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| China Fines GlaxoSmithKline Nearly $500 Million in Bribery Case | China Fines GlaxoSmithKline Nearly $500 Million in Bribery Case |
| (35 minutes later) | |
| 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. | 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. |
| After a one-day trial held in secrecy, the court, the Changsha Intermediate People’s Court, also sentenced Glaxo’s British former country manager, Mark Reilly, and four other managers who worked for the company to prison for up to four years. All but one of the sentences was suspended, allowing the defendants to avoid incarceration if they stay out of trouble, according to Xinhua, the official news agency. The verdict indicated that Mr. Reilly could be promptly deported. | After a one-day trial held in secrecy, the court, the Changsha Intermediate People’s Court, also sentenced Glaxo’s British former country manager, Mark Reilly, and four other managers who worked for the company to prison for up to four years. All but one of the sentences was suspended, allowing the defendants to avoid incarceration if they stay out of trouble, according to Xinhua, the official news agency. The verdict indicated that Mr. Reilly could be promptly deported. |
| The report said they pleaded guilty and would not appeal. Glaxo said in a statement that it “fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities.” | The report said they pleaded guilty and would not appeal. Glaxo said in a statement that it “fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities.” |
| The scale of the $487 million fine dwarfs previous criminal 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. | The scale of the $487 million fine dwarfs previous criminal 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. |
| 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. | 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. |
| “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. | “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 case underlined the dangers for multinationals as they have continued to do business in a country where corruption has been 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. No other multinationals, however, have faced the same massive bribery charges and criminal trial as Glaxo. | The case underlined the dangers for multinationals as they have continued to do business in a country where corruption has been 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. No other multinationals, however, have faced the same massive bribery charges and criminal trial as Glaxo. |
| “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.” | “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.” |
| Beijing officials have gone out of their way in the past two weeks to deny complaints by foreign business groups and governments that China’s 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. | Beijing officials have gone out of their way in the past two weeks to deny complaints by foreign business groups and governments that China’s 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 case showed that “an open China is not a lawless one,” said Xinhua, in a commentary. “This case has set a benchmark for sales practices in the medical and pharmaceutical sector.” | The case showed that “an open China is not a lawless one,” said Xinhua, in a commentary. “This case has set a benchmark for sales practices in the medical and pharmaceutical sector.” |
| 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. | 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. | 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 of 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 of 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 names of the other defendants are Liang Hong and Huang Hong. | The names of the other defendants are Liang Hong and Huang Hong. |
| 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 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 British Embassy in Beijing said that while an appeal remained possible it would have no comment on the outcome of the trial. | 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.” | “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. | A spokesman said the embassy had no information on the possible deportation of Mr. Reilly. |
| 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 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 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. | 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. |
| Glaxo appeared to distance itself from Mr. Humphrey in its statement on Friday evening, saying that, “GSK plc also apologises for the harm caused to individuals who were illegally investigated by” one of its subsidiaries in China. | Glaxo appeared to distance itself from Mr. Humphrey in its statement on Friday evening, saying that, “GSK plc also apologises for the harm caused to individuals who were illegally investigated by” one of its subsidiaries in China. |
| In August, a British investigator and his American wife, were sentenced to prison terms by a Chinese court after they were hired by Glaxo to look into whether a former company employee was passing information about suspected fraud at the company to Chinese authorities. | In August, a British investigator and his American wife, were sentenced to prison terms by a Chinese court after they were hired by Glaxo to look into whether a former company employee was passing information about suspected fraud at the company to Chinese authorities. |
| According to people familiar with that case, the former employee was targeting Mr. Reilly. | According to people familiar with that case, the former employee was targeting Mr. Reilly. |
| The investigators, Peter Humphrey and his wife, a Chinese born American citizen, Yu Yingzeng, were given two and a half years and two year sentences, respectively. The court said Mr. Humphrey would be deported after he served his term. | The investigators, Peter Humphrey and his wife, a Chinese born American citizen, Yu Yingzeng, were given two and a half years and two year sentences, respectively. The court said Mr. Humphrey would be deported after he served his term. |
| Glaxo hired the couple in spring 2013, to look into whether a former employee had sent the company emails and a sex video of Mr. Reilly recorded without his knowledge or consent, according to people who were briefed on the situation and spoke on the condition of anonymity. The video was recorded with a camera inside his Shanghai apartment bedroom. | |
| Mr. Humphrey’s firm, ChinaWhys, which specialized in due diligence work, completed an inconclusive preliminary report on the sex video of Mr. Reilly by June 2013, and suggested continuing the probe. In July 2013, the couple was detained and they were formally arrested a month later, accused of illegally obtaining private information for their company, ChinaWhys. | |
| The family of Mr. Humphrey said that his arrest and of his wife, were almost certainly linked to the Glaxo investigation. They added that Glaxo had not told Mr. Humphrey the full details and accusations of the suspected whistle blower. | The family of Mr. Humphrey said that his arrest and of his wife, were almost certainly linked to the Glaxo investigation. They added that Glaxo had not told Mr. Humphrey the full details and accusations of the suspected whistle blower. |
| According to Xinhua, the Chinese court’s statement said that Glaxo, "bribed, in various forms, people working in medical institutions across the country, and the amount of money involved was huge. Five senior executives actively organized, pushed forward and implemented sales with bribery.” | |
| According to Xinhua, the court accepted the prosecutors’ case that from 2009, Mr. Reilly pushed an aggressive drugs sales strategy in China, together with the other four defendants, and their techniques evolved into a “sales-through-bribery model.” | |
| Those techniques included lavish rewards for doctors and hospital managers who attended ostensibly academic conferences. The company also paid off its potential buyers by paying for their outings and tours, as well as giving fees for lectures. The report said the case against Glaxo emerged when the police in Shanghai began scrutinizing an obscure travel agency that had been doing booming business. The investigators found that much of that business came from Glaxo and other multinational drugs corporations. | |