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GSK's Former Chief Receives Prison Sentence China Fines GlaxoSmithKline Nearly $500 Million in Bribery Case
(about 1 hour later)
HONG KONG — In a record penalty, a court in southern China on Friday imposed a fine of nearly $500 million on GlaxoSmithKline, the British pharmaceutical giant, the Xinhua news agency reported. The court sentenced Glaxo’s former head of China operations up to 3 years in prison, and said he would be deported, the report said. HONG KONG — China, a country that has enticed most of the world’s big multinationals to invest billions of dollars over the past decade with the prospect of selling to 1.4 billion increasingly affluent people, sent its strongest signal yet on Friday of a tougher legal climate for companies. A southern Chinese court imposed a fine of nearly $500 million on the giant British pharmaceutical company GlaxoSmithKline for bribery.
The penalty was for bribery in a case that has exposed widespread corruption in China’s medical sector. After a trial held in secrecy, the court, the Changsha People’s Intermediate Court, also sentenced Glaxo’s British former country manager, Mark Reilly, and other defendants to prison for as much as three years, according to Xinhua, the official news agency.
The fine of 3 billion renminbi, or $487 million, was imposed on the company by a court in Changsha, the capital of Hunan Province, after a secret trial against GlaxoSmithKline’s China unit and its former head, Mark Reilly, on the bribery charges, said Xinhua, the state-run news agency. “This is the biggest fine ever issued in China up until now,” said the brief Xinhua report. The scale of the fine dwarfs previous financial penalties on companies doing business in China. It comes at a time when numerous automakers, technology companies and other multinationals are also under investigation by the Chinese authorities, mostly on antitrust charges, and are nervously watching for what penalties might be imposed on them.
Mr. Reilly and four other defendants, apparently Chinese nationals, all received prison sentences of up to 3 years, said the report. The Xinhua report said that Mr. Reilly and the others had pleaded guilty and would not appeal the verdicts. Glaxo’s case was unusual in that it involved accusations of criminal bribery by the company to persuade hospitals and doctors to administer or sell Glaxo pharmaceuticals to their patients. The company issued a contrite statement, saying that it accepted the court’s verdict.
The court said that in deciding how to punish Mr. Reilly, it had taken into account that he had returned from Britain to face the investigators, and that he had “truthfully recounted the crimes of his employer,” meriting a relatively lenient punishment, said the Xinhua report. The other defendants also confessed and also earned relatively light sentences, said the report. “GSK P.L.C. sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese Government and the Chinese people,” the company said.
The Xinhua report said that Mr. Reilly’s sentence would be suspended for four years, and that he would be deported. But the vague wording left unclear whether deportation wuld be immediate. The case underlined the dangers for multinationals as they have continued to do business in a country where corruption is widespread and where the legal and regulatory system has shown a much greater willingness this year to prosecute foreign companies, and sometimes their executives as well.
Glaxo published a statement on its website that it “sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people.” “It’s very hard to do business in the Chinese health care and pharmaceutical sectors without doing payoffs,” said David Zweig, the director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology. “Everyone else pays bribes. Glaxo just got caught.”
The British Embassy in Beijing said that an appeal remained possible, but that it would have no comment on the outcome of the trial. “We note the verdict in this case,” an embassy spokesman said. “We have continually called for a just conclusion in the case in accordance with Chinese law. It would be wrong to comment while the case remains open to appeal.” Beijing officials have gone out of their way in the past two weeks to deny complaints by foreign business groups and governments that their continuing legal crackdown represents an effort to discriminate against multinationals and help Chinese companies compete with them, at a time when economic nationalism is rising in China. But the scale of the fine against Glaxo was far greater than fines known to have been leveled against Chinese companies for bribery.
The spokesman said the embassy had no information on the possible deportation of Mr. Reilly. Two antitrust lawyers involved in cases in China said in separate interviews that Chinese officials have rushed cases along, sometimes in a few weeks, with little chance for multinationals to present their side of the issues. In some antimonopoly cases this summer, multinational executives have not even been allowed to bring their lawyers to meetings with regulators, said the lawyers, both of whom insisted on anonymity because they were representing clients in litigation.
In many of these cases, regulators have demanded that multinationals sharply reduce prices for patented products; Glaxo and a growing list of automakers have already done so. Bringing prices down closer to manufacturing costs makes many goods more affordable for Chinese consumers, but puts pressure on multinationals to cover their research and development costs through higher prices in other markets.
Chinese police had accused Mr. Reilly or orchestrating a “massive bribery network” that brought the company higher drug prices and illegal revenue of more than $150 million, investigators said in May. Mr. Reilly, a Briton, and two Chinese-born executives, Zhang Guowei and Zhao Hongyan, had even bribed government officials in Beijing and Shanghai, they said.Chinese police had accused Mr. Reilly or orchestrating a “massive bribery network” that brought the company higher drug prices and illegal revenue of more than $150 million, investigators said in May. Mr. Reilly, a Briton, and two Chinese-born executives, Zhang Guowei and Zhao Hongyan, had even bribed government officials in Beijing and Shanghai, they said.
The Chinese authorities have also alleged that people working for the drug maker bribed doctors and hospital staff, and channeled illicit kickbacks through travel agencies, pharmaceutical industry associations and other channels. The Chinese authorities have also alleged that people working for the drug maker bribed doctors and hospital staff members and channeled illicit kickbacks through travel agencies, pharmaceutical industry associations and other channels.
The initial Xinhua report on the Glaxo court case was vague, but suggested that Mr. Reilly’s sentence had been suspended for four years and that he might be deported, perhaps immediately.
The British Embassy in Beijing said that while an appeal remained possible it would have no comment on the outcome of the trial.
“We note the verdict in this case,” an embassy spokesman said. “We have continually called for a just conclusion in the case in accordance with Chinese law. It would be wrong to comment while the case remains open to appeal.”
A spokesman said the embassy had no information on the possible deportation of Mr. Reilly.
The names of the other four defendants were Zhang Guowei, Liang Hong, Huang Hong and Zhao Hongyan.
The Xinhua report said of the verdicts and the fine: “This means that a final full stop has been put on this case of commercial bribery by the GlaxoSmithKline China investment company that drew intense social interest.”
The report said that Glaxo was the first multinational in the Global Top 500 to be put on criminal trial in China.
The court said that in deciding how to punish Mr. Reilly, it had taken into account that he had returned from Britain to face the investigators, and that he had “truthfully recounted the crimes of his employer,” meriting a relatively lenient punishment, the Xinhua report said. The other defendants also confessed and also earned relatively light sentences, said the report.