuer announced at a pharmaceutical conference that “one area of criminal enforcement that will be a focus for the Criminal Division in the months and years ahead [is] the application of the Foreign Corrupt Practices Act. . . to the pharmaceutical industry.” Following the 2010 enactment of the Bribery Act, the United Kingdom’s Serious Fraud Office (SFO) also began to spearhead investigations into bribery and corruption overseas. Yet what the recent events in China starkly confirm is that the criminal investigation of foreign bribery will not be limited to the Department of Justice, the SFO, or other agencies such as the Securities and Exchange Commission. Instead, based on the aggressive pursuit of the GSK matter by the Chinese authorities, overseas executives are forewarned that other sovereigns – including those in countries that lack a well-established tradition of civil liberties and due process – may be actively staking out their own territory in the fight against bribery and corruption.

A second immediate observation that arises from the recent bribery scandal in China relates to the treatment of those individuals who appear to be implicated. For example, news reports regarding the investigation have indicated that an American citizen has been questioned and detained in Shanghai. However, rather than overtly express concern or dismay, the United States embassy has somewhat tersely indicated that it is “in contact with the individual” and “providing all appropriate consular assistance.” Peter Humphrey, a British national who is an international business advisor and apparently performed work for GSK, has also been detained. And Steve Nechelput, a British citizen who is GSK’s vice president for finance in China, has reportedly been banned from traveling outside of China despite not having been arrested or detained.

For overseas executives in foreign countries with a tradition of corruption and bribery, there was already ample cause for concern that such issues might ensnare them in law enforcement investigations. But until now, there may perhaps have been some measure of comfort from the fact that such investigations traditionally arose out of the United States or the U.K., where the criminal process necessarily involves the filing of formal charges, bail hearings, and other hallmarks of due process. Overseas executives may even have held out hope that if troubles arose with overseas governments, their employers would bring them out of their foreign locales and back to their country of origin. Now, overseas executives accused of bribery need to take seriously the prospect of travel bans, summary arrest, and detention in foreign prisons. Likewise, upon learning of a law enforcement investigation overseas, corporations must carefully assess whether to run the risk of launching an internal inquiry or engaging in other measures that might cause employees to become aware of the governmental investigation. Indeed, given the potential risk of alienating foreign authorities or engaging in acts that could be construed as obstructing a foreign investigation, corporations may well find it advisable to stand down, leave foreign executives in place, and permit the foreign criminal process to run its natural course.

Finally, the burgeoning investigation into the conduct of pharmaceutical companies in China underscores the significant costs – both human and financial – that can arise when foreign employees allegedly engage in overseas bribery. Even before news of the Chinese investigation became public, GSK already had borne the expense of an internal investigation into allegations of foreign payments. More recently, as the Chinese investigation has intensified, GSK has devoted still greater resources towards dealing with the Chinese government’s allegations and the attention they have drawn. High-level GSK executives have been sent overseas, consultations and meetings have taken place with authorities in China and the U.K., press releases and public statements have been issued to address investor concerns, and intensive reviews of internal processes and controls are undoubtedly underway. Such expenses and burdens now also appear likely to go beyond just GSK, as reports suggests that several other pharmaceutical corporations have been drawn into the investigation.

Only time will tell what in fact occurred in China. Yet if these developing events show anything, it is that any benefits overseas executives may have sought from foreign payments can rapidly be lost in a maelstrom of recrimination, reputational damage, and – in this new era of growing international enforcement – the devastating hardship of incarceration overseas.

Topics:  Bribery, China, Compliance, DOJ, Foreign Official, Fraud, GlaxoSmithKline, Government Officials, Pharmaceutical, SFO, Travel, UK, White Collar Crimes

Published In: General Business Updates, Criminal Law Updates, Finance & Banking 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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